On March 28, Freddie Mac announced in Bulletin 2014-4, that with regard to the processing of standard and streamlined modifications for mortgages with pre-modification mark-to-market loan-to-value ratios less than 80%, servicers must provide eligible borrowers the option to select a 480-month, 360-month, or 240-month term for the modification agreement. Servicers must include in the trial period plan notice each amortization term and its trial period payment only when the associated monthly principal and interest (P&I) payment reduction condition is met. For a 480-month amortization term, the estimated modified P&I payment must be less than or equal to the current contractual P&I payment. For a 360-month or 240-month amortization term, the estimated modified P&I payment must be at least 20% less than the current contractual P&I payment. Additionally, Freddie Mac eliminated the options for a borrower to request a term that is different than those provided in the trial period plan offer or to change the amortization term after the first trial period payment is made. The Bulletin also advises servicers that, effective July 8, 2014, Freddie Mac will evaluate market rates on a monthly basis to determine whether a change to the standard modification interest rate is necessary, and, if so, will post the new rate and its mandatory effective date on the Standard Modification Interest Rate web page by the fifth business day of each month.
On March 28, Fannie Mae issued Servicing Guide Announcement SVC-2014-05, which provides, as recently promised, updated guidance regarding standard and streamlined modification programs. The announcement informs servicers that, by July 1, 2014, for mortgage loans with a pre-modified mark-to-market loan-to-value ratio less than 80%, servicers must ensure that borrowers satisfy all eligibility requirements for a Fannie Mae standard or streamlined modification. The announcement details the specific steps servicers must take to calculate the terms of the trial period plan. It also provides information for servicers to use in determining the appropriate information to include in an evaluation notice or solicitation letter, and informs servicers that if a borrower is eligible for a trial period plan with more than one amortization term, the borrower may choose an amortization term but the trial period plan notice must inform the borrower that he or she will not be able to change the amortization term after the first payment is received. The announcement states that if a mortgage loan becomes 60 or more days delinquent within 12 months of the modification effective date, the servicer must not approve another modification. Finally, Fannie Mae states that if the first trial period plan payment submitted by a borrower does not correspond to an amortization term payment offered in the plan, the servicer must use the shortest amortization term provided in the plan that is covered by the borrower’s actual payment to determine the amortization term and monthly payment obligation.
On March 12, Fannie Mae issued a notice postponing the April 1, 2014 implementation deadline for changes to its standard and streamlined modification programs announced in SVC-2013-28. Those changes expanded the programs to include loans with a pre-modification mark-to-market loan-to-value (MTMLTV) ratio of less than 80%. In the “near future,” Fannie Mae will announce a new effective date and updated requirements for such loans. Until the new requirements become effective, loans with MTMLTVs of less than 80% will continue to be eligible for a standard or streamlined modification if the loan servicer has fully implemented the previously-announced changes. In a separate notice relating to its adjustable-rate mortgage (ARM) plans, Fannie Mae announced that it is requiring sellers and servicers to substitute certain LIBOR indices for the discontinued Federal Reserve Board CD index, and as a result it is retiring two standard ARM plans based on the discontinued index.
On February 20, the U.S. District Court for Central District of California dismissed with prejudice a putative class action against several large mortgage servicers because the named borrowers failed to properly plead their allegations that the servicers stonewalled loan modification applications in order to continue earning servicing fees. Casault v. Federal National Mortgage Association, No. 11-10520, 2014 WL 689884 (C.D. Cal. Feb. 20, 2014). In their third amended complaint, the borrowers alleged three causes of action against the servicers: (i) fraud; (ii) violation of California’s Unfair Competition Law (UCL); and (iii) violation of the Rosenthal Act, California’s version of the FDCPA. The court granted the servicers’ motion to dismiss the fraud allegation because they failed to allege any causal connection between the scheme and the borrowers’ foreclosure. The borrowers alleged only that the foreclosures were the result of their inability to make their mortgage payments, even after receiving loan modifications. The court dismissed the UCL claim because the borrowers could not demonstrate a right to a loan modification—through contract, promissory estoppel, or some other theory—and, as a result, could not prove injury in fact. Finally, the court dismissed the borrowers’ claims under the Rosenthal Act because they failed to allege facts demonstrating that their loans defaulted prior to the debt being assigned to the servicers.
On February 19, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent a letter asking Comptroller of the Currency Thomas Curry and National Mortgage Settlement Monitor Joseph Smith to “carefully scrutinize the sale of mortgage servicing rights from banks to nonbanks” to ensure nonbank servicers have the capacity to handle increased loan volume and that borrowers are not harmed. Representative Waters explained that consumer advocates are concerned that when a bank subject to the National Mortgage Settlement transfers MSRs to a nonbank not subject to the National Mortgage Settlement, the transferred loans are not afforded the same protections as they would be under that agreement. Ms. Waters is concerned that the CFPB rules that would apply to such transferred loans offer fewer protections than those in the National Mortgage Settlement. She also requested that the Comptroller and/or the Monitor examine the extent to which servicing transfers are potentially being used to “evade the modification of loans for borrowers who would benefit most from the terms of the Settlement.” Ms. Waters joins other policymakers, including the CFPB’s Deputy Director and New York’s banking regulator, who recently raised concerns about the impact on borrowers from the transfer of mortgage servicing rights.
On December 26, Illinois Governor Pat Quinn signed SB 1045, which extends through 2015 an existing state foreclosure protection. Under state law, a borrower facing foreclosure can seek to block a judicial foreclosure sale based on a pending federal HAMP modification. The state protection was set to expire at the close of 2013, but was extended to match the federal extension of HAMP through December 31, 2015.
On December 10, the New York Department of Financial Services (DFS) proposed regulations that would authorize and encourage “shared appreciation” mortgage modifications in that state. The DFS explained that under a shared appreciation modification, banks and mortgage servicers reduce the amount of principal outstanding on a borrower’s mortgage in exchange for a share of the future increase in the value of the home. The program would be limited to borrowers who are 90 or more days past due on their loan, or whose loan is the subject of an active foreclosure action, and who are not eligible for existing federal and private foreclosure prevention programs. The proposed regulations detail the method for calculating a holder’s share of the appreciation, and limit the share to the lesser of: (i) the amount of the reduction in principal, plus interest; or (ii) 50% of the amount of appreciation in market value. In addition, banks and servicers would be required to provide specific disclosures to borrowers about the terms and nature of the shared appreciation mortgage modification. The proposed regulations also: (i) specify allowable fees, charges, and interest rates; (ii) detail the calculation of unpaid principal balance and debt-to-income ratio; and (iii) list certain prohibitions, including, among others, that the holder cannot require the borrower to waive any legal claims or defenses as a condition to obtaining shared appreciation modification.
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.
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.
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.