On May 8, the U.S. District Court for the Southern District of New York dismissed claims for damages and civil penalties under the False Claims Act (FCA) brought by the federal government against a mortgage lender alleged to have sold defective loans to Freddie Mac and Fannie Mae while representing that the loans complied with the enterprises’ requirements. U.S. v. Countrywide Fin. Corp., No. 12-1422, Order (S.D.N.Y. May 8, 2013). The government also claims that (i) the lender’s senior management ignored warnings about the supposedly high levels of fraud and defects, (ii) the lender attempted to conceal internal quality control reports indicating that the loans had high material defect rates, and misleadingly informed Fannie Mae and Freddie Mac that it had tightened its underwriting guidelines, and (iii) the lender resisted buying many of the loans back after the loans defaulted. Notably, the court did not dismiss the government’s claims under FIRREA, which has a longer statute of limitations and lower burden of proof than the FCA. The court expects to release a written opinion in the near future.

On May 7, the U.S. Court of Appeals for the Second Circuit granted two petitions seeking interlocutory appeal of key questions related to pending mortgage backed securities (MBS) cases. Retirement Board of the Policemen’s Annuity and Benefit Fund of the City of Chicago v. The Bank of New York Mellon, Nos. 13-00661, 00664 (2nd Cir. May 7, 2013). Taking the two appeals in tandem, the court will address (i) a group of pension funds’ question of whether a named plaintiff purchasing a certificate issued by one MBS trust has standing to represent a class which includes purchasers of certificates issued by trusts from which that plaintiff did not purchase, where the action is against a common trustee and involves repurchase rights for purportedly defective loans issued by a common originator, and (ii) an MBS trustee’s question as to whether certificates evidencing beneficial ownership interests in trusts holding multiple mortgage loans are subject to the Trust Indenture Act.

On May 2, Maryland enacted SB 199, which authorizes a mortgagor to refinance the full balance of a loan secured by a first mortgage or deed of trust without the permission of the holder of a junior lien if (i) the principal amount secured by the junior lien does not exceed $150,000, and (ii) the principal amount secured by the refinance mortgage does not exceed the unpaid outstanding principal balance of the first mortgage or deed of trust plus closing costs up to $5,000. In short, under these conditions, the bill grants, on recordation, the same lien priority to the refinance mortgage as the replaced first mortgage or deed of trust. Under current law, when a first mortgage is refinanced, the holder of an existing junior mortgage is asked to agree to subordinate so that the first loan holder preserves priority, and the second lienholder can block the homeowner’s ability to refinance the first mortgage. Even where the junior mortgage holder agrees, the process can take can take more than a month and may require the borrower to pay subordination and rate-lock fees. The bill takes effect on October 1, 2013 and applies to refinance transactions after that date.

On May 7, Indiana enacted SB 279 to (i) eliminate a provision in current law that binds certain omitted parties (i.e., parties who have an interest in the property subject to a mortgage foreclosure action, but are not named in the foreclosure action) by the court’s judgment in a foreclosure action as if they had been parties to the foreclosure action, and (ii) limit the post-sale redemption rights of certain omitted parties. The changes become effective July 1, 2013.

On May 6, New York Attorney General Eric Schneiderman announced his intent to sue two of the five mortgage servicers that entered the National Mortgage Settlement with 49 state attorneys general, the U.S. Department of Justice, and certain federal agencies, alleging numerous violations of the servicing standards established by that agreement. Based on complaints received from borrowers, Mr. Schneiderman alleged that the two companies violated agreed-to loan modification timeline requirements established in the National Mortgage Settlement, including failure to provide acknowledgment of receipt of documentation from a borrower, failure to notify the borrower of missing documentation, and failure to provide a decision on the modification request within 30 days of receiving a complete application. Procedurally, under the National Mortgage Settlement, an individual party such as the New York Attorney General must provide notice of intent to bring an enforcement action for noncompliance to the Monitoring Committee, which has 21 days to determine whether to pursue action on behalf of all the parties to the National Mortgage Settlement. At the conclusion of the 21-day waiting period, if the Monitoring Committee decides not to move forward, the New York Attorney General, and other individual attorneys general, may separately pursue the action.

On May 7, the CFPB proposed to temporarily delay the effective date of one aspect of its loan originator compensation rule. Under the final rule, effective June 1, 2013, creditors would be prohibited from financing premiums or fees for certain credit insurance products offered in connection with certain mortgage loan transactions. The CFPB proposes to temporarily delay the relevant provision so that the Bureau can clarify its application to transactions other than those in which a lump-sum premium is added to the loan amount at closing. The CFPB plans to publish a new proposal to seek further notice and comment about whether, and under what circumstances, premiums for certain credit insurance products can be charged on a periodic basis in connection with a covered consumer credit transaction

On May 6, the FHFA announced that Fannie Mae and Freddie Mac must limit their future mortgage acquisitions to loans that meet the requirements for qualified mortgages under the CFPB’s January 2013 ability-to-repay/qualified mortgage rule (ATR/QM rule), including special or temporary qualified mortgage requirements, and loans that are exempt from the “ability-to-repay” requirements. After the ATR/QM rule takes effect on January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan subject to the ability-to-repay requirements if the loan (i) is not fully amortizing, (ii) has a term of longer than 30 years, or (iii) includes points and fees in excess of 3% of the total loan amount, or such other limits for low balance loans as set forth in the rule. The announcement, together with announcements made by Fannie Mae and Freddie Mac, confirms that the enterprises will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides, including those that are processed through their automated underwriting systems.

On May 2, the CFPB published three additional guides to assist companies seeking to comply with its HOEPA rule, ECOA valuations rule, and TILA high-priced mortgage appraisal rule. As with other prior guides it has released, the CFPB cautions that the guides are not a substitute for the rules and the Official Interpretations, and that the guides do not consider other federal or state laws that may apply to the origination of mortgage loans. BuckleySandler also has prepared detailed analyses of these and other CFPB mortgage rules.

On May 1, the CFPB’s Office of Servicemember Affairs published its Semi-Annual Complaint Report, which states that the volume of complaints from servicemembers, veterans, and their families has steadily increased since the CFPB first started accepting complaints in July 2011. The report provides limited summary information about the complaints, noting that mortgage complaints predominate, followed by credit card and credit reporting complaints. In a related blog post, the CFPB states that it has received more than 5,000 servicemember complaints to date, and calls again for additional questions or complaints from the entire military community.

On April 29, the U.S. District Court for the Central District of California refused to certify a class seeking to challenge a mortgage servicer’s loan modification practices. Campusano v. BAC Home Loans Servicing, LP, No. 11-4609, slip op. (C.D. Cal. Apr. 29, 2013). The named borrowers allege that their mortgage servicer breached agreements to modify mortgage loans by failing to timely implement the terms of the modification agreements and claim that the servicer’s failures are pervasive and appropriate for class treatment. The court held that the class lacked commonality and typicality because the borrowers failed to demonstrate that their modification agreements were the only ones used by the servicer and that all such agreements contained identical provisions pertaining to effective dates and other material terms. The court also held that the borrowers failed to demonstrate that (i) differences in contract would be immaterial to the question of whether acceptance of a first payment binds the servicer to the agreement regardless of other contract deficiencies and (ii) the borrowers suffered harm as a result of the servicer’s quality control, validation, and repudiation procedures. The court denied the borrowers’ motion for class certification.

On May 1, President Obama announced the nomination of Representative Mel Watt (D-NC) to serve as Director of the FHFA. Mr. Watt has represented portions of Charlotte and other North Carolina communities since 1993 and currently is a member of the House Committees on Financial Services and Judiciary. He would replace FHFA Acting Director Edward DeMarco, who federal and state Democratic policymakers and housing groups have called on to be replaced, in part based on his decision to not direct Fannie Mae and Freddie Mac to engage in broad principal reduction programs. On the same day as the President’s announcement, the Congressional Budget Office released a report that examined three options for Fannie Mae and Freddie Mac to use principal forgiveness, which the CBO finds would be likely to (i) result in small savings to the government, (ii) slightly reduce mortgage foreclosure and delinquency rates, and (iii) slightly boost overall economic growth.

On April 30, the FHFA published a progress report on the current design principles and functions on the common securitization platform for residential mortgage-backed securities that it is building. The report explains that Fannie Mae, Freddie Mac, and the FHFA are working to (i) establish an initial ownership and governance structure, (ii) design dedicated resources and establish an independent location site for the platform team, (iii) develop the design, scope and functional requirements for the platform’s modules and develop the initial business operational process model, (iv) develop a multi-year plan for building, testing and deployment of the system, and (v) develop and begin testing the platform. The report also reviews the status of the alignment of Fannie Mae’s and Freddie Mac’s securitization contracts and standards, including ongoing efforts to align (i) solicitation of borrower refinances of loans in a pool, (ii) repurchases and substitutions of loans from a pool, (iii) representations and warranties, and (iv) pooling practices. According to the report, the FHFA also will continue to (i) identify and develop standards in data, disclosure and seller/servicer contracts, (ii) develop and execute work plans for alignment activities with regard to common standards and creation of legal/contractual documents to facilitate varied credit risk transfer transactions, and (iii) engage with the public in a variety of forums to seek feedback and incorporate revisions and support FHFA progress reports to the public. The report also discusses efforts to respond to concerns about non-guaranteed residential mortgage-backed securities.

On April 30, Fannie Mae released loan performance data on a portion of its single-family mortgage loans, which includes a subset of Fannie Mae’s 30-year, fully amortizing, full documentation, single-family, conventional fixed-rate mortgages. The initial population is comprised of loans acquired between January 1, 2000 and March 31, 2012 with corresponding monthly performance data as of December 31, 2012. The loan performance data is divided into two files for each acquisition quarter: (i) the “Acquisition file” includes static data at the time of a mortgage loan’s origination and delivery to Fannie Mae; and (ii) the “Performance” file contains monthly performance data of each mortgage loan from the time of Fannie Mae’s acquisition up until its current status as of the previous quarter, until the mortgage loan has been liquidated, or until it has become 180 days or more delinquent. Fannie Mae expects to update the acquisitions data each quarter to include a new quarter of acquired mortgage loans as of the prior year in addition to updated performance data as of the previous quarter. Certain data attributes also will be updated to reflect new terms, if applicable, as a result of a modification.

On May 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-10, which includes numerous servicing policy changes. The announcement informs servicers that they must (i) conduct regular testing of compliance with applicable laws in all jurisdictions in which they service mortgage loans for Fannie Mae, (ii) provide test results to senior management and, upon request, to Fannie Mae, and (iii) maintain evidence of any corrective actions. For eMortgages, the Announcement explains that servicers must obtain special approval to service such mortgages by contacting their Servicing Consultant, Portfolio Manager, or Fannie Mae’s National Servicing Organization’s Servicing Solutions Center. The Announcement also (i) provides new requirements for repayments of escrow deficits and shortages for all conventional loan modifications, (ii) requires servicers to obtain the results of property valuation order requests for the purposes of bidding instructions through HomeSaver Solutions® Network within 7 to 10 calendar days from the date the servicer submits the request, (iii) clarifies delinquency management and default prevention policies outlined in SVC-2012-18, (iv) removes Guide language regarding temporary possession of mortgage notes, and (v) incorporates a recent change to Moody’s rating system.