Safeguard Properties

FHFA Prepared Remarks of Melvin Watt

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Investor Update
October 19, 2015

Mortgage Bankers Association’s Annual Convention and Expo 2015

Thank you for that introduction and for inviting me back to your annual convention again this year.  It’s a pleasure to be here with Secretary Castro and Director Cordray.

At the Federal Housing Finance Agency (FHFA), we place a high priority on engaging with a broad cross section of stakeholders, including the Mortgage Bankers Association and its members, about the Federal Home Loan Banks (FHLBanks) and about Fannie Mae and Freddie Mac (the Enterprises).  This dialogue has been especially important as FHFA continues to manage and oversee the Enterprises, which are now into their eighth year of conservatorship.  I hope all of you share our view that this dialogue is mutually beneficial. 

To further our ongoing conversation, I’d like to update you today about some of the things we’ve been doing since I spoke to you last year and give you an idea of where we expect to head on some key initiatives in 2016.  I believe you will find that these comments underscore our commitment to continue to innovate as we strive to accomplish our statutory mandates to, among other things, foster liquidity and efficiency in the housing finance markets and to do so in a safe and sound manner.  

Common Securitization Platform and Single Security

Let me begin with our work to build the CSP and develop the Single Security.  These are both big multiyear initiatives that will change the way the Enterprises issue securities and make the housing finance market more efficient.  These initiatives may also change how private companies issue securities in the future, since we have committed to using technology that will make the CSP adaptable for use by other secondary market participants. 

During the course of this year, we have worked to build and test an increasing amount of the operations and architecture of the CSP.  At the center of this work is Common Securitization Solutions (CSS), LLC, which is the Fannie Mae and Freddie Mac joint venture that is now responsible for developing and running the CSP.  In 2015, CSS released updated software to the Enterprises to further their testing processes.  In addition, an Industry Advisory Group of stakeholders has started having formal meetings with the Enterprises and CSS.  We believe that this is an invaluable forum for feedback and discussion about the CSP and Single Security.

During 2015, we have also worked to define the parameters of the new Single Security.  The progress report we issued earlier this year provides important details about how the Single Security will look and operate.  I encourage each of you to read this report if you have not already done so and to continue to provide your input as we work aggressively to move this initiative across the finish line.   

We recently announced that the CSP and Single Security efforts will be launched in two stages.  In the first stage, which we are calling Release 1, the CSP will begin issuing and administering only Freddie Mac’s securities.  In the second phase, Release 2, the CSP will begin issuing and administering securities for both Enterprises and will do so using the new Single Security for the first time. 

We realize that there is a degree of impatience and a desire to see all these efforts completed right away.  While I’m not in a position to give you specific dates right now, I can confirm that we plan to announce the Release 1 timeline in 2016.  We also hope to be able to announce the Release 2 timeline next year.  When we do announce the Release 2 timeline, rest assured that we will meet our commitment to provide at least one year of advance notice before any go live date. 

Meeting both of these objectives will require continued testing and sustained progress of the kind we have had to date.  It will also require much more dialogue between CSS, the Enterprises, FHFA and multiple other stakeholders.  We share your sense of urgency, and I assure you that we are moving expeditiously, but responsibly, to launch the CSP and the Single Security.

Credit Risk Transfer Transactions

Another long-term priority for FHFA is our work with the Enterprises to transfer credit risk to the private sector through various financial transactions.  This initiative ensures that the private sector continues to assume meaningful credit risk, with the Enterprises remaining as backstops to cover catastrophic risk.  Since 2013, the Enterprises have transferred a significant portion of credit risk on single-family mortgages with a total unpaid principal balance exceeding $700 billion.  Both Fannie Mae and Freddie Mac are on track to exceed our 2015 Conservatorship Scorecard credit risk transfer objectives by comfortable margins. 

As the Enterprises have gotten these risk transfer transactions up and running, we have been strategic about which loans to target.  Instead of using a random sample of Enterprise loans, we have targeted new loan purchases with the greatest credit risk.  The targeted loans include new acquisitions of 30-year fixed-rate mortgages that have loan-to-value (LTV) ratios exceeding 60 percent, excluding HARP refinances.  The Enterprises are currently transferring significant credit risk on approximately 90 percent of these targeted loans, the bread and butter of their single-family purchases.  This approach has made the transactions easier to scale up and more economical, with the Enterprises and taxpayers getting a greater bang for their buck.

As part of our next steps, we want to refine and further standardize the Enterprises’ debt, reinsurance and upfront offerings.  This will help broaden liquidity.  We will continue to work with the Enterprises on other innovative transaction types, such as credit-linked notes.  We will also aggressively continue our work to analyze, assess, and define upfront credit risk transfers.  We are committed to engaging stakeholders as part of this process. 

While a great deal has been accomplished in a short time, it is still early in the development of the risk transfer market.  FHFA and both Enterprises are committed to building on our recent progress, and we view credit risk transfers as a key part of Fannie Mae and Freddie Mac’s credit guarantee business going forward. 

Access to Credit

As we continue to explore innovative CSP, Single Security and risk transfer initiatives, let me assure you that we have not lessened our conservatorship efforts to improve market liquidity by exploring ways to improve access to credit for creditworthy borrowers.  Last year, I spoke to you about the important clarifications that FHFA and the Enterprises were making to the life-of-loan exclusions in the Representations and Warranties Framework, and I announced that FHFA had authorized the Enterprises to launch a 3 percent down payment product offering.  Both of these measures were carefully designed to move the needle on access to credit for responsible borrowers without jeopardizing the safety and soundness of the Enterprises, and both of these measures are now being implemented responsibly and successfully.

In 2015, we also continued to pursue other efforts to provide clarity and transparency on Enterprise practices.  Earlier this month, the Enterprises published guidance that for the first time defines severity levels for loan origination defects and establishes a process for lenders to correct or remedy those defects to the extent practicable.  This new approach calibrates the severity of a defect with the remedy and results in only the most serious defects raising the possibility of a loan repurchase. 

The Enterprises also anticipate releasing updated guidance on servicing remedies by the end of this year.  These clarifications will provide servicers with more transparency on the types of remedies available for servicing breaches and will specifically identify the limited circumstances that would trigger a loan repurchase. 

The Enterprises are also continuing their work to develop an independent dispute resolution program to be used to resolve contested disputes about repurchase requests.  Fannie Mae and Freddie Mac completed a pilot of their independent dispute resolution program design over the summer, and they are now completing assessments of the pilot to inform the final program design. 

An effort that will not be completed this year but will carry over into next year is the work that has been taking place about possible appraisal-related representation and warranty relief.  Both Enterprises have developed tools that provide lenders feedback about appraisal quality and are now using these tools in independent pilots to assess the feasibility of representation and warranty relief on the value of collateral.  These pilots are in their very early stages.  But throughout 2016, we will continue our efforts to provide as much certainty on appraisal-related issues as is possible.

Each of these efforts is intended to provide more certainty to lenders and to do so in a way that is safe and sound for the Enterprises.  We anticipate that greater certainty will translate into fewer credit overlays, lower costs for borrowers, and greater access to credit for creditworthy borrowers.  As I said last year, we expect this to be a two-way street.  FHFA will continue to do what we can to provide certainty and thereby reduce the unintended consequences that follow from uncertainty in the market.  But, we are looking for lenders in return to take the necessary steps to serve creditworthy borrowers who are currently sitting on the sidelines. 

Affordable Rental Housing

While access to mortgage credit and homeownership are critically important, we also remain focused on Fannie Mae and Freddie Mac’s role in supporting liquidity in the multifamily market, and we are especially focused on their roles in support of affordable rental housing.  Households across the country are paying more and more of their income toward rent.  Half of all renters now spend more than 30 percent of their income on housing and 26 percent of renters spend more than 50 percent.  Both of these are sharp increases over the last decade, and we expect these challenges in the rental market to continue.  

Each Enterprise utilizes a different multifamily business model that supports rental housing affordability while also sharing significant credit risk with the private sector.  The Enterprises offer affordable, long-term, fixed-rate loans that enable property owners to have a stable, sustainable mortgage payment and reduce the need to increase rents charged to tenants.  Over 70 percent of rental units financed by the Enterprises over the last few years have been affordable to low-income households. 

The Enterprises’ multifamily programs benefit from strong underwriting standards and correspondingly strong performance, which they sustained throughout the economic crisis.  Because of the credit risk these programs transfer to the private sector, taxpayers are well shielded from losses on Enterprise-supported multifamily loans.

Our annual Scorecard has included a cap on the Enterprises’ multifamily lending volume, with exceptions to the cap for certain affordable lending activities.  Earlier this year, we broadened the categories of affordable multifamily lending that were excluded from FHFA’s cap.  We made these adjustments because the multifamily market grew more rapidly in the first half of 2015 than we had projected and because we wanted the Enterprises to prioritize multifamily purchases of affordable housing.

Looking ahead to next year, FHFA expects to maintain our $30 billion cap for each Enterprise for market rate properties.  To avoid the kind of uncertainty we experienced last year, however, we will institute a quarterly review process to make necessary adjustments if the market grows beyond our initial projections.

We anticipate that next year’s Scorecard will also maintain the broadened list of exclusions from the cap that we put in place earlier this year.  This means that we will continue to exclude from the cap loans for affordable properties, including those in higher-cost areas.  We will also continue to exclude certain loans for manufactured housing communities, as well as seniors housing and small multifamily properties affordable to low-income tenants.  Beginning in 2016, FHFA expects to add two new exclusions – loans for low-income apartments in rural areas and loans for energy efficiency improvements that meet our eligibility criteria.  
 
Our Scorecard priorities as conservator align with the housing goals regulation we recently finalized for 2015-2017.  In most cases, we increased the goals for the number of affordable multifamily units that we expect the Enterprises to support.  We also required Fannie Mae and Freddie Mac to meet identical multifamily housing goals for the first time.  In light of the strong state of the multifamily market and the need for more affordable units, we believe these goals are both achievable and critical. 

In 2016, we also plan to finalize a Duty to Serve rule, which will encourage Fannie Mae and Freddie Mac to innovate responsibly in the areas of affordable housing preservation, housing in rural areas, and manufactured housing.  Our re-proposed rule on Duty to Serve is forthcoming, and we look forward to getting feedback from all stakeholders. 

Federal Home Loan Banks

Before I conclude, I’m sure a number of you would like for me to say something about the rule FHFA has proposed related to several aspects of Federal Home Loan Bank membership.  Unfortunately, legal constraints prevent me from saying much about this because we are in the period between the end of the comment period and the time we issue the final rule.  I can tell you, however, that we have completed our review of the 1,300-plus comments submitted on the proposed rule, and we are making a concerted effort to finalize the final rule by the end of this year and, if not, certainly within the first quarter of 2016. 

Conclusion

The Federal Housing Finance Agency faces a number of challenges in our role as regulator of the Federal Home Loan Banks and our role as regulator and conservator of Fannie Mae and Freddie Mac.  We have found that substantial new thinking and innovation will be required in all aspects of the housing finance market to meet the needs of both homeowners and the growing number of renters struggling to afford housing.  My remarks today have touched on only a few of the initiatives we are undertaking to meet these challenges.  But I hope these comments have provided some insight into our thinking as we approach 2016. 

Thank you again for inviting me to be here today.

Contacts: Media: Stefanie Johnson (202) 649-3030 / Corinne Russell (202) 649-3032
Consumers: Consumer Communications or (202) 649-3811

Source: FHFA

FHFA AB 2015-07 Fraud Risk Management

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Investor Update
September 29, 2015

Purpose

This Advisory Bulletin communicates to Fannie Mae and Freddie Mac (the Enterprises) the Federal Housing Finance Agency’s (FHFA) supervisory expectations for fraud risk management, including the establishment and maintenance of internal controls to prevent, deter, and detect fraud or possible fraud. 

Background

Effective fraud risk management is essential to the safe and sound operations of the Enterprises.  Potential exposure to the risk of fraud exists in Enterprise business operations.  For example, single-family and multifamily mortgage operations have exposure to the risk of fraud associated with activities of borrowers, loan originators, mortgage brokers, loan sellers, attorneys, servicers, appraisers, property managers, and third parties engaged to perform functions relating to loans or the collateral securing the loans.  Capital markets activities may expose an Enterprise to fraud committed by counterparties involved in securitizations.  The Enterprises also have potential exposure to fraud risk resulting from insider malfeasance.[1]

Fraud may subject an Enterprise to financial, operational, legal, or reputational harm.  For example, mortgage fraud may result in financial losses for an Enterprise if a seller does not have the financial ability and willingness to honor its obligation to repurchase fraudulent loans.  Other types of fraud may result in financial losses if the fraud is not fully covered by fidelity bond insurance.  An Enterprise may be exposed to litigation or civil money penalties for failure to comply with fraud-related statutes and regulations.  Further, fraud may cause reputational risk if an Enterprise’s operations are used or perceived to be used to perpetrate fraud.  While experience demonstrates that fraud may not be prevented completely, it may be deterred or reduced through appropriate anti-fraud procedures that are maintained and reviewed over time.

Examples of Fraud

The Enterprises may encounter various types of fraud.  For example, mortgage fraud may occur in mortgage loans purchased for an Enterprise’s own portfolios or for securitization.  Fraud may be committed as part of the origination, underwriting, or closing process or in conjunction with the servicing of a loan on behalf of an Enterprise. 

Mortgage-related fraud may be committed by various participants in the origination, selling, and servicing of mortgage loans.  Borrowers may provide false identification, employment, or income information to obtain approval for a mortgage loan.  Parties involved in loan originations, such as appraisers, attorneys, and title agencies, may engage in misrepresentation of collateral or performance of contracted responsibilities, or through diversion of funds.  Sellers of mortgage loans may misrepresent underwriting standards or deliver a single mortgage loan multiple times.  Servicers may divert custodial or other funds received to accounts used for their own purposes. 

Mortgage-related fraud may be part of larger schemes that include originating mortgage loans through the use of straw borrowers, illegal property flipping, double-pledging of collateral, and builder bailouts.  Post-origination mortgage fraud may target financially distressed borrowers to steal equity in or secure title to a property through fraudulent workout schemes or short sales. 

Insider fraud (i.e., fraud involving current or former employees and contractors) may include accounting fraud, payroll fraud, embezzlement, or collaboration with external parties in a fraud against an Enterprise or other financial institution. 

The wide variation of possible fraudulent activities creates a broad range of fraud risk; therefore, an Enterprise should implement a risk-based approach to fraud risk management that takes into account the scope and potential harm to the Enterprise of possible fraud.

Guidance

This Advisory Bulletin describes FHFA’s expectations for the oversight of fraud risk management, key elements of a risk-based approach to fraud risk management, and the training and independent testing functions that should accompany an Enterprise’s fraud risk management approach.  As described below, FHFA expects the Enterprises will take steps to manage fraud risk in all business lines and operational functions.[2]

Oversight of Fraud Risk Management

Each Enterprise’s board of directors has a responsibility to ensure that the Enterprise’s management is committed to effective fraud risk management and that the Enterprise has appropriate policies for preventing and detecting fraud or possible fraud.  The Enterprise should have documented processes in place to appropriately inform the board about fraud risk management activities and significant instances of fraud or possible fraud.  Fraud risk should be included in the risk management policies that are approved by the board or a committee thereof, and reviewed on a periodic basis. 

The policies should establish the Enterprise’s standards and reporting processes relating to fraud and possible fraud.  The policies should designate the management official(s) responsible for the oversight of fraud risk management and define specific roles and responsibilities for personnel with fraud risk management responsibilities. 

Enterprise management should develop and oversee the implementation of business unit policies and procedures to implement and support anti-fraud and regulatory reporting programs and controls consistent with the Enterprise’s policies.  Business unit policies should detail the Enterprise’s fraud risk management processes, including risk assessments, internal controls, training, independent testing, fraud response protocols, and board and senior management reporting. 

The Enterprise should provide for appropriate coordination across business lines and functions of fraud risk management activities and resources.  Areas of coordination may include risk assessments, oversight of the design and implementation of anti-fraud and regulatory reporting programs and controls, and reporting to senior management and the board or a committee thereof, as appropriate, the results of the Enterprise’s fraud risk management efforts. 

Elements of Fraud Risk Management

Effective fraud risk management should include:

  • Ongoing risk assessments to determine areas of heightened risk for possible fraud and adequacy of the control environment.
  • Risk-based internal controls that are designed to prevent and deter fraud from occurring.
  • Risk-based internal controls that are designed to detect fraud when it occurs.
  • Processes for responding to and reporting fraud or possible fraud.

Risk Assessments

An Enterprise should have an ongoing process for performing risk assessments to identify and assess risk of fraud and to evaluate controls in place to mitigate risk.  Risk assessments should consider factors such as products, services, customers, counterparties, and geographic locations, and should cover business units and operational and control functions.  Fraud risk assessments should provide the basis for internal controls to prevent and deter fraud and to detect fraud or possible fraud.  An Enterprise should have in place a process for periodically updating fraud risk assessments and making associated changes to internal controls. 

Fraud Prevention and Deterrence

Each Enterprise should maintain effective internal controls designed to prevent and deter fraud.  The type and scale of internal controls will vary depending on the operational area, product type, and fraud risk.  Types of controls include segregation of duties; a system of proper authorizations; physical safeguards to prohibit access to assets and records; a system of independent checks; and records to provide an audit trail. 

Internal controls should be clearly documented and subject to ongoing review to determine whether they are followed, are effective, and reflect current industry sound practices.  With regard to potential insider fraud, policies related to the consequences of committing or concealing fraud should be communicated clearly to all personnel. 

Fraud Detection

The complexity and extent of the internal controls for detection of different types of potential fraud in different business activities should be based on the fraud risk assessment, in light of the size, structure, risks, complexity, and vulnerability to fraud of the particular activity.  Fraud detection controls and tools may include, but are not limited to, internal and external tip hotlines; whistleblower vehicles; audits; quality control reviews; and analysis of financial, operational, and transaction data.  Detection methods may involve a review of transactions for possible fraud and, where possible, should include a review for red flags that indicate fraud or possible fraud.  Examples of red flags may include patterns of inconsistency in borrower information, loan documentation, servicer records, and significant servicer performance issues, as well as adverse public information.  Additionally, an Enterprise may identify individuals and firms known to have been involved in fraud.  Fraud detection procedures should document when findings will warrant the expansion of the scope of review consistent with current risk assessments.

Each Enterprise should have adequate information systems to timely capture information needed to detect fraud or possible fraud and comply with regulatory reporting requirements. 

Fraud Response and Reporting

Each Enterprise should have documented processes for evaluating and responding to various types of possible fraud and for complying with regulatory reporting requirements.  An Enterprise should take steps to make its employees and third parties aware of methods by which they may report possible fraud relating to Enterprise operations.  Furthermore, an Enterprise should ensure that its procedures and resources are sufficient to timely investigate possible fraud. 

An Enterprise’s process should address investigation procedures, protocols for gathering evidence, decision-making authority, internal and regulatory reporting, escalation protocols, remedial action, and disclosure.  Individuals assigned to investigations should have the necessary training, authority, and skills to evaluate possible fraud and determine the appropriate course of action.  The process should include a tracking or case management system(s) where allegations of fraud are logged.  As appropriate, an Enterprise’s procedures should also include a review of incidents to determine if improvements need to be made to processes or internal control systems to prevent future incidents of possible fraud. 

Each Enterprise should have effective, risk-based processes to timely investigate potential fraud to minimize and prevent loss.  Procedures should be in place for reporting investigation findings regarding fraud or possible fraud in accordance with regulatory requirements and Enterprise policy. 

Training

Each Enterprise should promote fraud awareness by conveying the importance of fraud prevention and penalties for fraud to all employees.  Each Enterprise should provide and document adequate fraud risk management training that is risk-based and commensurate with trainees’ roles and specific responsibilities.  Training should include instruction on regulatory requirements and the Enterprise’s policies and procedures to comply with those requirements.  Board and senior management training should reflect their oversight role.  Training should be updated as needed to reflect regulatory changes and industry sound practices, as well as changes to the Enterprise’s risk assessments and internal controls. 

Independent Testing

Each Enterprise should conduct regular independent testing in all business lines to determine the overall adequacy and effectiveness of the Enterprise’s fraud risk management.  Testing scope, procedures performed, and findings should be documented.

Related FHFA Guidance

Enterprise Fraud Reporting, Federal Housing Finance Agency Advisory Bulletin 2015-02, March 26, 2015, communicates to the Enterprises FHFA’s fraud reporting requirements pursuant to 12 CFR Part 1233.

Oversight of Single-Family Seller/Servicer Relationships, Federal Housing Finance Agency Advisory Bulletin 2014-07, December 1, 2014, communicates to the Enterprises FHFA’s supervisory expectations for managing counterparty risk associated with their relationships with single-family Seller/Servicers.

Suspended Counterparty Program at 12 CFR Part 1227, generally sets forth the requirements by which each regulated entity submits reports to FHFA when it becomes aware that an individual or institution with which it has been engaged in a covered transaction (as such term is defined in the regulation) within the previous three years has been convicted, debarred, suspended, or otherwise sanctioned, based on specified financial misconduct.  FHFA may issue suspension orders in appropriate cases, requiring the regulated entities to cease doing business with such individuals or institutions.

[1] For purposes of this Advisory Bulletin, fraud occurs when a person(s), knowingly and willfully (1) falsifies, conceals, or covers up a material fact by any trick, scheme, or device; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry.

[2] The risk management guidance in this Advisory Bulletin complements the requirements for reporting fraud and possible fraud found in: (i) 12 C.F.R. Part 1233, Reporting of Fraudulent Financial Instruments; (ii) 31 C.F.R. Parts 1010 and 1030, Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Housing Government Sponsored Enterprises; and (iii) Advisory Bulletin 2015-02, Enterprise Fraud Reporting (March 26, 2015).

Advisory Bulletins communicate guidance to FHFA supervision staff and the regulated entities on specific supervisory matters pertaining to the Federal Home Loan Banks, Fannie Mae, and Freddie Mac.  This advisory bulletin is effective immediately upon issuance.  Contact Bobbi Montoya, Associate Director, Examination Standards Branch at Bobbi.Montoya@fhfa.gov or (202) 649-3406, Kathy Beach, Principal Advisor, Office os Supervision Policy at Kathy.Beach@fhfa.gov or (202) 649-3521, or Ellen Joyce, Principal Risk Analyst, Risk Analysis Branch at Ellen.Joyce@fhfa.gov or (202) 649-3409 with comments or questions pertaining to this bulletin.   
 
Attachments: Advisory Bulletin 2015-07

Source: FHFA

FHA INFO #15-84: FHA Single Family Mortgage Insurance Maximum Time Period for Filing Insurance Claims

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Investor Update
October 16, 2015

FHA Single Family Mortgage Insurance Maximum Time Period for Filing Insurance Claims, etc.

Today, the Federal Housing Administration (FHA) published Federal Register Notice Docket No. FR-5742-N-02, Federal Housing Administration (FHA): Single Family Mortgage Insurance Maximum Time Period for Filing Insurance Claims, Curtailment of Interest and Disallowance of Operating Expenses Incurred beyond Certain Established Timeframes; Partial Withdrawal.

This Notice withdraws part of the proposed rule, published on July 6, 2015 (80 FR 38410), that proposed to establish a maximum time period within which an FHA-approved mortgagee must file a claim with FHA for insurance benefits, and to revise HUD’s policies concerning the curtailment of interest and the disallowance of certain expenses incurred by a mortgagee as a result of the mortgagee’s failure to timely initiate foreclosure or timely take such other action that is a prerequisite to submission of a claim for insurance.

This withdrawal covers only the portion of the proposed rule that would have established the maximum time period within which an FHA-approved mortgagee must file a claim with FHA for insurance benefits. Specifically, HUD withdraws the proposed provisions §§ 203.317a and 203.372, and proposed revision to § 203.318. HUD will publish in the Federal Register any revised maximum time period for claim filing provisions in a proposed rule and solicit public comment on it.

Quick Links

Extension of Certain Timeframes in Mortgagee Letter 2015-11

Today, the Federal Housing Administration (FHA) issued Mortgagee Letter 2015-26, Extension of Certain Timeframes in Mortgagee Letter 2015-11, Loss Mitigation Guidance for Home Equity Conversion Mortgages (HECMs) in Default due to Unpaid Property Charges. The purpose of this Mortgagee Letter (ML) is to provide mortgagees with an extension through January 18, 2016 to the timeframes provided in ML 2015-11 to submit a due and payable request and to the timeframe to take First Legal Action where the mortgagee is actively reviewing the borrower for loss mitigation in accordance with ML 2015-11.

All other provisions in Mortgagee Letter 2015-11 became effective April 23, 2015, and remain in effect.

Quick Links

FHA’s Position on the Implementation of the Consumer Financial Protection Bureau’s, “Know Before You Owe,” TILA -RESPA Integrated Disclosure (TRID) rule

Today, the Federal Housing Administration (FHA) announced that it is providing mortgagees and other interested stakeholders with information on its position on the implementation of the Consumer Financial Protection Bureau’s (CFPB), “Know Before You Owe,” TILA-RESPA Integrated Disclosure (TRID) rule. This information is located on the Lender Performance web page on HUD.gov.

Quick Links

Resources

  • Contact the FHA Resource Center:
  • Visit our online knowledge base to obtain answers to frequently asked questions 24/7 at www.hud.gov/answers.
  • E-mail the FHA Resource Center at answers@hud.gov. Emails and phone messages will be responded to during normal hours of operation, 8:00 AM to 8:00 PM (Eastern), Monday through Friday on all non-Federal holidays.
  • Call 1-800-CALLFHA (1-800-225-5342). Persons with hearing or speech impairments may reach this number by calling the Federal Information Relay Service at 1-800-877-8339.

 

Source: HUD (FHA INFO #15-84 full version)

FHA INFO #15-83: Points of Contact for Lienholders to Ensure Payment of Taxes Liens and Other Types of Liens on FHA Acquired Single Family Properties

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Investor Update
October 15, 2015

Today, the Federal Housing Administration (FHA) published two related Federal Register Notices:

  • Federal Housing Administration (FHA): Points of Contact for Lienholders to Ensure Payment of Taxes Liens and Other Types of Liens on FHA Acquired Single Family Properties; and
  • Federal Housing Administration (FHA): Points of Contact to Ensure Payment of Taxes and Homeowners Association Fees and Other Property Charges That Have Not Arisen to Lien Status on FHA Acquired Single Family Properties

The complementary Federal Register Notices establish specific points of contact for lienholders and taxing authorities and others for the management and disposition of HUD-acquired single family properties, and are authorized under the National Housing Act (12 U.S.C. 1710g).

See below for details.

Federal Housing Administration (FHA): Points of Contact for Lienholders to Ensure Payment of Taxes Liens And Other Types Of Liens on FHA Acquired Single Family Properties

This Federal Register Notice (Docket No. FR-5823-N-01) provides points of contact within the Department of Housing and Urban Development (HUD) for lienholders on FHA-owned properties to ensure they receive timely payment of taxes and liens on such properties and to help avoid litigation for non-payment. In addition, this Notice provides direction on finding the proper point of contact at HUD for taxing authorities and homeowners’ associations that are owed payment (where there is no lien) for amounts owed.

Quick Links

Federal Housing Administration (FHA): Points of Contact to Ensure Payment of Taxes and Homeowners Association Fees and Other Property Charges That Have Not Arisen to Lien Status on FHA Acquired Single Family Properties

This corresponding Federal Register Notice (Docket No. FR-5823-N-02) proactively provides points of contact for taxing
authorities and others that are owed money on HUD-owned single family properties acquired by payment of FHA
mortgage insurance claims. Claims payments are typically handled by outside contractors, and sometimes payments are
inadvertently missed. These new HUD-designated points of contact will help ensure that taxing authorities and others
receive timely payment of taxes, association fees, and other property charges that have not risen to lien status under
state law on these properties.

Quick Links

Resources

  • Contact the FHA Resource Center:
  • Visit our online knowledge base to obtain answers to frequently asked questions 24/7 at www.hud.gov/answers.
  • E-mail the FHA Resource Center at answers@hud.gov. Emails and phone messages will be responded to during normal hours of operation, 8:00 AM to 8:00 PM (Eastern), Monday through Friday on all non-Federal holidays.
  • Call 1-800-CALLFHA (1-800-225-5342). Persons with hearing or speech impairments may reach this number by calling the Federal Information Relay Service at 1-800-877-8339.

Source: HUD (FHA INFO #15-83 full version)

FHA INFO #15-81: Reminder: Guidance for the Origination and Servicing of FHA-insured Loans in Presidentially-Declared Major Disaster Areas

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Investor Update
October 5, 2015

On October 3, 2015, President Obama signed an emergency declaration for the State of South Carolina, which was affected by severe storms and flooding beginning on October 1, 2015.

Today, the Federal Housing Administration (FHA) is reminding its approved mortgagees and servicers of special origination and servicing guidelines for FHA-insured loans in Presidentially-Declared Major Disaster Areas.

This guidance was first issued in Mortgage Letters 2012-23 and 2012-28 and amended in Mortgagee Letter 2013-11, Additional Guidance for the Origination and Servicing of FHA-insured Loans in Presidentially-Declared Major Disaster Areas and Specific Requirement for Hurricane Sandy Affected Communities.

Quick Links:

Resources

  • Contact the FHA Resource Center:
  • Visit our online knowledge base to obtain answers to frequently asked questions 24/7 at www.hud.gov/answers.
  • E-mail the FHA Resource Center at answers@hud.gov. Emails and phone messages will be responded to during normal hours of operation, 8:00 AM to 8:00 PM (Eastern), Monday through Friday on all non-Federal holidays.
  • Call 1-800-CALLFHA (1-800-225-5342). Persons with hearing or speech

 

Source: HUD

Fannie Mae Servicing Guide Announcement SVC-2015-13 Servicing Guide Updates

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Investor Update
October 30, 2015

Servicing Guide Announcement SVC-2015-13 – Revised*

The Servicing Guide has been updated to include the following:

  • Updates to Short Sale Access Requirements
  • Updates to Property Inspection Frequency
  • Updates to Lender-Placed Insurance Requirements
  • Revisions to Breach/Acceleration Letter Content Requirements
  • Clarifications to Liquidation Action Code Descriptions
  • Changes to Texas Section 50(a)(6) Modifications
  • Changes to Requirements for Processing Modification Agreements
  • Updates to Requirements for Unapplied Funds and Custodial Accounts
  • Adjustments to Foreclosure Time Frames and Compensatory Fee Allowable Delays Exhibit
  • Updates to Compensatory Fee Calculation Examples
  • Changes to the Borrower Notification Sample Letter Exhibit

Each of these updates is described below. The servicer must review each topic in the Servicing Guide in its entirety to gain a full understanding of the policy change(s).

Updates to Short Sale Access Requirements

Servicing Guide D2-3.3-01, Fannie Mae Short Sale has been updated to require the servicer to advise the borrower that he or she must allow the vendor(s) timely and sufficient access to the property for the purpose of obtaining a valuation.

Effective Date

The servicer is encouraged to implement these policy changes immediately; but must implement the changes by December 1, 2015.

Updates to Property Inspection Frequency

Servicing Guide D2-2-11, Requirements for Performing Property Inspections has been updated to specify that when a property inspection is required every calendar month, the property inspections must occur between 20 and 35 days apart. However, the servicer must complete more frequent property inspections when necessary (such as those required by local ordinance, in high vandal areas, based on property condition, or during winter months).

Effective Date

The servicer is encouraged to implement this policy change immediately; but must implement the change by January 1, 2016.

Updates to Lender-Placed Insurance Requirements

Servicing Guide B-6-01, Lender-Placed Insurance Requirements has been updated to include new lender-placed (hazard) insurance deductibles determined by the amount of insurance coverage as follows:

  • $1,000 deductible for coverage amounts less than $100,000;
  • $2,000 deductible for coverage amounts from $100,000 up to and including $250,000; and
  • $2,500 deductible for coverage amounts greater than $250,000.

Lender-placed flood insurance, and lender-placed wind- or hail-only insurance policies are excluded from this requirement.

*Corrected 10/30/15* Effective Date

The servicer is encouraged to implement this change immediately; but must do so no later than July 1, 2016, to the extent permissible under applicable state insurance statutes and/or regulations, for lender-placed insurance policies renewed or obtained with an effective date on or after July 1, 2016.

Revisions to Breach/Acceleration Letter Content Requirements

Servicing Guide D2-2-06, Sending a Breach or Acceleration Letter has been updated to no longer require that the servicer include the approximate date that foreclosure proceedings will begin in the breach or acceleration letter if the borrower does not cure the breach by the specified date.

Effective Date

The servicer is encouraged to implement this policy change immediately; but must implement the change by December 1, 2015.

Clarifications to Liquidation Action Code Descriptions

Investor Reporting Manual 3-06, Reporting a Liquidation to Fannie Mae has been updated to clarify the descriptions for use of action codes 70, 71, and 72.

Effective Date

The servicer is encouraged to implement this policy change immediately; but must implement the change by November 1, 2015.

Changes to Texas Section 50(a)(6) Modifications

The Servicing Guide has been updated to allow the servicer to approve a mortgage loan modification for a Texas 50(a)(6) mortgage loan under a Fannie Mae Standard, Streamlined or HAMP Modification.

Updated Servicing Guide Topics

Effective Date

The servicer is encouraged to implement these policy changes immediately; but must implement the changes by December 1, 2015.

Changes to Requirements for Processing Modification Agreements

The Servicing Guide has been updated where applicable to standardize how a servicer must process a loan modification agreement regardless of the type of conventional mortgage loan modification completed. For all conventional mortgage loan modifications:

  • The servicer is not required to obtain the co-borrower’s signature on the loan modification agreement when the co-borrower’s signature is not obtainable (for example, mental incapacity or military deployment) as long as the servicer documents the reason for this exception.
  • The servicer must preserve Fannie Mae’s lien status when a mortgage loan is modified by amending, recording and/or filing a lien for all manufactured home loans where collateral documents exist but are not recorded in the land records.
  • The servicer must adhere to the requirements for use of an “interim month” in determining the modification effective date.

Additionally, to improve content organization, the policy related to the allowable servicing fee after a conventional mortgage loan modification becomes effective was centralized to Servicing Guide Part A.

Updated Servicing Guide Topics

Effective Date

The servicer is encouraged to implement these policy changes immediately; but must implement the changes by November 1, 2015.

Updates to Requirements for Unapplied Funds and Custodial Accounts

  • Servicing Guide A4-1-02, Establishing Custodial Bank Accounts has been updated to require the servicer to utilize T&I custodial accounts for all unapplied funds related to a Fannie Mae mortgage loan. Unapplied (suspense) funds include but are not limited to partial payments, unidentified funds, payment overages, payment shortages, rental income, and property (hazard) or flood insurance loss draft funds.
  • Servicing Guide B-5-01, Insured Loss Events has been updated to require that, when depositing insurance loss proceeds, the interest-bearing account must be a T&I custodial account.
  • Servicing Guide F-1-03, Establishing and Implementing Custodial Accounts has been updated as follows:
  • The servicer must actively monitor all unapplied funds held in T&I custodial accounts on a monthly basis by
  • conducting research to ensure unapplied funds are identified and applied as appropriate;
  • maintaining records of all research and contact efforts made to the borrower related to the funds, and if applicable, the corrective action needed and the expected date of resolution; and
  • determining whether any funds should be returned to the borrower, and if so, return funds to borrower in a timely manner.
  • All relevant documentation with regard to unapplied funds must be provided to Fannie Mae upon request.

The servicer is authorized to withdraw T&I funds from the T&I custodial account to remove funds due back to the borrower.

Effective Date

The servicer is encouraged to implement these policy changes immediately; but must implement the changes by February 1, 2016.

Adjustments to Foreclosure Time Frames and Compensatory Fee Allowable Delays Exhibit

The Foreclosure Time Frames and Compensatory Fee Allowable Delays Exhibit has been updated to reflect the maximum number of allowable days within which routine foreclosure proceedings are to be completed.

The maximum number of allowable days has been increased for the following jurisdictions: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Nevada, New Mexico, New Hampshire, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

*Corrected 10/16/15* Effective Date
The servicer must use the updated foreclosure time frames for all mortgage loans liquidated through a foreclosure or otherwise, on or after August 1, 2015.

Updates to Compensatory Fee Calculation Examples

Servicing Guide F-2-04, Compensatory Fee Calculation Examples, has been updated so that the compensatory fee calculation examples are based on the most recent foreclosure time frames and allowable delays.

Effective Date

The servicer must refer to this example for future use.

Changes to the Borrower Notification Sample Letter Exhibit

The Fannie Mae Borrower Notification Sample Letter Exhibit has been updated to revise the language regarding the acceptance and application of partial payment guidance. This is consistent with Servicing Guide C-1.1-02, Processing Payment Shortages or Funds Received When a Mortgage Loan Modification Is Pending.

Effective Date

The servicer must use this new Exhibit immediately.

The servicer should contact its Servicing Consultant, Portfolio Manager, or Fannie Mae’s Credit Portfolio Management’s Servicer Support Center at 1-888-FANNIE5 (1-888-326-6435) with any questions regarding this Announcement.

Malloy Evans
Vice President
Credit Portfolio Management

Source: Fannie Mae

Fannie Mae Selling Guide Announcement SEL-2015-11: Selling Representations and Warranties Framework ? Origination Defects and Remedies

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Investor Update
October 7, 2015

Fannie Mae, jointly with Freddie Mac, and at the direction of the Federal Housing Finance Agency (FHFA), is announcing the origination defects and remedies framework (the “remedies framework”) which expands upon provisions contained in the representations and warranties framework introduced in Selling Guide Announcement SEL-2012-08, New Lender Selling Representations and Warranties Framework, and subsequently updated in Announcements SEL-2014-05, Lender Selling Representations and Warranties Framework Updates and SEL-2014-14, Lender Selling Representations and Warranties Framework Updates.

The remedies framework is specifically related to corrections of identified origination defects, and available repurchase alternatives. This framework provides clarity on the process followed in categorizing origination defects, lender corrections of such defects, and available remedies. In addition, it provides more transparency regarding Fannie Mae’s discretion on loan-level decisions when reviewing a loan during a quality control review. The remedies framework does not affect any servicing duties, responsibilities, or obligations.

In adopting and clarifying the origination remedies framework, lenders remain responsible for underwriting and delivering investment quality mortgage loans in accordance with the terms of the Lender Contract.

Effective Date

The remedies framework is effective for whole loans purchased, and mortgage loans delivered into MBS with pool issue dates, on and after January 1, 2016.

Background

While the mortgage industry has undergone significant changes in the last few years, selling representations and warranties continue to remain important, by promoting liquidity and providing the necessary assurances that allow Fannie Mae to purchase mortgage loans in an efficient and responsible manner without reviewing each loan individually prior to its purchase or securitization. They also provide Fannie Mae with remedies to address situations where a lender’s obligations to meet the requirements of the Lender Contract have not been met.

Over the last several years, Fannie Mae and Freddie Mac, at the direction of FHFA, have worked to refine the representations and warranties framework. As part of this process, all parties have listened closely to lender concerns about the impact that loan repurchases have had on mortgage lending, and understand the need to address these concerns in ways that are mutually satisfactory. The result will ensure there is liquidity in the housing finance market and provide access to credit for borrowers. Through the introduction of the remedies framework, Fannie Mae and Freddie Mac are working to provide clarity and transparency regarding origination defects and remedies, and expect these changes will enable lenders to manage risk more effectively.

Overview

After completing a full-file quality control review, Fannie Mae will categorize defects in one of three ways:

  • findings,
  • price-adjusted loans, and
  • significant defects.

Mortgage loans with defects categorized as “findings” will not require a correction or a remedy from the lender. Loans categorized as “price-adjusted loans” require the lender to pay the applicable loan-level price adjustment
fee (LLPA) that should have been paid to Fannie Mae when the loan was purchased or securitized by Fannie Mae. If a loan has one or more defects categorized as a “significant defect,” Fannie Mae will require the
repurchase of the loan, or may offer the lender a repurchase alternative.

At any time during the appeals process, the lender will have the right to correct any significant defect in the specified time frame and in the manner required by the Lender Contract. If the significant defect is corrected in accordance with the terms of the Lender Contract, Fannie Mae will rescind or close-out (as applicable) the related remedy request.

As a reminder, the scope of full-file quality control reviews under the remedies framework remains the same for performing loans and non-performing loans.

Source: Fannie Mae ( Selling Guide Announcement SEL-2015-11 full version)

Fannie Mae Reverse Mortgage Loan Servicing Manual Announcement RVS-2015-03

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Investor Update
October 30, 2015

Reverse Mortgage Loan Servicing Manual Updates – Revised*

The Reverse Mortgage Loan Servicing Manual (Reverse Manual) has been updated to include the following:

  • Updates to Lender-Placed Insurance Requirements
  • Updates to Property Management Requirements

Each of these updates is described below. The servicer must review each topic in the Reverse Manual in its entirety to gain a full understanding of the policy changes.

Lender-Placed Insurance Requirements

Fannie Mae is updating the Reverse Manual to reflect the lender-placed insurance deductible requirements introduced in Servicing Guide Announcement SVC-2015-13 to include new lender-placed (hazard) insurance deductibles determined by the amount of insurance coverage as follows:

  • $1,000 deductible for coverage amounts less than $100,000;
  • $2,000 deductible for coverage amounts from $100,000 up to and including $250,000; and
  • $2,500 deductible for coverage amounts greater than $250,000.

Lender-placed flood insurance, and lender-placed wind- or hail-only insurance policies are excluded from this requirement.

Updated Reverse Manual Topics

*Corrected 10/30/15* Effective Date

The servicer is encouraged to implement this policy change immediately, but must do so no later than July 1, 2016, to the extent permissible under applicable state insurance statutes and/or regulations, for lender-placed insurance policies renewed or obtained with an effective date on or after July 1, 2016.

Property Management

Fannie Mae is updating its policies and requirements in the Reverse Manual 5-05, Property Management to require the servicer to request cancellation of Fannie Mae’s mortgagee interest in the existing hazard insurance policy and removal of its name from the policy if the insurance carrier is not willing to cancel the policy.

Effective Date

The servicer must implement this policy change immediately.

The servicer should contact its Reverse Mortgage Loan Servicing Representative in Fannie Mae’s Credit
Portfolio Management’s Servicer Support Center at 1-888-FANNIE5 (1-888-326-6435) with any questions regarding this Announcement.

Malloy Evans
Vice President
Credit Portfolio Management

Source: Fannie Mae

Fannie Mae Reminds Servicers of Options for South Carolina Homeowners

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Investor Update
October 6, 2015

Resources available for victims of flooding

WASHINGTON, DC – Fannie Mae (FNMA/OTC) is reminding servicers of options that are available to homeowners affected by flooding in South Carolina. Under Fannie Mae’s existing guidelines, servicers have the ability to grant forbearance to any borrower they believe has been affected by a natural disaster. Within ninety days, servicers are expected to establish contact with homeowners who have been affected and determine if additional assistance is needed. If a borrower’s longer-term financial situation is affected by the flooding, then servicers can offer additional options, such as a loan modification.

“We understand the disruption a natural disaster can have on people’s lives and we expect servicers to offer help to those who have been affected,” said Malloy Evans, Vice President of Credit Portfolio Management at Fannie Mae. “We want to ensure servicers have the resources and information to move quickly in providing assistance to homeowners in South Carolina. Our thoughts and prayers are with all of those who have been impacted.”

Under Fannie Mae’s disaster relief guidelines, a servicer may temporarily suspend or reduce a homeowner’s mortgage payments for up to ninety days if the servicer believes a natural disaster has adversely affected the value or habitability of the property or if the natural disaster has temporarily impacted the homeowner’s ability to make payments on their mortgage. Since these events may make it difficult to reach homeowners, Fannie Mae allows servicers to grant this temporary relief even if they cannot contact the impacted homeowner immediately. Upon establishing contact with a homeowner, the servicer may offer forbearance for six months, which may be extended for an additional six months, for those homeowners that were current or ninety days or less delinquent when the disaster occurred.

In addition, lenders who are originating loans that will be sold to Fannie Mae are reminded that they must verify the condition of the property if it is in the area affected by flooding.  Additional lender guidelines can be found here.

Borrowers should reach out to their servicer as soon as possible to find assistance.  In addition, homeowners can reach out to Fannie Mae directly by calling 1-800-7FANNIE. For more information, visit http://www.knowyouroptions.com/relief.

Source: Fannie Mae

Fannie Mae Path to Approval Toolkit Updated

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Investor Update
October 21, 2015

The Path to Approval Toolkit has been updated in connection with Servicing Guide Announcement SVC-2015-08, Servicer Eligibility and Oversight Requirements. The easy-to-use reference guide on how to become a Fannie Mae Seller/Servicer now includes the most recent requirements on net worth and liquidity. The following are among the new requirements that become effective on Dec. 31, 2015:

  • Approved sellers/servicers must maintain a Lender Adjusted Net Worth of at least $2.5 million, plus a dollar amount that represents 0.25% of the UPB of the total portfolio of mortgage loans serviced.
  • Approved non-depository seller/servicers must have and maintain a minimum liquidity requirement based on the Agency Serious Delinquent Rate (SDQ), as described in the Guides.

 

Source: Fannie Mae