On June 25, the FHFA announced that it is taking new steps to expand the reach of HARP. As part of that effort, FHFA Director Mel Watt will participate in a series of town hall-style events to discuss the benefits of HARP and encourage eligible borrowers to participate in the program. The FHFA also launched an interactive online map that provides the number of estimated borrowers eligible for HARP in every zip code, county, and metropolitan statistical area in the country.
On May 8, FHFA Director Mel Watt spoke at the 22nd Annual Economic Summit, focusing on the agency’s conservatorship activities with Fannie Mae and Freddie Mac (GSEs). Most significantly, Director Watt announced that the agency is extending the GSEs’ participation in HAMP and HARP until the end of 2016. Since their 2009 inception, the two programs have relieved many borrowers of high monthly payments. HARP, allowing borrowers who regularly make their mortgage payments to refinance their loans and take advantage of low income rates, and HAMP, providing significant payment reductions tied to borrowers’ income, have prevented a number of foreclosures. Since HARP and HAMP were never intended to be permanent programs, this will be FHFA’s final extension of the GSEs’ participation. Looking forward, the agency plans to “consider how best to build on the lessons of HAMP for 2017 and beyond,” exploring possible streamlined modifications and refinance solutions for borrowers.
On January 22, Michael Stegman, Treasury Department Counselor for Housing Finance Policy stated in remarks to an industry conference that the Treasury Department opposes expansion of the Home Affordable Refinance Program (HARP) to include loans originated after the current May 31, 2009 cut-off date. Treasury believes that few loans originated after that date are underwater, and that expanding the eligibility date would only prolong market and investor uncertainties. Treasury also does not support efforts by some local jurisdictions to employ eminent domain to seize and restructure underwater mortgages, stating that the administration instead supports legislation to increase refinancing opportunities. Dr. Stegman also discussed housing finance reform generally—he expressed support for the ongoing Senate efforts to reform Fannie Mae and Freddie Mac, and indicated that the Treasury Department plans to facilitate reform of the private label securities sector by holding “a series of conversations with relevant regulators, market participants, and other stakeholders.”
On September 23, the FHFA launched a nationwide campaign to educate borrowers about HARP. The FHFA explains that the campaign is designed to encourage homeowners who have been making their mortgage payments, but who owe more than their home is worth, to contact their current lender or any other mortgage lender offering HARP refinances to review their refinancing options. As part of this campaign, FHFA has launched a new website and is working with mortgage companies across the U.S. to help reach homeowners who may qualify.
On May 30, the FHFA announced that Fannie Mae and Freddie Mac will extend the Home Affordable Modification Program (HAMP) through December 31, 2015. Concurrently, the Treasury Department and HUD announced an extension of the HAMP deadline for non-Fannie Mae and Freddie Mac loans to harmonize with the FHFA extension. The programs were set to expire at the end of 2013. In addition, the FHFA extended from August 2015 through the end of 2015 its streamlined modification initiative.
On May 1, the Supreme Court of the State of New York, Appellate Division, overturned a lower court’s order requiring a lender to modify a borrower’s loan agreement under the terms employed in the trial period as the penalty for failing to negotiate with the borrower in good faith during the required settlement conference. Wells Fargo Bank, N.A. v. Meyers, No. 34632/09, 2013 WL 1811781 (N.Y. Sup. Ct. App. Div. May 1, 2013). On appeal, the appellate court held that the HAMP trial agreement is not a proper agreement regarding the real property and cannot be enforced as an agreement. Moreover, the appellate court held that a court may not rewrite a contract that the parties freely entered into upon a finding that one of those parties failed to satisfy its obligation to negotiate in good faith during the settlement conference. Further, the court held that because the lender was not given notice that the trial court was considering such a remedy, the sanction violated the lender’s due process rights. The appellate court overturned the trial court’s order and remanded the case for further proceedings.
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 November 9, Fannie Mae and Freddie Mac announced that effective immediately servicers can suspend for 90 days evictions and foreclosures involving borrowers affected by Hurricane Sandy in order to assess the borrowers’ situations. In addition, next week Fannie Mae and Freddie Mac will issue guidance to servicers to expand the options they can offer to homeowners impacted by the hurricane. Under the new Fannie Mae guidance, servicers will be authorized to (i) extend forbearance for up to 12 months, where appropriate, (ii) provide loan modifications, once the homeowner is able to resume monthly mortgage payments, (iii) waive any late payment charges, (iv) suspend credit reporting for any homeowner for whom relief is granted, and (v) delay the initiation of any foreclosure action to determine the condition of the property and the borrower’s employment and income status. Freddie Mac’s policy changes will authorize servicers to (i) automatically suspend for 90 days evictions and foreclosure sales for borrowers with homes secured by Freddie Mac owned-or guaranteed mortgages and located in eligible disaster areas, (ii) verbally grant 90-day forbearances to all borrowers in eligible disaster areas, including borrowers with mortgages modified under HAMP or who are currently in a HAMP or Standard Modification Trial Period Plan, and (iii) expedite the distribution of insurance proceeds on storm damage claims. Additionally, Freddie Mac will maintain pricing that was in place at the time of the storm for mortgages that are secured by homes in eligible disaster areas and delivered through Freddie Mac’s bulk guarantor channel.
FHFA Decides Fannie Mae and Freddie Mac Will Not Offer Principal Forgiveness; Updates Other Borrower Assistance Efforts
On July 31, FHFA announced that it will not direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers, concluding that a principal forgiveness policy does not “clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.” The Treasury Department immediately objected, countering that FHFA’s cost concerns could be alleviated with Treasury assistance to pay for additional administrative implementation costs. With its announcement, FHFA released correspondence to members of Congress explaining FHFA’s decision and providing a detailed assessment of the principal forgiveness policy option. FHFA also reported that it is working with Fannie Mae and Freddie Mac on a series of other borrower assistance efforts including (i) an update to Freddie Mac’s refinance program to align it with Fannie Mae’s policy for refinancing mortgages with loan-to-value ratios equal to or less than 80%, (ii) new requirements expected in September related to representations and warranties, which will shift the loan quality review closer to the time of loan origination, (iii) a single, aligned short sale program for Fannie Mae and Freddie Mac with more flexible terms, (iv) a new set of adjustments to guarantee fee pricing, expected to be announced in August and to take effect later in the year, and (v) closing on the first set of REO pilot transactions in August.
Fannie Mae Alters Policies for Preforeclosure Sale Process, Delinquency Management, Default Prevention
On April 25, Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which sets new policies and clarifies several delinquency management and default prevention requirements related to (i) electronic submission of borrower response package documents, (ii) income documentation for employed borrowers, (iii) determining monthly gross income, (iv) modifications of loans secured by leasehold estates, (v) property valuation, and (vi) executing and recording modification agreements. The majority of the changes are effective immediately. The new requirements for determining income are effective for loans evaluated on or after July 1, 2012.
On the same date, Fannie Mae also published Announcement SVC-2012-07 to establish new policies to expedite the preforeclosure sale process. For all conventional mortgage loans held in Fannie Mae’s portfolio, those purchased for Fannie Mae’s portfolio but subsequently securitized into Fannie Mae MBS pools, and those originally delivered as part of an MBS pool, the policies (i) establish maximum required response times for preforeclosure sale offers submitted for consideration, (ii) require servicers to provide borrowers with status updates during the evaluation process, and (iii) allow servicers to respond to unsolicited preforeclosure sale offers without first requiring an evaluation for a HAMP modification. Servicers are encouraged to adopt these policies immediately, but must do so no later than June 25, 2012. The Announcement reminds servicers that Fannie Mae may pursue any of its available remedies for failure to comply with these new policies.
On April 19, the U.S. Court of Appeals for the Eleventh Circuit held that there is no implied private right of action under the federal Home Affordable Modification Program (HAMP). Miller v. Chase Home Financing, LLC, No. 11-15166 (11th Cir. Apr. 19, 2012). In this case, the servicer agreed to enter into a temporary modification of the borrower’s mortgage under HAMP, but later notified the borrower that it would not extend a permanent modification. The borrower alleged that the servicer failed to comply with its obligations under HAMP and sued the servicer claiming (i) breach of contract, (ii) breach of implied covenant of food faith and fair dealing, and (iii) promissory estoppel. The district court dismissed the case because (i) HAMP does not provide an express or implied private right of action and (ii) the claims otherwise fail as a matter of law. On appeal, the court upheld the district court dismissal, holding, without oral argument, that there is no discernable legislative intent to create a private right of action and noting that such a right would contravene the purpose of HAMP as servicers fearing litigation would limit their participation in the program. Last month, the Seventh Circuit held that a plaintiff bringing claims against a servicer based on similar fact pattern could maintain a suit against the servicer. That case is distinguishable, however, because while the borrower was not able to state a cause of action for a breach of HAMP directly, the borrower properly pled claims for breach of contract and promissory estoppel based on the servicer’s promise to offer a permanent modification. In that case the Seventh Circuit also held that the borrower sufficiently pled fraudulent misrepresentation and state statutory fraud claims, and that those claims were not preempted by federal law.
West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing. House Bill 4271 was enacted March 30 and takes effect June 8, 2012. It amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry (NMLS) for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner. Also enacted on March 30, House Bill 4274, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine. This change takes effect June 7, 2012. On April 2, effectively retroactive to January 1, 2012, Senate Bill 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.
On March 30, Senate Banking Committee Democrats, led by Chairman Tim Johnson, sent a letter to Acting Director of the Federal Housing Finance Agency, Edward DeMarco, suggesting changes to the Home Affordable Refinance Program (HARP) to facilitate additional refinancings. In their letter, the Senators endorsed policy changes suggested in a January 2012 Federal Reserve Board white paper, including (i) reducing or eliminating remaining loan-level price adjustments for HARP refinances where Fannie Mae and Freddie Mac already carry the credit risk on the original mortgage, (ii) streamlining the financing process for borrowers with loan-to-value ratios below 80 percent, and (iii) more comprehensively reducing putback risk in order to remove disincentives for servicers to refinance. The letter was in response to a request for suggestions that Mr. DeMarco made during a February 28, 2012 Senate Banking Committee hearing.
On March 13, Freddie Mac issued Bulletin 2012-7 providing several updates to its Single-Family Seller/Servicer Guide. Effective immediately, Freddie Mac has revised the definition of “REO rollback” to include additional circumstances beyond bankruptcy petition filings and is requiring servicers to communicate an “REO rollback” through a new REO Rollback Request mailbox. Freddie Mac also announced in the Bulletin that (i) new and revised compensatory fees related to research and construction, “REO rollback”, and reporting noncompliance will be instituted under the Servicing Success Program; (ii) submission of requested file documentation that a servicer initially failed to provide under the Servicer Success File Review does not constitute an appeal; and (iii) upcoming enhancements to the Servicing Success Program will treat standard modification mortgages in the same manner as HAMP mortgages.
On March 7, the U.S. Court of Appeals for the Seventh Circuit held that a mortgage borrower could proceed with a class action suit against the servicer of her loan for its failure to offer a permanent loan modification under the federal Home Affordable Mortgage Program (HAMP). Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). In Wigod, the loan servicer and borrower entered into a Trial Period Plan (TPP) under HAMP; the servicer stated in the TPP that if the borrower complied with the TPP for four months, the servicer would offer the borrower a permanent HAMP modification. The borrower alleged that she complied with the TPP, but the servicer denied her a permanent HAMP modification. The borrower filed a class action on behalf of all similarly situated borrowers of the servicer who had entered into and complied with a TPP but were nevertheless denied a permanent modification. The District Court for the Northern District of Illinois granted the servicer’s motion for summary judgment, but the Seventh Circuit reversed on four of the seven counts. Judge Hamilton’s opinion for the Circuit Court held that—while the borrower may not have been able to state a cause of action for a breach of HAMP directly—the borrower properly pled claims for breach of contract and promissory estoppel based on the servicer’s promise to offer a permanent modification in the TPP. The Circuit Court also held that the borrower sufficiently stated claims for fraudulent misrepresentation and for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Finally, the Circuit Court held that these state law claims were not preempted by federal law.