Category: FHA/VA

1
K&L Gates Consumer Financial Services Group to Present at MBA Legal Issues Conference in San Diego
2
HUD Updates “How to Avoid Foreclosure” Brochure Requirement
3
HUD Issues Self-Reporting Guidance
4
HUD Extends Foreclosure Timeframes with Mortgagee Letter 2013-38
5
K&L Gates Legal Insight: Housing Finance Reform Efforts Heat Up in Summer Session
6
FHA Seeks Statutory Authority to Transfer Mortgage Servicing Rights
7
HUD Renewal and Recertification
8
Consumer Financial Services Group Highlights Key Legal Issues at MBA Conference
9
HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program
10
FHA Investing Mortgagees No Longer Required to Provide Compliance Report

K&L Gates Consumer Financial Services Group to Present at MBA Legal Issues Conference in San Diego

On May 4-7, 2014 the Mortgage Bankers Association will hold its annual Legal Issues and Regulatory Compliance Conference in San Diego, CA. Several K&L Gates partners from the Consumer Financial Services Group will be presenting at the conference.

Melanie Brody will address “A Look Ahead: HMDA and Fair Lending” on Sunday, May 4, at 4:35 pm.

Krista Cooley will participate on a panel on Tuesday, May 6, at 3:15 pm, entitled “False Claims, Indemnifications, Repurchases and Rescissions.” She will discuss how the False Claims Act is affecting participants in HUD’s Federal Housing Administration loan program.

Andrew Glass will speak on Sunday, May 4, at 1:50 pm in the Litigation Forum on Fair Lending, explaining the status of fair lending/servicing litigation, and specifically the status of challenges to the disparate impact rule, the status of the municipal lawsuits against banks for “predatory” lending, and the HUD complaints by NFHA challenging the maintenance of properties held in REO.

Paul Hancock will address fair lending issues on Tuesday, May 6, at 1:30 pm.

Kris Kully will discuss Dodd-Frank Act amendments to RESPA and TILA on the ever-popular “Essentials: Alphabet Soup of Federal Laws,” on Sunday, May 4, at 1:50 pm.

Larry Platt will speak on Monday, May 5, at 3:15 pm on the “Deep Dive” panel for QRM, the Future of the Secondary Market, and GSE Reform.

Phil Schulman will participate on the panel entitled “A Look Ahead: TILA/RESPA,” on Sunday, May 4, at 3:15 p.m., and then will continue the discussion on the integrated disclosure forms on Monday, May 5, at the “Deep Dive: RESPA/TILA” panel at 3:15 pm.

Nanci Weissgold will present on two panels at the conference. On Sunday, May 4, at 12:30 pm, Nanci will present on a panel entitled “Essentials: Servicing Rule,” focusing on the basics of the CFPB’s Mortgage Servicing Rules. Nanci also will provide more insights into the national servicing standards on the “Deep Dive: Servicing: New Rules, New Developments” panel to be held Monday, May 5, at 1:30 pm.

We look forward to seeing you in San Diego!

 

 

HUD Updates “How to Avoid Foreclosure” Brochure Requirement

By: Krista Cooley, Kathryn M. Baugher

Out with the old, in with the “new”! The first Mortgagee Letter of 2014 has arrived, superseding the guidance contained in Mortgagee Letter 2002-14.

In Mortgagee Letter 2014-1, HUD clarifies what notice FHA-approved mortgagees must provide to delinquent mortgagors to satisfy the requirement found in 24 C.F.R. § 203.602. Under the new Mortgagee Letter, mortgagees must send delinquent borrowers the “Save Your Home: Tips to Avoid Foreclosure” brochure (HUD-2008-5-FHA) no earlier than the 32nd day of delinquency and no later than the 60th day of delinquency. This mandate replaces the previous requirement to send borrowers the “How to Avoid Foreclosure” brochure (HUD-PA-426), which has not been updated since 2001. We note that, while the requirement to send the “Save Your Home: Tips to Avoid Foreclosure” brochure is new, the brochure itself has been around for at least several years. Read More

HUD Issues Self-Reporting Guidance

By: Krista Cooley

Last Thursday, HUD issued Mortgagee Letter 2013-41 to clarify its self-reporting requirements for FHA-approved lenders. The Mortgagee Letter updates HUD’s prior guidance regarding an FHA-approved lender’s obligation to self-report instances of fraud, material misrepresentations, and material findings identified in connection with the origination, underwriting, or servicing of FHA-insured loans. New guidance set forth in this Mortgagee Letter includes direction on the timeframes to which lenders must adhere in reporting findings to senior management and to HUD, as well as clarification regarding what constitutes a “mitigated” finding in connection with the self-reporting requirements. Read More

HUD Extends Foreclosure Timeframes with Mortgagee Letter 2013-38

By: Krista Cooley, Kathryn M. Baugher

On October 28, 2013, with the publication of Mortgagee Letter 2013-38, HUD provided a much-needed update to the schedule of claimable attorney fees and reasonable diligence timeframes for prosecuting a foreclosure on loans insured by the FHA. These updates expressly apply to both forward mortgages and Home Equity Conversion Mortgages (“HECMs”).

As FHA servicers are aware, with respect to foreclosure on FHA-insured loans, HUD sets limits on the attorney fees that servicers can claim and requires servicers to prosecute foreclosure in a specific amount of time, referred to as the “reasonable diligence timeframe.” In light of the substantial changes in state foreclosure requirements in recent years, HUD’s guidance on fees and reasonable diligence timeframes, which was last updated in 2005, presented significant challenges for FHA servicers striving to meet reasonable diligence timeframes and recoup actual attorney fees expended in prosecuting foreclosures in connection with FHA-insured loans. The updates announced in Mortgagee Letter 2013-38 bring welcome increases for both claimable attorney fees and reasonable diligence timeframes in many jurisdictions.

Read More

K&L Gates Legal Insight: Housing Finance Reform Efforts Heat Up in Summer Session

By: Kristie D. Kully, Andrew L. Caplan

This summer has brought a wave of housing finance reform efforts in both chambers of Congress. To date, the House and Senate have proposed different approaches to housing finance reform. The leading House proposal, introduced by Republicans, leans heavily toward privatization and would eliminate the affordable housing responsibilities of Fannie Mae and Freddie Mac. In contrast, the Senate proposal, introduced in a bipartisan effort, would combine a government backstop (arguably through more transparent means than those GSEs currently provide) with a continued attempt to fund affordable housing programs. Notwithstanding those differences, there is one common element of both proposals – a reduced government role in the housing finance sector. This core principle has been echoed by the President, who recently laid out general principles for housing finance reform that include winding down the GSEs, amplifying the role of private risk capital, and preserving the function of FHA insurance. In this alert, we summarize key aspects of several recent housing finance proposals, which we will continue to monitor once Congress reconvenes after its August recess.

To read the full alert, click here.

 

FHA Seeks Statutory Authority to Transfer Mortgage Servicing Rights

By: Laurence E. Platt,  Kathryn M. Baugher

For at least the third time in recent months, the Federal Housing Administration (“FHA”) has asked Congress for legislative authority to force underperforming loan servicers to transfer the servicing of FHA-insured loans to another servicer.

FHA Requests for Authority to Transfer Servicing

FHA’s latest request came on June 4, 2013, when FHA Commissioner Carol Galante testified before the Senate Committee on Appropriations. In her written testimony, she proposed that Congress provide legislative authority for FHA to require the transfer of servicing “when a servicer is at or below a servicer tier ranking score (TRS) of III, or when the Secretary deems the action necessary to protect the interests of the MMI [Mutual Mortgage Insurance] Fund.” Under these circumstances, FHA would like the power to “(1) transfer servicing from the current servicer to a specialty servicer designated by FHA; (2) require a servicer to enter into a sub-servicing arrangement with an entity identified by FHA; and/or (3) require a servicer to engage a third-party contractor to assist in some aspect of loss mitigation (e.g. borrower outreach).”

At the hearing, Commissioner Galante indicated that some servicers appear to be meeting individual loss mitigation requirements, but their portfolios still have a lower rate of successful loan modifications relative to other servicers. Commissioner Galante stated that there appears to be “something deeper going on” with these servicers that FHA reviews are unable to identify. In situations where FHA cannot get the servicer to improve loss mitigation outcomes “through other means,” FHA would like to require a transfer of servicing.

While Commissioner Galante’s testimony created some buzz in industry publications, her proposal is not a new one. In fact, FHA made identical requests in November and December of 2012. In December 2012, for example, U.S. Department of Housing and Urban Development Secretary Shaun Donovan called the requested authority “a critical step,” and said that it would “send a very strong message to those servicers that are underperforming.” Secretary Donovan also made clear that FHA needs legislative authority in order to force the transfer of servicing as proposed.

Risks Associated with FHA’s Proposal

In making this legislative request, FHA did not discuss the interplay between FHA and Ginnie Mae, or the impact that FHA authority to transfer servicing might have on Ginnie Mae. While FHA insures certain of the pooled mortgage loans underlying Ginnie Mae securities, FHA is not a counter-party to the servicing agreements for such loans. In the ordinary course, Ginnie Mae would be the counter-party under the Guaranty Agreements pursuant to which Ginnie Mae guarantees the servicer’s (or in Ginnie Mae parlance, the “issuer’s”) payment obligations to security holders. Thus, any remedy demanded by FHA will have a ripple effect on the Ginnie Mae servicing rights. In addition, any requirement to transfer servicing or appoint a sub-servicer presumably would have to be accomplished in accordance with Ginnie Mae guidelines.

The risk of FHA forcing a transfer of servicing may dilute the value of the contract right to service, because the servicer may be forced into a distressed sale, particularly if the required time period for the transfer is short. It may lead to a cross-default under other commercial agreements, such as a revolving credit agreement that financed the acquisition or holding of such rights. If it is deemed to be a regulatory action or sanction, FHA’s requirement may have an adverse impact on state mortgage servicing and origination licenses. And the circumstances that give rise to the forced transfer of servicing or appointment of a sub-servicer might be used by Ginnie Mae as an event of default under the Guaranty Agreement and provide an independent basis for Ginnie Mae to terminate the servicing (“issuer responsibility”) with cause.

The bottom line is that FHA’s request for new statutory authority should be carefully considered. While a requirement to transfer servicing is a less drastic alternative than the loss of FHA approval from the perspective of an approved mortgagee, the inability to realize fair market value for the mortgage servicing rights in question could have a significant adverse effect on a servicer. We would hope that any proposed legislation in this area would not authorize FHA to impair valuable mortgage servicing rights without, at a minimum, building in robust “due process” protections and standards of materiality or material adverse effect.

HUD Renewal and Recertification

By: Stacey L. Riggin
*Ms. Riggin is not admitted to the practice of law.
 

The U.S. Department of Housing and Urban Development published notice in the Federal Register on June 18, 2013 that it is seeking public comments on the information used by FHA to verify that lenders meet all approval, renewal, update and compliance requirements. The notice solicits comments on ways to enhance the quality, utility, and clarity of the information and to minimize the burden of the collection of information on those who are to respond, such as electronic submission of responses. Read More

Consumer Financial Services Group Highlights Key Legal Issues at MBA Conference

Members of the K&L Gates Consumer Financial Services Group will speak on key topics at the upcoming MBA Legal Issues and Regulatory Compliance Conference in Boca Raton, FL (May 19-22).

Melanie Brody will discuss a topic on everyone’s radar — fair lending and disparate impact — on Tuesday morning (May 21) , with a repeat session on Tuesday afternoon . Melanie also will facilitate a fair lending roundtable discussion on Tuesday afternoon.

Paul Hancock will address major litigation and enforcement trends on Monday afternoon (May 20).

Philip Schulman will speak at the Government Housing round table on Monday afternoon (May 20) about FHA Landmines, including the perils to the Online Annual Certification, the increase in False Claims Act cases against approved mortgagees, and indemnification demands of Lender Insurance participants.

Nanci Weissgold will participate on both the Sunday (May 19) and Tuesday (May 21) panels on the CFPB National Servicing Standards (“NSS”) and other servicing requirements. Come to the dive deep session on Sunday afternoon for an overview of the RESPA and TILA provisions of the NSS. On Tuesday, Nanci will focus on non-default servicing standards, including challenges with implementing error resolution, information requests, record retention and general policy and procedure requirements.

In addition, many of our group’s attorneys are attending the conference. We look forward to seeing you all in Boca!

HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program

By: Krista Cooley

On Wednesday, HUD issued Mortgagee Letter 2013-10 to implement the Lender Insurance (“LI”) regulation it finalized in January of 2012. As announced in the final regulation, FHA mortgagees participating in the LI program will be required, as a condition of approval for LI authority, to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance. Mortgagee Letter 2013-10 provides additional guidance on the Department’s policy changes regarding indemnification, which are effective for all loans insured by LI mortgagees on or after April 9, 2013. The Mortgagee Letter and a revised Lender Insurance Guide released Wednesday provide additional guidance regarding LI changes, including LI eligibility criteria and HUD’s processes to monitor, terminate, and reinstate LI authority. Read More

FHA Investing Mortgagees No Longer Required to Provide Compliance Report

By: Phillip L. Schulman, *Nathan Pysno
*Mr. Pysno is not admitted to the D.C. Bar; currently admitted to the Maryland Bar.

A recent change to the HUD Office of the Inspector General Audit Guide has removed the requirement that all FHA investing mortgagees submit reports on internal controls and compliance.

An investing mortgagee or lender may purchase, sell, and hold FHA-insured mortgages but cannot originate or fund FHA loans. An investing mortgagee may service FHA loans with approval of the HUD Secretary. Read More

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