OCC Releases Quarterly Mortgage Metrics Report Showing Continued Improvement through Third Quarter of 2015

On December 14, the OCC released its quarterly Mortgage Metrics Report. The report shows continued improvement of the mortgage performance of first-lien mortgages during the third quarter of 2015. 93.9% of mortgages included in the report were current and performing at the end of the quarter, compared to last year’s 93%. In addition, 30 to 59 days past due mortgages made up 2.3% of the portfolio, representing a 4.4% decrease from a year earlier, and 60 or more days past due mortgages made up 2.6%, representing a 16.1% decrease. The report also highlights a decline in both foreclosure activity and the need for other loss mitigation actions. The OCC’s report reflects performance data on first-lien residential mortgages serviced by eight national banks maintaining large mortgage-servicing portfolios.


Fannie Mae Updates Servicing Guide; GSEs Update the Uniform Closing Dataset

On November 25, Fannie Mae issued Servicing Guide Announcement SVC-2015-14 to reveal recent updates to the Servicing Guide. Specifically, Fannie Mae updated guidance relating to 10 areas, including but not limited to: (i) the Remittance of Property (Hazard) Insurance Loss Proceeds for Short Sales; (ii) Pledge of Servicing Rights and Transfers of Interest in Servicing Compensation; (iii) Timeline Requirements for HAMP Expanded “Pay for Performance” Incentive Notices; (iv) Early Delinquency Counseling Requirements; and (v) the removal of the Borrower Notification Sample Letter Exhibit.

In separate November 17 announcements, Fannie Mae and Freddie Mac (collectively the GSEs) revealed updates to the Uniform Closing Dataset, developed as part of the Uniform Mortgage Data Program to facilitate lender submission of the Closing Disclosure Form under the new TILA/RESPA regulations. The updates revise Appendix A: Closing Disclosure Mapping to the MISMO and Appendix H: UCD Delivery Specification and include: (i) newly added data points; (ii) changes to conditionality for several data points; (iii) changes/additions to the enumerated values; and (iv) updates to conditionality details.


Federal Reserve Announces Plan to Redistribute Unclaimed Foreclosure Settlement Funds

On November 19, the Federal Reserve announced a plan to redistribute unclaimed funds from the Independent Foreclosure Review Payment Agreement (Agreement). Under the Agreement, borrowers whose homes were in any state of the foreclosure process in 2009 or 2010 received payment from Federal Reserve -regulated servicers, resolving allegations of improper mortgage servicing and foreclosure practices. The Fed’s recently announced plan gives borrowers who have yet to cash or deposit their original check until December 31, 2015 to request a replacement check; all checks must be deposited by March 31, 2016. In an effort to distribute the maximum amount of funds to borrowers affected by alleged deficient servicing and foreclosure practices, the Federal Reserve will instruct the paying agent company to redistribute the remaining funds after March 31, 2016 to the borrowers who did cash or deposit their original checks.


BuckleySandler Secures Major Victory on Behalf of Mortgage Servicer in Putative Class Action Suit

On August 25, BuckleySandler secured a substantial victory in a putative class action in the Northern District of Illinois. McGann v. PNC, No. 11-c-6894 (N.D. Ill. Aug. 25, 2015). The suit alleged that a major mortgage servicer failed to convert Home Affordable Modification Program (HAMP) Trial Period Plans (TPPs) into permanent modifications. The Seventh Circuit Court of Appeals, with jurisdiction over the Northern District of Illinois, has allowed similar claims to survive dismissal. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012). And the Ninth Circuit has allowed such claims to go forward on a classwide basis. See Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013).

Despite this potentially adverse precedent relevant to the pleadings stage, BuckleySandler secured summary judgment in its client’s favor following extensive discovery by extracting key admissions from Plaintiff. These admissions established that the servicer “repeatedly told her either that her application was being reviewed or that it had been rejected but would be reinstated. A promise to review or even to reinstate an application is not a promise that the application will result in a permanent loan modification . . . she still had to meet HAMP’s requirements. That was clear from the TPP agreement itself.” Opinion at 9. The Court further held that even if these statements led Plaintiff to a subjective belief that the loan would be modified, Plaintiff could not show any actions she took in reliance, nor that any reliance would be reasonable. Opinion at 11.

Finally, the Court also held that the servicer did not engage in any unfair conduct under Illinois’ UDAAP statute, the Illinois Consumer Fraud and Deceptive Business Practices Act. The plaintiff in the matter was not a borrower on the note, but rather a non-borrower mortgagor, for whom HAMP was not available during the time in question. The Court agreed the servicer complied with HAMP guidelines in denying the permanent modification. Opinion at 16-17. And the Court went on to hold that the servicer was entitled to summary judgment for the additional reason that the evidence in discovery established that the cause of the plaintiff’s injuries was her non-qualification for HAMP, her inability to pay the mortgage, and the resulting foreclosure of the home, none of which was proximately caused by any wrongful conduct of the servicer. Opinion at 15-16.


CFPB Orders Mortgage Servicer to Pay $1.6 Million over Servicing Practices

On July 30, the CFPB ordered a Texas-based mortgage servicer to pay $1.5 million in restitution and $100,000 in civil money penalties for allegedly engaging in faulty servicing practices, according to a settlement announced by the CFPB. The CFPB alleged that, beginning in 2009, the mortgage servicing firm failed to honor “in-process” modifications—trial modifications that were pending when a loan was transferred to the company—until it determined that the prior servicer should have agreed to the trial modification. In addition, the CFPB alleged that the servicing firm provided inaccurate account statements to borrowers related to their loan balance, interest rates, payment due dates, and the amount available in escrow accounts. The CFPB further contends that, in certain instances, the servicing firm coerced consumers into waiving certain legal protections as a condition to being allowed to pay off delinquent payments in installments. Under the terms of the consent order, the servicing firm agreed to, among other things, (i) provide $1.5 million in restitution to consumers whose loan modifications were not acknowledged; (ii) pay a $100,000 civil money penalty; (iii) mitigate the impact of its allegedly unlawful practices by, for example, converting “in-process” loan modifications to permanent modifications and stopping foreclosure processes for certain borrowers; and (iv) honor loss-mitigation agreements entered into by prior servicers and “in-process” loan modifications and engage in outreach to contact borrowers and offer them loss-mitigation options.


BuckleySandler Secures Second Circuit Victory in Lender-Placed Insurance Rate Case

On July 22, BuckleySandler secured a substantial victory before the United States Court of Appeals for the Second Circuit. Representing a global insurance company in a nationwide lender-placed insurance (“LPI”) class action brought by mortgage borrowers, the Firm argued on interlocutory appeal that the Second Circuit should reverse the district court’s denial of its motion to dismiss on the basis of the “filed-rate” doctrine. Ordinarily, the filed-rate doctrine provides that rates approved by the applicable regulatory agency – including LPI rates – are per se reasonable and unassailable in judicial proceedings brought by ratepayers. The district court, however, held that the plaintiffs’ claims were not barred by the doctrine because, rather than directly billing the plaintiffs for the LPI premiums, the insurance company initially charged the premiums to the plaintiffs’ mortgage servicer who, in turn, charged the borrowers. The Second Circuit reversed the Southern District of New York’s decision, holding that the filed-rate doctrine applied notwithstanding the fact that the mortgage servicer served as an intermediary to pass on the LPI rates to borrowers. Because the plaintiffs’ claims ultimately rested on the premise that the LPI rates approved by the regulators were too high and included impermissible costs, the Second Circuit held that the claims were barred by the filed-rate doctrine.


CFPB Publishes Eighth Edition of Supervisory Highlights

On June 23, the CFPB published its eighth edition of Supervisory Highlights, covering supervisory activities from January 2015 through April 2015. The latest edition identifies issues with dual-tracking at mortgage servicers and the need for improved quality control measures at consumer reporting agencies. The report also provided supervisory observations related to debt collection, student loan servicing, mortgage origination and servicing, and fair lending. Notably, the report reveals that non-public supervisory actions and self-reported violations at banks and nonbanks in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending, and debt collection resulted in $11.6 million in remediation to more than 80,000 consumers during the first four months of 2015.


New York Court of Appeals Rules Possession of Note, Rather than Mortgage, Conveys Standing to Commence Foreclosure Action

On June 11, the New York Court of Appeals held that a loan servicer who holds the note has standing to commence a mortgage foreclosure action against a borrower even if the servicer cannot show that it also holds the mortgage.  See Aurora Loan Servs., LLC v. Taylor, 2015 NY Slip Op 04872 (Jun. 11, 2015).  The court reasoned that the servicer did not need to show possession of the mortgage because “the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.”  In Aurora, the defendant borrowers had executed an adjustable rate note and a mortgage in 2006.  The mortgage designated Mortgage Electronic Recording Systems, Inc. (“MERS”) as nominee, but the note was not transferred to MERS with the mortgage.  After the borrowers defaulted, the servicer took possession of the note and filed for foreclosure against the borrowers.  In reaching its decision, the court disregarded borrowers’ argument that the involvement of MERS somehow impacted the servicer’s standing to foreclose.


CFPB and FTC Announce Settlement with National Mortgage Servicing Company

On April 21, the CFPB and the FTC announced a joint enforcement action against a national mortgage servicing company, ordering the company to pay roughly $63 million in relief and penalties for allegedly mishandling home loans for borrowers who were trying to avoid foreclosure. Both regulators allege that from 2010 to 2014, the servicing company failed to honor modifications made to loans it acquired from other firms. According to the complaint, the company allegedly insisted that homeowners make the higher monthly payments and also make payments before providing loss mitigation options. Moreover, the CFPB and FTC claim the company illegally harassed borrowers who fell behind, made false threats, and revealed debts to the borrowers’ employers. The servicing company will pay $48 million in relief to eligible homeowners and a $15 million civil money penalty to the CFPB.


OCC Issues Updated RESPA Examination Guidance to Supervised Institutions

On April 14, the OCC issued the “Real Estate Settlement Procedures Act” booklet as part of the Comptroller’s Handbook, which is prepared for use by OCC examiners in connection with their examination and supervision of national banks and federal savings associations (collectively, “banks”). The revised booklet, which replaces a similarly titled booklet issued in October 2011, reflects updated guidance relating to mortgage servicing and loss mitigation procedures resulting from the multiple amendments made to Regulation X over the past several years. Notable revisions reflected in the revised booklet include: (i) the transfer of rulemaking authority for Regulation X from HUD to the CFPB; (ii) new requirements relating to mortgage servicing; (iii) new loss mitigation procedures; (iv) prohibitions against certain acts and practices by servicers of federally related mortgage loans with regard to responding to borrower assertions of error and requests for information; and (v) updated examination procedures for determining compliance with the new servicing and loss mitigation rules. The OCC notified its applicable supervised financial institutions of the changes affecting all banks that engage in residential mortgage lending activities by distributing OCC Bulletin 2015-25.


Utah Enacts Money Transmitter Act

On March 27, Utah Governor Gary Herbert signed S.B. 24, which modifies provisions related to persons and entities subject to the jurisdiction of Utah’s Department of Financial Institutions (DFI), amends the state’s Mortgage Lending and Servicing Act, and enacts the Money Transmitter Act. The Money Transmitter Act establishes new licensing requirements and grants rulemaking authority to the DFI to (i) prohibit practices that are misleading, unfair, or abusive, (ii) promote full disclosure of the terms and conditions of agreements between a customer and a money transmitter, and (iii) assure uniform application of applicable state or federal laws and regulations.


Second Circuit Affirms Dismissal of Lawsuit over Mortgage Auction Terms

On March 31, 2015, the Second Circuit in Truman Capital Advisors LP v. Nationstar Mortgage, LLC, No. 14-cv-3533 (2d Cir. Mar. 31, 2015), affirmed the dismissal of a lawsuit involving the auction sale of hundreds of non-performing residential mortgage loan notes.  Truman Capital is an investment manager that was the winning bidder in an auction of non-performing mortgage notes that were being sold by Nationstar Mortgage, a mortgage servicing company.  After the auction, the mortgage servicing company exercised its contractual right not to complete the sale of the notes for the high bid price.  The investment manager then sued the mortgage servicing company in the Southern District of New York, alleging that the auction terms gave the winning bidder the right to purchase the notes.  The mortgage servicer defended on the grounds that the auction terms permitted the seller to refuse to enter into a contract for the sale of the notes even after a high bidder was recognized.  The district court and the Second Circuit agreed, holding that no obligation would be binding on the seller unless and until the seller executed a loan sale agreement, which never occurred. BuckleySandler LLP represented Nationstar in this matter.

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FDIC Releases Final Technical Assistance Video to Cover Mortgage Servicing Rules

On February 13, the FDIC released the third and final technical assistance video intended to assist bank employees to comply with certain mortgage rules issued by the CFPB. The final video addresses the Mortgage Servicing Rules and the “Small Servicer” exemption. The first video, released on November 19, 2014, covered the ATR/QM Rule, and the second video, released on January 27, covered the Loan Originator Compensation Rule.


Mortgage Servicer Settles with California Regulator

On January 23, the California Department of Business Oversight (DBO) announced a $2.5 million settlement with a national mortgage servicer for failing to provide loan information to the state regulator. According to the consent order, the company must also (i) pay an independent third-party auditor selected by the DBO to ensure the servicer provides all requested information to DBO; (ii) cover administrative costs associated with the case; and (iii) cease acquiring new mortgage servicing rights that include loans secured by California properties until the DBO is satisfied that the servicer can satisfactorily respond to certain requests for information and documentation made in the course of a regulatory exam.


OCC Reports Continued Improvement in First-Lien Mortgage Performance

On December 19, the OCC announced the release of its quarterly Mortgage Metrics Report. The report highlights the mortgage performance of first-lien mortgages serviced by seven national banks and one federal savings association through September 30, 2014. Notably, the report showed 93 percent of mortgages were current and performing at the end of the quarter, compared with 92.9 percent at the end of the previous quarter and 91.4 percent a year earlier. Also, the report showed a 41.5 percent decrease in foreclosure activity in the last year. The mortgages included in this portfolio represent 46 percent of all residential mortgages in the U.S., approximately 24 million loans totaling $4.0 trillion in principal balances.