On September 23, in a brief order, a judge for the U.S. Court of Appeals for the Ninth Circuit withdrew his concurrence in a recent opinion in which the court held that HAMP Trial Period Plans (TPPs) create a contractual obligation for servicers to offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242 (9th Cir. Sept. 23, 2013). In the concurring opinion, the judge had argued that the bank created the trial plan document for “the fraudulent purpose of inducing [the borrower] to make the payments while the bank retained the option of modifying the loan or stiffing him.” The bank filed a motion for rehearing and asked the court to withdraw the concurrence because the Treasury Department, not the bank, drafted the trial plan document and required its use. Therefore, according to the bank, its actions should not be characterized as fraudulent because it adhered to its obligations by using the required HAMP documents.
On October 30, Fannie Mae issued Servicing Guide Announcement SVC-2013-22, which describes various servicing policy updates. First, effective on or after February 1, 2014 for condominium insurance policy renewals, Fannie Mae is prohibiting the use of master or blanket insurance policies that cover multiple unaffiliated projects. Second, effective immediately for mortgage loan modifications, Fannie Mae is requiring that principal forbearance is payable upon the earliest of the maturity of the mortgage loan modification, sale or transfer of the property, refinance of the loan, or payoff of the interest-bearing unpaid principal. Third, effective January 1, 2014 for property inspection reimbursements, the Announcement updates the maximum amounts Fannie Mae will reimburse servicers for property inspections, outlines servicer responsibilities related to reimbursement requests, and clarifies the escalated case resolution process. Finally, the Announcement reminds servicers of their obligation to comply with both the Selling Guide and Servicing Guide, and informs servicers that requirements for maintaining eligibility and related fees were recently updated in the Selling Guide.
Fannie Mae, Freddie Mac Extend Streamlined Modifications, Announce HAMP Changes, Increase Certain State Foreclosure Timelines
On September 16, Freddie Mac issued Bulletin 2013-17, and on September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-18, which extend those entities’ streamlined modification programs to include all streamlined modification trial period plans that become effective by December 1, 2015. Fannie Mae and Freddie Mac also extended the expiration date for HAMP such that Trial Period Plan Effective Dates must be on or before March 1, 2016 and Modification Effective Dates must be on or before September 1, 2016. Fannie Mae further applied these extended time frames to Second-Lien Modification Programs. In addition, Fannie Mae and Freddie Mac revised their eligibility requirements for proposed HAMP modifications that are submitted through the Treasury Net Present Value Model on or after January 1, 2014. Further, both Fannie Mae and Freddie Mac (i) retired the annual servicer “Pay for Success” incentive for HAMP-eligible mortgages, effective for modifications with effective dates on or after April 1, 2014 and (ii) updated requirements for repurchased loans subject to a HAMP permanent mortgage loan modification or trial plan. Finally, the Freddie Mac bulletin increased state foreclosure timelines by 30 days in Nevada, New Mexico, and Washington, for all foreclosure sales completed after September 1, 2013, while Fannie took the same action through a separate servicing notice.
On September 4, the U.S. District Court for the District of Massachusetts denied class certification of individual borrowers in a consolidated action against a national bank for allegedly mismanaging requests for HAMP modifications. In re Bank of Am. HAMP Contract Litig., No. 10-2193, 2013 WL 4759649 (D. Mass. Sept. 4, 2013). The named plaintiffs, who alleged breach of contract against the bank for issuing HAMP Trial Period Plans but then failing to provide a permanent modification or a timely written denial of eligibility, sought to certify 26 different classes, one from each state they represent. The court held that the plaintiffs failed to meet the predominance and superiority requirements of Rule 23(b) because their claims rely on numerous individual factual questions and “cannot sensibly be adjudicated on a classwide basis.” The court explained that individual questions predominate because borrowers’ claims require inquiry into each class members’ performance under the trial plans. Further, the court reasoned that class treatment would ignore those individual questions and deny the borrowers a fair trial on the merits of their claims, and determined that separate actions would more fairly and efficiently resolve the liability issues.
On July 31, Fannie Mae announced that as of September 1, 2013, the rate for standard and streamlined modifications is 4.625%, an increase from the 4% applicable to modifications with approved dates between December 1, 2012 and August 31, 2013. The notice reminds servicers that the interest rate used for the permanent loan modification must be the same interest rate reflected in the borrower’s Trial Period Plan.
On July 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-14 to notify servicers that they must accept modification assistance received from a state housing finance agency for a mortgage loan in connection with any Fannie Mae modification, without regard to whether principal forbearance is required. In doing so, servicers must also comply with certain delinquency management and default prevention requirements outlined in Announcement SVC-2011-18. Servicers are required to implement the policy changes no later than October 1, 2013, and are encouraged to do so immediately.
On June 18, Connecticut enacted HB 6355, which expands the state’s existing foreclosure mediation program and adds new mortgagee requirements. Specifically, the bill extends the foreclosure mediation program to (i) cover the disposition of property through means other than foreclosure, including short sales and deeds-in-lieu of foreclosure, and (ii) foreclosure actions with return dates of July 1, 2008 through June 30, 2009. The bill also, among other things, (i) establishes a pre-mediation process, (ii) requires mortgagees to provide to a borrower a complete financial package in connection with a request for a foreclosure alternative and provide to a mediator and the borrower an account history and related information after receiving notification that the case has been assigned to mediation, and (iii) establishes expedited foreclosure procedures for vacant and abandoned properties. The bill becomes effective on July 15, 2013.
Last week, the Massachusetts Division of Banks adopted revised foreclosure and mortgage modification regulations. The amendments implement a 2012 law that makes it harder to foreclose in that state, including by creating a pre-foreclosure modification notice requirement for creditors. The amended regulations (i) establish the processes for a borrower and creditor with regard to the borrower’s right to request a loan modification, (ii) establish the actions that constitute a borrower’s good faith response to a creditor’s notice of the right to request a loan modification, (iii) define good faith efforts by creditors to avoid foreclosure, and (iv) establish safe harbors for creditors that comply with the loan modification process. The new regulations take effect on June 21, 2013 and must be implemented by September 18, 2013.
On May 24, Minnesota enacted SF 1276, which adds pre-foreclosure requirements for most mortgage servicers. Effective August 1, 2013, servicers must notify a borrower in writing of available loss mitigation options before referring the loan for foreclosure. Servicers also must, after receiving a modification or loss mitigation request, exercise reasonable diligence in obtaining documents and information from the mortgagor to complete a loss mitigation application, facilitate the submission and review of loss mitigation applications, and give the mortgagor a reasonable amount of time to provide the required documents. The law further requires servicers to timely review and offer a modification to eligible mortgagors, or timely offer other loss mitigation options for which the mortgagor is eligible. Effective October 31, 2013, except under certain circumstances, servicers generally are prohibited from (i) referring a loan to foreclosure while a loss mitigation or modification request is pending, and (ii) moving for a foreclosure order on loans that already have been referred if the servicer subsequently receives a loss mitigation application. The law also requires servicers to halt foreclosure sales in some instances and prohibits a servicer from moving for a foreclosure order if a mortgagor is in compliance with the terms of a modification or if a short sale has been approved.
On May 21, the National Mortgage Settlement Monitor, Joseph Smith, released updated consumer relief activities data submitted by the mortgage servicers subject to the Settlement. The update reflects relief activities during the period March 1, 2012 through March 31, 2013, and includes a breakout of data for the first quarter of 2013. A fact sheet highlights numerous aspects of the data, including that 621,712 borrowers have benefited from some type of consumer relief totaling $50.63 billion, which, on average, represents about $81,437 per borrower. The Monitor did not issue a full report on the data because he is focused on testing the 2012 year-end consumer relief claims of four banks. The Monitor expects to release the results of the testing in the coming weeks. In June, he also plans to submit the first required report regarding the banks’ compliance with the Settlement’s servicing standards.
On May 16, Maryland enacted HB 291, which makes it a violation of state law for a mortgage assistance relief service provider to violate federal mortgage relief regulations administered by the CFPB under Regulation O. The bill grants enforcement authority to the Commissioner of Financial Regulation and the Attorney General, and creates a private right of action for damages. The bill states that a violation of its provisions is an unfair or deceptive trade practice under the Maryland Consumer Protection Act and is subject to that Act’s civil and criminal penalty provisions. The bill takes effect on July 1, 2013.
On May 13, Freddie Mac announced in Bulletin Number 2013-7 that servicers can immediately begin offering modifications under the streamlined modifications initiative announced by the FHFA in March. The Bulletin states that servicers must generate the terms of each trial period plan using their own proprietary system or third-party system until Workout Prospector® becomes available July 15, 2013 to process the terms of a streamlined modification. The Bulletin also revises Freddie Mac’s property valuation requirements for modifications of mortgages secured by manufactured homes and 2- to 4-unit properties, and eliminates the requirement that a property value be obtained for a long-term forbearance plan. On May 7, Fannie Mae published new Frequently Asked Questions intended to help servicers understand and implement the requirements of Servicing Guide Announcement SVC-2013-05, which, beginning July 1, 2013, requires services 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. The FAQs relate to (i) solicitation, (ii) eligibility requirements/exclusions, (iii) workout hierarchy, (iv) valuations, and (v) servicer requirements.
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 March 15, Colorado enacted HB 1017, which requires a loan servicer to whom servicing rights for a residential mortgage have been sold or transferred to honor or continue processing any pending loan modification, as long as the borrower’s acceptance of the loan modification occurs prior to the sale or transfer of servicing rights. The bill also requires that, at the time of transfer, the prior servicer must disclose any pending loan modifications to the new servicer. The new provisions took effect immediately and apply to all modification offers made on or after March 15, 2013.
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.