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 15, Freddie Mac issued Bulletin Number 2013-8, which includes numerous revisions to requirements for sellers and servicers. According to the Bulletin, beginning January 1, 2014, a seller/servicer will be charged a $7,500 low activity fee if the seller/servicer does not either (i) sell mortgages to Freddie Mac with an aggregate unpaid principal balance greater than $5 million during the immediately preceding calendar year, or (ii) service, or act as a servicing agent for, mortgages for Freddie Mac with an aggregate unpaid principal balance of at least $25 million as of December 31 of the immediately preceding calendar year. In addition, the Bulletin, among other things: (i) requires seller/servicers to comply with the deadlines specified by Freddie Mac when it requests cooperation in a fraud investigation; (ii) notifies sellers and reminds servicers that seller/servicers must direct mortgage insurers providing coverage on mortgages sold to and/or serviced for Freddie Mac to release data to Freddie Mac at Freddie Mac’s request; (iii) updates and revises requirements for Living Trusts and announces that mortgages secured by properties in which the legal and equitable title is held by a land trust will no longer be eligible for purchase under the Guide, unless certain conditions are met; and (iv) prohibits sellers that have guarantor master commitments from taking out fixed-rate cash contracts for the sale of super conforming mortgages.
On April 15, Freddie Mac issued Bulletin Number 2013-6, which announces numerous revisions to servicing requirements. The bulletin updates the allowable amounts for attorney fees for default-related legal services and details changes to the reimbursement process for such fees. Freddie Mac also reminds servicers about changes to foreclosure sale bidding on first lien mortgages. The bulletin explains that because Freddie Mac may need to verify directly with mortgage insurers the presence and nature of mortgage insurance coverage, servicers and sellers are required to direct mortgage insurers in writing to release data to Freddie Mac upon request. In addition, the bulletin (i) reminds servicers of the reporting activities they must undertake after extending trial periods for borrowers who subsequently file for bankruptcy during the trial period plan and provides requirements on reporting the optional interim month, (ii) revises Servicing Success Program requirements related to Servicer Success File Reviews and the Servicer Performance Profile, (iii) updates the Guide to reflect the retirement of the Freddie Mac Home Affordable Foreclosure Alternatives initiative, and (iv) announces other miscellaneous form and Guide updates.
On April 11, the FHFA announced that Fannie Mae and Freddie Mac will extend the Home Affordable Refinance Program (HARP) to December 31, 2015. The program was set to expire at the end of 2013. In addition, the FHFA plans to launch a nationwide campaign to educate consumers about HARP. The FHFA announcement also includes HARP frequently-asked-questions and eligibility criteria for a HARP refinance.
On March 26, the FHFA Office of Inspector General (OIG) issued a report that concludes the FHFA has failed to actively oversee how Fannie Mae and Freddie Mac monitor counterparty compliance with federal and state consumer protection laws. The OIG review found that the FHFA is vulnerable to questions about why it does not have a strategy to monitor the Enterprises’ activities to assess whether they are aligned with the public interest as reflected in federal and state laws and regulations, and that the Enterprises’ failure to pursue seller repurchase demands related to mortgages in default with no material underwriting deficiencies—but that were originated in violation of consumer protection laws—may result in losses to the Enterprises that could be avoided or mitigated. The OIG concludes that given the FHFA’s duty under HERA to ensure that the activities of the Enterprises are consistent with the public interest, the FHFA should develop and implement a risk-based plan to monitor the Enterprises’ oversight of their counterparties’ compliance with contractual requirements, including consumer protection laws. According to the report, the FHFA has begun to put together a plan to address this oversight role.
On March 26, Fannie Mae and Freddie Mac reminded lenders of the importance of data accuracy to improve the overall quality of loan delivery data submitted to each entity and ensure that it is complete and fully reflective of the terms of the mortgage. The announcement clarifies information about certain data points and provides examples for lenders.
On March 27, the FHFA announced that Fannie Mae and Freddie Mac will begin a new loan modification initiative on July 1, 2013. As described in more detail in Fannie Mae Servicing Guide Announcement SVC-2013-05 and Freddie Mac Bulletin Number 2013-5, servicers will be required to offer eligible borrowers who are at least 90 days delinquent on their mortgage a way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. Eligible borrowers will need to demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified. Borrowers will still have the option to document income and financial hardship, which could result in a modification with additional savings. The program will expire on August 1, 2015.
On March 26, the FHFA released a notice seeking comment on certain restrictions it expects Fannie Mae and Freddie Mac (the Enterprises) will put in place with regard to lender placed insurance practices. The FHFA anticipates that the Enterprises will (i) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers; and (ii) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer. The final restrictions will be issued by the Enterprises as aligned guidance to sellers and servicers four months after the close of the comment period, which will run for 60 days from the date of publication of the notice in the Federal Register. Pursuant to that timeline, a final policy could be expected in late September or early October.
On March 21, Freddie Mac released historical loan-level credit performance data on a portion of the fully amortizing 30-year, fixed-rate single-family mortgages it purchased during the past 13 years. The data-set is comprised of 35 loan-level data elements, including credit score, loan purpose, actual unpaid principal balances, and repurchase flag, and covers delinquencies of up to and including 180-days. Specific performance information in the dataset includes voluntary prepayments, repurchases and loan modifications, and loans that were short sales, deeds-in-lieu of foreclosure, third party sales, and REOs. Further, the release includes publication of the (i) name of the seller that delivered each loan at the time Freddie Mac purchased or securitized the loan, and (ii) the name of the servicer as of the earlier loan termination or the active servicer as of June 2012. Freddie Mac plans to update the data each quarter and may in the future include more recent productions, other mortgage product types, and additional data elements.
On March 14, Freddie Mac sued 15 banks and the British Bankers’ Association (BBA), claiming that the institutions manipulated the London Interbank Offered Rate (LIBOR) and caused substantial losses to Freddie Mac on investment activities tied to LIBOR. Fed. Home Loan Mortg. Corp. v. Bank of Am. Corp., No. 13-342 (E.D. Va. filed Mar. 14, 2013). LIBOR is a global benchmark rate used in financial products and transactions, and during the time period covered by the complaint it was set using data from the banks, under the auspices of the BBA. Freddie Mac alleges that the banks deliberately suppressed the rate to hide their financial condition and boost profits, while the BBA participated in the rate fixing to protect revenue generated by selling LIBOR licenses. As a result, Freddie Mac claims it suffered losses on pay-fixed, receive-floating interest rate swap transactions indexed to LIBOR, and mortgage-backed securities in which coupon payments or the underlying collateral were indexed to LIBOR. The mortgage financing enterprise, which currently is in U.S. government conservatorship, alleges that the banks engaged in fraud, breached their contracts with Freddie Mac, and violated antitrust laws. Freddie Mac seeks full damages for all economic, monetary, actual, consequential, and compensatory damages, treble damages under the Sherman Act, and punitive damages. Some of the banks already have settled civil and criminal enforcement actions by U.S. and foreign authorities, and the institutions face other private claims related to the alleged LIBOR conduct.
Today, the FHFA Office of Inspector General (OIG) issued a report on servicers’ handling of borrower complaints, following an audit to assess FHFA’s oversight of Freddie Mac’s controls over servicers’ handling of escalated cases. Under the Servicing Alignment Initiative (SAI), servicers are required to track the escalated cases they receive – specifically defined to include any of five categories of complaints – and resolve those cases within 30 days. In addition, Freddie Mac’s Servicing Guide requires servicers to report monthly on escalated cases status, including when received and how resolved. According to the report, the audit revealed that (i) most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases, (ii) Freddie Mac’s oversight of servicer compliance has been inadequate, and (iii) the FHFA did not identify the foregoing problems through its own examination of Freddie Mac’s implementation of the SAI. In response, the OIG recommends that FHFA (i) ensure that Freddie Mac requires its servicers to report, timely resolve, and accurately categorize escalated cases, (ii) ensure that Freddie Mac enhances its oversight of its servicers through testing servicer performance and establishing fines for noncompliance, and (iii) improve its oversight of Freddie Mac by developing and implementing examination guidance related to testing the implementation of directives. Following receipt of the report, House Oversight Committee Ranking Member Cummings (D-MD) called for a hearing on borrower complaint handling by servicers.
On March 4, FHFA Acting Director Edward DeMarco sketched out the FHFA’s plans for Fannie Mae and Freddie Mac (the Enterprises) in 2013. These measures implement the Strategic Plan issued in February 2012 that identified three goals for the Enterprises: (i) build a new infrastructure for the secondary market, (ii) contract the Enterprises’ presence in the secondary market, and (iii) maintain foreclosure prevention activities. In 2013, the FHFA expects to support its first goal by creating an independent business entity that will serve as a securitizing platform. To continue contracting the Enterprises’ presence, the FHFA (i) has asked each Enterprise to conduct risk sharing transactions to meet a target of $30 billion of unpaid principal balance in credit risk sharing transactions, (ii) plans to continue increasing guarantee fees, (iii) aims to reduce multifamily business volume by 10 percent, and (iv) plans to sell five percent of the less liquid portion of the enterprises retained portfolios. Finally, on foreclosure prevention, the FHFA expects to (i) enhance the post-delivery quality control practices and transparency associated with the new representation and warranty framework, and (ii) work to complete representation and warranty demands for pre-conservatorship loan activity. In addition to making strides on the three prongs of its Strategic Plan, the FHFA plans to (i) update master policies and formulate eligibility standards for mortgage insurance, and (ii) develop a set of aligned standards for force placed insurance.
On February 26, New York Governor Andrew Cuomo announced that Fannie Mae, through Lender Letter LL-2013-03, and Freddie Mac, through Bulletin 2013-4, implemented new rules to accelerate the release of insurance proceeds to homeowners affected by Hurricane Sandy by reducing restrictions on how banks and mortgage servicers may release insurance money. Effective immediately, for borrowers who were current on their payments before Sandy and have less than 80 percent damage to their homes, Fannie Mae and Freddie Mac servicers have broad discretion to disburse insurance proceeds. The New York Department of Financial Services urged banks and mortgage servicers to immediately adjust their policies and begin using the new discretion to release insurance funds to covered borrowers.
On February 15, Freddie Mac issued Bulletin 2013-3, which provides a series of updates and revisions to its loss mitigation policies. The Bulletin reminds servicers of their obligations with regard to various transfers of property even where the only remaining borrower is a trust, and provides additional details about these obligations. Following Fannie Mae’s announcement last week, Freddie Mac similarly revised certain state foreclosure timelines and policies regarding compensatory fee calculations and reimbursement for property inspections. Effective for mortgages that become delinquent as of June 1, 2013, Freddie Mac will no longer provide a list of states in which servicers are required to preserve Freddie Mac’s right to pursue a deficiency. Instead, in all instances where additional attorney fees/costs will not be incurred above the approved expense limits, servicers must preserve Freddie Mac’s right to pursue a deficiency so that Freddie Mac may decide on a case-by-case basis whether to pursue the deficiency. The Bulletin also notifies servicers that Freddie Mac is eliminating a requirement announced in Bulletin 2012-17 that, for servicers participating in state modification programs, the modification include partial principal forbearance. Finally, the Bulletin also (i) revises Guide Form 710, Uniform Borrower Assistance Form, and medical hardship documentation requirement; (ii) revises requirements related to the verification of alimony, child support and separate maintenance income; (iii) expands the Freddie Mac Service Loans application process to enable servicers to obtain a property value and minimum net proceeds for borrowers being considered for a standard short sales and are less than 31 days delinquent; and (iv) updates the Guide to reflect that the Home Affordable Foreclosure Alternatives initiative is no longer an option in the loss mitigation evaluation hierarchy.
On February 7, 45 Democratic Members of the House of Representatives sent a letter to President Obama requesting he nominate a permanent director for the FHFA to replace Acting Director Edward DeMarco. The Members object to the FHFA’s decision not to direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers. The FHFA and Mr. DeMarco believe that principal forgiveness does not improve foreclosure avoidance while reducing costs to taxpayers relative to existing policies. In their letter, the Members argue that the FHFA’s decision under Mr. DeMarco is contrary to the intent of the federal law that created the FHFA as conservator. Further, the Members charge that Mr. DeMarco’s stated reasoning has been contradicted by the FHFA’s own data, which indicates that principal reduction loan modifications could save U.S. taxpayers billions of dollars compared to both allowing underwater homes to go into foreclosure, and the FHFA’s preferred alternative of principal forbearance. In support of their position that a new director is needed to properly implement congressional directives meant to support the housing market, the Members also cite (i) the FHFA’s decision not to allow the implementation of a principle forgiveness pilot program, and (ii) recently proposed increased state-level guarantee fees charged by Fannie Mae and Freddie Mac in certain states.