On August 25, FHFA announced that the GSEs will implement a new refinancing offering for borrowers having high LTVs who meet certain criteria. The new offering contains a number of similarities to the Home Affordable Refinance Program (HARP), including not subjecting eligible borrowers to a minimum credit score, not establishing a maximum debt-to-income ratio or maximum LTV, and often not requiring an appraisal. Dissimilarities from HARP include not imposing eligibility cut-off dates and allowing borrowers to use the offering more than once to refinance their mortgage. Borrowers will not have access to the new offering until October 2017. As such, the FHFA directed the GSEs to extend HARP through September 30, 2017, ensuring that “high LTV borrowers who are eligible for HARP will not be without a refinance option while the new refinance offering is being implemented.”
On August 23, Fannie Mae and Freddie Mac (GSEs) published a redesigned Uniform Residential Loan Application (URLA), the first substantial update to the standardized form used by borrowers applying for a residential loan in more than 20 years. The GSEs also released a redesigned Uniform Loan Application Dataset (ULAD) Mapping Document, used to “ensure consistency of data delivery.” The GSEs revised the URLA and ULAD by (i) redesigning the format to support better efficiency and more accurate data collection; (ii) including new and updated fields intended to “[c]apture loan application details that reflect today’s mortgage lending business and support both the GSEs’ and government requirements”; (iii) simplifying instructions; and (iv) incorporating revised HMDA demographic questions. The GSEs released FAQs about the redesigned URLA and ULAD, which will be available for lender use beginning January 1, 2018. Among other things, the FAQs note that (i) the GSEs will continue to support the URLA in paper form; and (ii) updates to the published documents may be required as a result of the CFPB’s review of the redesigned URLA in connection with the Regulation B safe harbor.
New York Supreme Court Appellate Division Affirms Six-Year Statute of Limitations Applicable to Breach of Contract Action
On August 11, the Appellate Division of the New York Supreme Court First Department affirmed a trial court’s decision that the statute of limitations bars a breach of contract action brought more than six years after the seller (defendant) of mortgage loans made allegedly false representations and warranties to the purchaser (plaintiff) regarding the characteristics, quality, and risk profile of the loans. Deutsche Bank Nat’l Trust Co. v. Flagstar Capital Mkts. Corp., 2016 NY Slip Op. 05780 (N.Y. App. Div. Aug. 11, 2016). In this case, the plaintiff purchased loans from defendant with closing dates between December 7, 2006 and May 31, 2007. Through various assignments, the loan pool was conveyed to a Trust, of which the plaintiff was a trustee, securitized, and sold to investor certificateholders on October 2, 2007. In 2013, at the request of one of the certificateholders, an underwriting firm performed a forensic review of the loans underlying some of the certificates and found that “a large number of the loans breached representations and warranties made by defendant regarding the quality and characteristics of the loans.” Although the defendant was notified of the breaches, it failed to comply with the repurchase protocol set forth in the agreement between the seller and purchaser.
The plaintiff commenced action against the defendant on August 30, 2013, subsequently filing a complaint on February 3, 2014 “seeking specific performance, damages and/or rescission, and asserting a cause of action for breach of contract and a cause of action for breach of the implied covenant of good faith and fair lending.” The defendant moved to dismiss the case on the ground that the action was time barred, since it began more than six years after the plaintiff’s accrual date of the loans. The trial court ruled in favor of the defendant, reasoning that in the Court of Appeal’s recent decision in ACE, it “held that a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations and warranties were made.” ACE Sec. Corp. v DB Structured Products, Inc., 36 N.E.3d 623 (N.Y. June 11, 2015). The Appellate Division affirmed, holding that “New York’s statutes of limitation codify the public policies of ’finality, certainty and predictability that [our] contract law endorses’ (ACE, 25 NY3d at 593). The parties’ accrual provision runs afoul of these important policies.”
On August 12, the Ninth Circuit vacated a district court’s summary judgment and held that Nevada Revised Statutes section 116.3116 et seq. (the Statute) violates the Fourteenth Amendment’s Due Process Clause. Bourne Valley Court Trust v. Wells Fargo Bank, No. 15-15233, (9th Cir. Aug. 12, 2016). In a 2-1 decision, the Ninth Circuit held that the Statute’s “opt-in notice scheme” unconstitutionally degraded the mortgage lender’s interest in the property because it required an HOA to alert a mortgage lender of its intention to foreclose only if the lender had affirmatively requested notice.
On August 11, the Appellate Division of the New York Supreme Court First Department reversed a trial court’s decision and held that the trustee plaintiff’s allegations against a financial institution were sufficient to support breach of contract and negligence claims arising from the securitization and sale of residential mortgages. Morgan Stanley Mortg. Loan Trust 2006-13ARX v. Morgan Stanley Mortg. Capital, 2016 NY Slip Op. 05781 (N.Y. App. Div. Aug. 11, 2016). According to the plaintiff, the defendant’s alleged breach of its contractual duty to notify the trustee of defective loans resulted in the sale of “virtually worthless” residential mortgage-backed securities (RMBS) to outside investors. The plaintiff further alleged that the defendant failed to “adhere to the barest minimum of underwriting standards,” claiming that many of loans had incorrect and/or unsatisfactory debt-to-income ratios and that the defendant represented the loans to appear less risky than they actually were. In reversing the lower court’s ruling that the “complaint did not contain facts to sufficiently support” an independent, separate claim for breach of contract, the court cited its recent decision in Nomura Asset Acceptance Corp. Alternative Loan Trust v. Nomura Credit & Capital, Inc., stating that “under similar RMBS agreements, a seller’s failure to provide a trustee with notice of material breaches it discovers in the underlying loans states an independently breached contractual obligation, allowing a plaintiff to pursue separate damages” (internal citation omitted).