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 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 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.
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.
On January 7, the Massachusetts Division of Banks announced a public hearing to review proposed amendments to the state’s foreclosure and mortgage modification regulations. The proposed amendments would implement a recently passed law that makes it harder to foreclose in that state, including by creating a pre-foreclosure modification notice requirement for creditors. The amended regulation would (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 hearing is scheduled for February 6, 2013, and the Division of Banks is accepting public comments on the proposal through February 15, 2013.
Massachusetts Offers Guidance on Mortgage Modifications for Non-Delinquent Borrowers and Troubled Debt Restructuring
On December 27, the Massachusetts Division of Banks issued guidance regarding the classification of the modification of a residential mortgage loan as troubled debt restructuring (TDR) when the loan is underwater. The guidance explains that the high loan-to-value ratio alone does not necessarily constitute a TDR, provided that the borrower is (i) performing satisfactorily under his or her mortgage loan, and (ii) is not experiencing financial hardships. In such cases, the Division has determined that a lender may choose to restructure or modify a residential loan per the revision in mortgage terms statute (Massachusetts General Laws chapter 183, section 63A), but the lender must (i) consider all facts and circumstances in determining whether the borrower is experiencing financial difficulty and whether the lender is granting a concession and (ii) perform and document its own analysis in making such a determination.
Last week, California enacted several additional mortgage-related bills. First, AB 1599 requires that a mortgagee, trustee, beneficiary, or authorized agent attach to the already required recorded notice of default and notice of sale, a summary of the information required to be contained in those notices. The notices must include a statement referencing the attached summary, but the summary need not be recorded or published. Second, SB 980 extends until January 1, 2017 the existing prohibition against persons facilitating loan modifications from requiring or accepting pre-performance compensation, requiring collateral to secure payment, or taking power of attorney from the borrower. Finally, AB 2010 requires that reverse mortgage counseling be conducted in person, unless the borrower elected to receive counseling in another manner.