Affirming the dismissal of a qui tam lawsuit based on certifications made to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the U.S. Court of Appeals for the Ninth Circuit recently held that neither entity is an officer, employee, or agent of the United States. Therefore, demands or requests for payment made to these entities are not claims under 31 U.S.C. § 3729(b)(2)(A)(i) of the False Claims Act. United States ex rel. Adams v. Aurora Loan Services, Inc., — F.3d —-, 2016 WL 697771 (9th Cir. Feb. 22, 2016).
By recently releasing yet another revised representation and warranty framework, Fannie Mae and Freddie Mac continued their efforts to assuage the concerns of the lending industry that a default by a borrower poses an unfair risk of a loan repurchase demand. On October 7, 2015, Fannie Mae and Freddie Mac (the “GSEs”), at the direction of the Federal Housing Finance Agency (“FHFA”), announced a framework for origination defects and remedies (the “Framework”) that expands on existing frameworks governing the rights and responsibilities of lenders that sell or securitize loans to or with the GSEs. For example, permitting repricing or cure in lieu of the remedy of repurchase represents a concession by the GSEs. Nevertheless, the language of the new Framework is ambiguous enough that one may have to rely on the GSEs’ apparent spirit of good intentions rather than the precision of their language to take total comfort in the changes.
To read the full alert, click here.
At least for the next year, Congress has materially impaired the ability of local governments to seize underwater residential mortgage loans through eminent domain by cutting off federal insurance or guarantees to refinance the seized mortgages and then securitize the refinancings. Without this federal “take out” through mortgage insurance provided by the Federal Housing Administration (“FHA”), and guarantees of mortgage-backed securities by the Government National Mortgage Association (“Ginnie Mae”), local governments will have to find private sources of long-term funding to pay for loans that they attempt to seize.
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. Read More
On May 6, 2013, the FHFA, the regulator (and conservator) of Fannie Mae and Freddie Mac (the “GSEs”), directed the GSEs to limit their mortgage acquisitions to Qualified Mortgages (or loans that are otherwise exempt from the CFPB’s Ability to Repay Rule), effective January 10, 2014. This FHFA Directive (the “Directive”) will ensure that the GSEs only purchase loans that are fully amortizing, have a term of 30 years or less, and have points and fees limited to 3% of the total loan amount (and meet all the other QM criteria). Read More
At what point is it appropriate after a borrower defaults to initiate foreclosure proceedings? As soon as the borrower defaults? Few, if any, servicers follow this rule. During a review of loss mitigation options? During a trial modification? Servicers long have felt that the extraordinary delays in completing foreclosures based on some state laws weigh in favor of starting the foreclosure process as soon as possible. Of course, the servicer always can call off the foreclosure if the loss mitigation option succeeds, but a decision to delay the initiation of foreclosures can result in investor claims. On the other hand, borrowers who think they are in the running for a loan modification often are angry and dismayed when the foreclosure notice arrives. The national foreclosure settlement between the country’s five largest residential mortgage loan servicers and the federal government and 49 state attorneys general places a number of restrictions on the controversial but common practice of “dual tracking” foreclosures and loan modifications. Read More
By: Kristie D. Kully
The servicing standards imposed on the five largest mortgage loan servicers by the recent global settlement agreement with state and federal regulators, described here, continue to pile on the “SPOC” requirements. “SPOC” stands for a single point of contact – a knowledgeable and accessible person a troubled borrower may contact to receive information and assistance in the loss mitigation, loan modification, and foreclosure process. SPOCs may do little to resolve the foreclosure documentation irregularities that sparked state and federal regulators to initiate their investigation. However, they have been touted as key to the efforts for national servicing standards, and are an inevitable adjunct to the global settlement agreement.
The Administration’s newly announced plan to provide low cost refinancings to underwater, current borrowers whose residential mortgage loans are not owned or securitized by the GSEs is high on hope and low on likelihood of success. The plan creates a form of a “streamlined” refinancing on a stated income basis and without an appraisal. Eligibility criteria include that the loan to be refinanced has been current for the past six months, the borrower must meet a minimum credit score of 580 and be an owner-occupant and the new loan must fall within FHA loan limits and a to-be-determined high loan to value ratio. Holders may need to write down principal of the existing loan if the LTV exceeds a certain percentage in excess of 100%, much like the wildly unsuccessful 2010 FHA Short Refinance program. Read More
The loan repurchase policies of Fannie Mae and Freddie Mac are one of the factors that have exacerbated the U.S. housing crisis and impeded economic recovery, according to two recent releases by notable federal government actors. These reports call into question whether the aggressive repurchase stance of the Federal Housing Finance Agency, as conservator of the GSEs, to reduce short-term losses to U.S. taxpayers instead might work to the long-term detriment of such taxpayers. Lenders reportedly responded by saying: “like, duh!” Read More