There has been considerable recent discussion in the mortgage servicing industry regarding the increasing hurdles to transfers of residential mortgage servicing rights. Those hurdles include additional scrutiny from the Consumer Financial Protection Bureau, Federal Housing Finance Agency, and state regulators. In the past week, each of Fannie Mae and Freddie Mac have issued updates to their servicing transfer requirements moving up the due dates for requests for approvals of servicing transfers, making it more difficult to consummate quick transfers. The new requirements don’t create new standards for approval of transfers of Fannie Mae and Freddie Mac servicing rights, but they do add a bit more procedural difficulty for such transfers.
On May 9, 2014, Fannie Mae issued Servicing Guide Announcement SVC-2014-06. Pursuant to the announcement, Fannie Mae will require requests for approval of servicing transfers to be submitted at least 60 days before the proposed transfer date. The Fannie Mae Servicing Guide currently requires a submission of a request for approval of a servicing transfer to be submitted at least 30 days, but not more than 180 days, before the proposed transfer date. Unfortunately, there appears to be a typographical error in the announcement. The announcement actually says that the request for approval must submitted to Fannie Mae, “no earlier than 60 days prior to the proposed transfer date” (emphasis added). Fannie Mae personnel have informally advised that this is intended to mean that at least 60 days’ notice is required, however.
The announcement also adds definitions of the terms “sale date” and “transfer date” to the Servicing Guide Glossary. These terms generally reflect the customary structure of purchases of Fannie Mae (and other agency) servicing rights. Such transactions typically provide for separate sale dates and transfer dates. The sale date is typically the date on which the economic benefits of ownership of the servicing rights, as between the purchaser and seller, are passed to the purchaser. The transfer date is the date on which Fannie Mae’s consent is effective, Fannie Mae formally recognizes the purchaser as the owner of the servicing rights, and the servicing is physically transferred to the purchaser or its subservicer. The sale date typically occurs before the transfer date, although they may be the same date in a given transaction. Fannie Mae has historically only concerned itself with the transfer date, since that’s the date Fannie Mae recognizes a change in the servicer. Fannie Mae’s current form of request for approval of a servicing transfer (Form 629) indicates that the sale date is requested for information purposes only, and until recently, it made no reference to the sale date at all. With that in mind, one might wonder why Fannie Mae felt the need to define the sale date. A possible answer can be found in the definition included in the announcement. The announcement describes the sale date, in part, as the date on which, “the legal liability for the servicing of the Fannie Mae mortgage loans transfer[s] from one servicer to another.” The definition doesn’t say to whom the purchasing servicer is legally liable after the sale date, but regardless of the meaning, it may not align with the allocation of liability agreed to as between a given purchaser and seller. To the extent Fannie Mae means that the purchaser is liable to Fannie Mae for the servicing, that would appear to be inconsistent with the fact that Fannie Mae doesn’t recognize the purchaser as the owner of the servicing rights until the transfer date, and the purchaser doesn’t take on the physical servicing until the transfer date. To the extent Fannie Mae means the purchaser is liable to third parties, such as borrowers, it wouldn’t appear to have any authority to create that liability.
Also worth noting in the context of Fannie Mae servicing transfer requirements, on December 19, 2013, Fannie Mae issued Servicing Guide Announcement SVC-2013-29, revising its servicing transfer policy and form of request for servicing transfer to require approvals of subservicing changes. That announcement and the revised form of request for transfer approval now require the same approval for transfers of servicing responsibility to, from, or among subservicers, as they do for transfers of servicing rights. Of course, the new 60-day deadline for submission of requests for transfers will apply equally to such transactions with subservicers. A “sale date” for such subservicing transfers also needs to be identified, although it really has no application in that context since there is no sale.
Fannie Mae’s new announcement is effective August 1, 2014. That should mean that any requests for approval submitted before the effective date will only need to be submitted 30 days before the proposed transfer date, since the existing requirements continue to apply until that date. Sellers and purchasers of servicing rights (and parties involved in changes in subservicing arrangements) should consult with Fannie Mae as that date approaches, however, to make sure they know the schedule on which their requests for approval will be considered.
On May 15, 2014, Freddie Mac issued Single-Family Seller/Servicer Guide Bulletin 2014-9. The bulletin revises the Single-Family Seller/Servicer Guide to require submission of a request for approval of servicing transfer at least 45 days in advance of the proposed servicing transfer date. Like the Fannie Mae Servicing Guide, the Freddie Mac Seller/Servicer Guide previously required requests for approval to be submitted only 30 days in advance of the transfer date. For Freddie Mac, the request for approval of a servicing transfer takes the form of an “Agreement for Subsequent Transfer of Servicing of Single-Family Mortgages” (Form 981). The Freddie Mac bulletin correspondingly revises that form to say it must be submitted at least 45 days in advance of the requested servicing transfer date. The form also says that it must be submitted not more than 60 days in advance of the requested servicing transfer date, however, making the window for the submission of the request fairly narrow.
The bulletin says that the additional 15 days are needed to provide the servicer with enough time following Freddie Mac’s approval to notify borrowers of transfers in accordance with Freddie Mac and legal (e.g. RESPA) requirements. Given that those requirements haven’t changed, however, this can perhaps be more accurately understood as providing Freddie Mac with enough time to process the request for approval before notice deadlines.
In contrast to the Fannie Mae changes, the revised Freddie Mac requirement is applicable immediately.