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To view the WMLA 2012 Session Update, click here.
To view the WMLA 2012 Final Legislative Report, click here.
NEW YORK--Mortgage Bankers Association President and CEO David Stevens outlined a “clear path” to transition Fannie Mae and Freddie Mac out of conservatorship, including a single set of mortgage-backed securities as a common currency.
The concept also encourages additional risk sharing by mandating the government-sponsored enterprises to accept lower guarantee fees for deeper credit enhancements; and redirecting the Federal Housing Finance Agency’s recent platform initiative.
Speaking here at the MBA National Secondary Market Conference & Expo, Stevens said action is needed to jump-start the secondary mortgage market, starting with an immediate reforming of the government-sponsored enterprises.
“Under the original plan, Fannie Mae and Freddie Mac were only to remain in conservatorship temporarily; the conservatorships have now been in effect for more than four-and-a-half years,” Stevens said. “What was intended to be a short ‘time out’ in September 2008 has continued so far that it seems there is no endgame in sight. There is currently no plan for transition.
Stevens said Congress, FHFA, the GSEs themselves and key players such as MBA must move past conservatorship and the government’s oversized role in housing.
“We believe in a strong secondary market with a limited government guarantee that can function for the long term,” Stevens said. “To get there, ultimately, Congress must do its part and take the appropriate steps. Let’s move a GSE reform package through both chambers and restore a greater balance in housing finance. Let’s work together to ensure g-fees are no longer used as a way to pay for other government spending. Let’s build upon the hard work of some Senate and House committees that are working toward bipartisan solutions.”
The MBA concept, Stevens said, targets a situation in which guarantee fees have been used as an offset to pay for other budget items; where government is backing the bulk of the mortgage market and directly competing with private capital; and where housing policy and regulations change without transparency, coordination or consideration for the downstream effects.
“This is an atmosphere where the marketplace no longer favors vibrant, diverse business models,” Stevens said. “To the contrary; this marketplace is actually hurting smaller businesses--the backbone to growth and stability of our economy…as an industry, we have much at stake in this atmosphere that’s been plagued by an inefficient and at times contradictory, regulatory system. But more importantly, there is even more at stake for consumers, future borrowers and the future marketplace.”
Stevens called on the Administration and Congress to take three immediate steps:
• The White House must name a Housing Policy Coordinator. “This is an immediate need with a simple solution,” Stevens said.
• “Absolute” transparency. “FHFA, Fannie Mae and Freddie Mac must stop making market shifting decisions without the input of consumers or the industry,” Stevens said.
• A “clear path” to transition out of conservatorship.
The MBA concept would modify the current Freddie Mac securities structure to mirror the exact structure of the Fannie Mae structure so that these securities could be considered “fungible” for TBA delivery.
“Any future state requires a common currency,” Stevens said. “This is fundamental to virtually every GSE proposal--greater standardization in the security is necessary in order to maintain liquidity. The liquidity of the TBA market for Fannie Mae mortgage-backed securities is a public asset that should be maintained and if possible enhanced…by making the MBS the common currency for both agencies we can enhance liquidity, reduce costs to taxpayers and begin to lay the groundwork for a more competitive and efficient secondary market.
Secondly, and to further encourage private capital, Stevens said Fannie Mae and Freddie Mac should be required by FHFA to accept pools with deeper levels of credit enhancement and provide bona fide off-setting reductions in guarantee fees.
“The GSEs are now charging g-fees that are more than twice as high compared to just a few years ago, at a time when their acquisition profile shows they are taking on very little credit risk,” Stevens said. “Allowing deeper levels of credit enhancement would encourage private investors to invest more in this space, reduce the government’s exposure to mortgage credit risk and lower guarantee fees to lenders, ultimately to the benefit of borrowers.”
Third, Stevens said FHFA should reconsider its recently announced for a common security platform and a new entity to manage that platform that would be owned and funded by the GSEs, noting that MBA has expressed concerns regarding this structure.
“This is a major undertaking and the private sector has extensive experience in systems development of this size and will likely bear the brunt of any mistakes or delays in getting the platform operational,” Stevens said. “This is just one piece of a much larger puzzle that impacts borrowers, lenders and the market as a whole. Proposals of this magnitude need a transparent process to engage with stakeholders, articulate objectives and alternatives and demonstrate that stakeholder concerns have been evaluated and addressed.”
Stevens said from a lender’s perspective, whether large or small, the benefits of these steps are large and real, and costs are minimal to non-existent:
• Moving to a single security would increase liquidity in the market; under current market conditions including Federal Reserve purchases, the transition costs are easily manageable.
• By offering lower g-fees in exchange for deeper credit enhancements, lenders would have more control over managing the credit risk of their deliveries to the GSEs. “Lenders would still be able to deliver under the full g-fee structure; this would be providing them an option, and options have value,” Stevens said.
• Lenders would have a direct role in influencing the direction of the platform. “More input from industry will result in a better product,” Stevens said.
Stevens noted since the GSEs were placed into conservatorship in 2008, MBA, the Bipartisan Policy Center, policymakers and others have put forth proposals and ideas on how to restructure the secondary mortgage market.
“Most of these proposals, including MBA’s, envision a common securitization platform,” Stevens said. “Getting it right the first time demands considerable industry participation. We should demand a process that requires industry involvement. The beauty of this plan is that it can be done outside the halls of Congress. It can be done now and should be done now while the risk to the marketplace is minimal.”
GSE said reform must take place now to restore a vibrant secondary market that will be around for the long term and reduce the government footprint in real estate finance.
“The move to a single security has been debated for years; if we don’t collectively push hard for this now, we will still be talking about it for years to come,” Stevens said. “Endless conservatorship is not a sustainable option, nor is returning Fannie and Freddie back to their original state. We believe in a strong secondary market built on private capital with a limited government guarantee to ensure liquidity in all market conditions.”
SUMMARY OF 2012 WASHINGTON STATE LEGISLATURE ACTION AFFECTING MORTGAGE SERVICERS AND INVESTORS
The 2012 Washington State Legislature regular session concluded on March 8. Bills were enacted that affect mortgage loan origination and servicing. This article focuses on changes pertaining to mortgage loan servicing. Next month's article will summarize revisions pertaining to the loan origination spectrum.
As the legislative session proceeded, various foreclosure-related bills merged into Engrossed Substitute House Bill 2614 ("ESHB 2614"). ESHB 2614 affects: short sales, the Foreclosure Fairness Act, rights of a foreclosure sale purchaser to assign title and a process to rescind a trustee foreclosure sale. To view the bill, click here.
SHORT SALE
ESHB is 2614 is Washington's first voyage into regulating short sales. The new short sale law only applies if: 1) the debt secures a single family residence; 2) it is the borrower's principal residence; 3) the borrower is an individual; and 4) the debt was primarily for personal, family or household purposes.
If the four prerequisites are met and the beneficiary or mortgagee intends to release its lien for less than the payoff, then the lien holder must provide the borrower(s) with written notice of: 1) whether the lien holder "waives" or "reserves" the right to collect the deficiency balance; 2) the deficiency balance owed as of the date of the letter; and 3) advise the borrower(s) that the deficiency balance is forfeited unless the lien holder sues for collection within three years from the date of releasing the security interest. The statute provides a suggested form letter.
Real estate agents must update their state-mandated law of real estate agency pamphlet provided to buyers and sellers to include a disclosure regarding short sales.
FORECLOSURE FAIRNESS ACT
Last year the legislature enacted The Washington State Foreclosure Fairness Act Mediation Program ("FFA"). The FFA entitles the borrower of an owner-occupied residency to meet with the beneficiary prior to the trustee issuing the notice of default (generally known as the "meet and confer" period). In addition to, or in lieu of the meet and confer option, the FFA entitles a housing counselor or borrower's attorney to request mediation prior to the trustee recording a notice of trustee sale. Numerous changes were made to the FFA. Notably:
-By default, the meet and confer will now happen telephonically unless the borrower requests an in-person meeting. Previously, the meet and confer occurred face to face unless waived by the borrower;
-If the meet and confer occurs in person, then the meeting must be held in the county where the borrower resides. Previously, the beneficiary had the right to select the meet and confer location, including a county different than where the property/ borrower was located.
-The FFA includes a template letter that the trustee or beneficiary sends to the borrower to advise of the meet and confer option as well as informs the borrower of housing counselor assistance. A bankruptcy disclosure was added to the letter to notify the borrower that the meet and confer would still occur notwithstanding a bankruptcy filing or discharge;
-A housing counselor or borrower's attorney can only request mediation after the meet and confer period expires (meet and confer period is up to 93 days). The time period to elect mediation is now between the notice of default issue date and up to 20 days after recording the notice of trustee sale. Previously, mediation could be scheduled during the meet and confer period, and the mediation election deadline was the notice of trustee sale recording date;
-The time period for the mediator to convene the mediation session is extended from 45 to 75 days;
-Changes were made regarding the net present value analysis and broker price opinion information provided by the beneficiary to the mediator;
-For FFA eligible borrowers, the trustee sale date must be at least 150 days after the notice of default issue date. Previously, the minimum time period from notice of default issue date to sale was 120 days; and
-Beneficiary reporting and payment obligations to the Department of Commerce are now due within 45 days of the end of each quarter. Quarters began on October 1, 2011.
RESCISSION OF TRUSTEE'S SALE
A foreclosing beneficiary or the beneficiary's agent now has up to 11 days after the trustee's sale date to declare the auction void for the following reasons:
1. The trustee, beneficiary or authorized agent for the beneficiary assert that there was an error with the trustee foreclosure sale process including, but not limited to, an erroneous opening bid amount made by or on behalf of the foreclosing beneficiary at the trustee's sale;
2. The borrower and beneficiary or authorized agent for the beneficiary, had agreed prior to the trustee's sale to a loan modification agreement, forbearance plan, shared appreciation mortgage, or other loss mitigation agreement to postpone or discontinue the trustee's sale; or
3. The beneficiary or authorized agent for the beneficiary had accepted funds that fully reinstated or satisfied the loan even if the beneficiary or authorized agent had no legal duty to do so.
Within 15 days of the voided trustee's sale date, the trustee must then mail a rescission notice to the same parties entitled to the notice of trustee's sale. The statute provides a model rescission notice.
If the reason for rescission stems from paragraph 1 or 2, then the trustee may set a new sale date no sooner than 45 days after the rescission notice is mailed. The trustee must then record, publish and mail a new notice of trustee's sale.
Finally, the trustee must refund the purchase amount to the purchaser no later than the third day following the postmarked mailing of the rescission notice.
PARTY ISSUED THE TRUSTEE'S DEED
A trustee sale purchaser (i.e., a foreclosing beneficiary placing a credit bid, or the highest bidding third party purchaser) can instruct the trustee to vest title to a party different from the successful bidder.
The change is codified under Revised Code of Washington ("RCW") 61.24.050. The revised section will now read:
(1) Upon physical delivery of the trustee's deed to the purchaser, or a different grantee as designated by the purchaser following the trustee's sale, . . . .
For example, ABC Bank is the foreclosing beneficiary. ABC Bank is the highest bidder. Fannie Mae is the note investor/ holder. To date, there has been uncertainty whether ABC Bank could instruct the trustee to issue the trustee's deed to Fannie Mae, or whether the trustee must issue the trustee's deed to ABC Bank. ESHB 2614 establishes that ABC Bank can instruct the trustee to issue the trustee's deed to Fannie Mae.
All real property conveyances in Washington are subject to excise tax unless there is an available exemption. The various excise tax exemptions are codified under the Washington Administrative Code ("WAC"), Chapter 458-61A. Notably, the trustee's deed, whether conveying title to the foreclosing beneficiary placing a credit bid, or the highest bidding third party purchaser, is a tax exempt conveyance.
Issuing a trustee's deed to the successful bidder's designee ("one deed approach") has been a convenient and traditional method of delivering title to: 1) the investor in cases where, as with GSE foreclosures (e.g., Fannie Mae or Freddie Mac), the servicer is the nominal beneficiary and needs to make sure title ultimately vests in the investor; 2) the principal of a bidding agent where, as with third party sales, the bidder attending the sale is placing bids for someone else; and 3) a wholly owned subsidiary that manages REO assets for the foreclosing beneficiary.
The benefits of the "one deed approach" include:
-Eliminating the delays, costs and errors associated with a second deed;
-Reducing delays in REO closings by ensuring title is properly vested from the outset; and
-Helping the public more quickly identify the real party in interest to contact concerning the property after foreclosure.
CONCLUSION
ESHB 2614 is effective June 7, 2012. At 42 pages in length and spanning an array of foreclosure-related topics, a thorough review of ESHB 2614 is recommended. A copy of ESHB 2614 is available online at: http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2614&year=2011.
For more information, please contact me directly at (425) 586-1972, or by E-mail at bsommer@rcolegal.com.
Sincerely,
Routh Crabtree Olsen, P.S.
By Brian S. Sommer
Senior Associate
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