Against the backdrop of the COVID-19 pandemic and the economic stress it is imposing on residential mortgage borrowers, lenders and servicers, the Consumer Financial Protection Bureau recently released a compliance bulletin and policy guidance regarding the handling of information and documents in mortgage servicing transfers. While not specifically motivated by the COVID-19 crisis, Bulletin 2020-02
Christopher G. Smith
Flood Insurance Policy Renewal Grace Period Extended by FEMA, and One Regulator Applies this Grace Period to Force Placement Notices
All participants in the housing industry are grappling with the effects of COVID-19, from borrowers to originators to servicers. The emergency has influenced all facets of the mortgage origination and servicing business, prompting additional restrictions in some instances while triggering flexibilities and relaxed requirements in others. Flood insurance requirements, which are usually strict and inflexible, have not been immune.
On March 28, 2020, the Assistant Administrator for the Federal Insurance and Mitigation Administration of the Federal Emergency Management Agency (“FEMA”) released a memorandum notifying National Flood Insurance Program (“NFIP”) insurers of an extension of the NFIP premium payment grace period. Under normal circumstances, an insurer must receive the payment to renew an NFIP policy within 30 days of expiration. However, recognizing the difficulties experienced by many policyholders (including loss of income and potential disruptions in employment), the administrator has extended the 30-day grace period to 120 days for all policies with expiration dates between February 13, 2020 and June 15, 2020.
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The GSEs and Other US Federal Agencies Issue New and Revised Guidance for Appraisals and Verifications of Employment
Since Mayer Brown issued a Legal Update describing guidance issued by Fannie Mae, Freddie Mac (together with Fannie Mae, the “GSEs”), the Federal Housing Administration and the Veterans Administration (“VA”) relaxing requirements with respect to appraisals and income/employment verification during the COVID-19 emergency, the agencies have continued to revise their guidance as the market adjusts to the challenges encountered by mortgage lenders. The GSEs and the VA have all issued revised letters, and the US Department of Agriculture (“USDA”) issued new guidance to provide relief in connection with guaranteed single-family loans. Below we describe the USDA’s guidance regarding appraisals and employment verifications performed in connection with RHS loans and provide updates on the changes made by the GSEs and the VA to their appraisal guidance.
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Origination in the Era of COVID-19: the GSEs, FHA, and VA Issue Guidance for Appraisals and Income Verification
COVID-19 has strained all aspects of life in the United States, including the housing and mortgage industries. Social distancing, stay-at-home orders, and business closures have disrupted the abilities of many workers to complete their duties on a “business as usual” basis. In the mortgage market, there is a direct impact on a mortgage lender’s ability…
Fannie Mae and Freddie Mac Issue Guidance for LIBOR-less World
We recently discussed the efforts of the Alternative Reference Rates Committee (ARRC) to prepare for the upcoming discontinuance of LIBOR as an index rate for residential mortgage and consumer loans. Our alert examined ARRC’s recommendations regarding an appropriate substitute rate (the Secured Overnight Financing Rate, or SOFR) and ARRC’s recommended changes to implement SOFR. We…
Acceptance of Private Flood Insurance – Final Rule
Federal banking agencies issued a final rule, effective July 1, 2019, implementing the requirement in the Biggert-Waters Flood Insurance Reform Act (the “Act”) for the acceptance of private flood insurance on covered properties. The final rule largely mimics the proposal (which we addressed previously here), but with a few interesting revisions and additional details.
First, the agencies adopted the proposed definition of “private flood insurance” largely unchanged. The Act defines the term, so the agencies had little discretion. However, the agencies clarified what coverage is “at least as broad as” coverage provided under a standard flood insurance policy (“SFIP”). Specifically, the final rule removes the requirement that the policy cover both the mortgagors and mortgagees as loss payees.
The most important change from the proposed stage may be a revision to the rule’s so-called compliance aid. To assist in determining whether a particular private flood insurance policy meets the necessary criteria, the agencies initially proposed that a policy would meet the definition of “private flood insurance” if: (1) the policy includes a written summary identifying the policy provisions meeting each criterion and confirming the insurer’s licensing/approval status; (2) the regulated lending institution verifies in writing the provisions identified in the summary, and that those provisions in fact satisfy the criteria; and (3) the policy includes the following assurance clause: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
The final rule indicated that the reaction to that proposed compliance aid was largely negative. …
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Freddie Mac’s Investor Reporting Changes
Freddie Mac is an outlier among the three primary secondary market investors with its mid-month investor reporting cycle. In an effort to standardize the marketplace, Freddie Mac is joining Fannie Mae and Ginnie Mae by shifting its investor reporting cycle to the beginning of each month. In this regard, Freddie Mac is implementing the following changes: (i) the investor reporting cycle will run from the first day of each calendar month to the last day of such month; (ii) Freddie Mac is encouraging daily loan-level reporting, with reporting of at least one loan level-transaction detailing activity submitted no later than the 15th calendar day of each month (or next business day) (the “P&I Determination Date”); (iii) servicers will report the actual principal received and the forecasted scheduled interest based on unpaid principal balance reported at the end of the current one-month period; (iv) Freddie Mac will draft principal and interest from the servicer’s custodial account two business days after the P&I Determination Date; (v) on the fifth business day following a payoff, Freddie Mac will draft payoff proceeds, provided such payoff was reported within two business days of the payoff date, subject to certain requirements; and (vi) Freddie Mac will process and settle loan modifications on a daily basis.
Freddie Mac has released several bulletins outlining the transition (2016-15, 2017-4, 2017-15, and 2018-14), summarized in the following timeline:…
Redefining Private Flood Insurance*
Flood insurance reform continues to generate interest from Congress, particularly in the context of the National Flood Insurance Program (NFIP) reauthorization debate. (The program will expire September 30, 2017, absent reauthorization or a continuing resolution.)
In December we discussed a proposed rule to implement the statutory definition of “private flood insurance.” That proposal was related to the Biggert-Waters Flood Insurance Reform Act’s requirement that the agencies issue a rule directing lending institutions to accept such insurance, with the goal of stimulating the private flood insurance market. In March, Senators Heller (R-NV) and Tester (D-MT), and Reps. Ross (R-FL) and Castor (D-FL),** reintroduced legislation to further define “private flood insurance,” seeking to clarify the issue, and the Senate Committee on Banking, Housing, and Urban Affairs recently held hearings on the Senate version of that legislation.
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Agencies Address Acceptance of Private Flood Insurance
Federal banking agencies issued a revised proposal on November 7th to implement requirements for regulated institutions to accept private flood insurance. The Biggert-Waters Flood Insurance Reform Act (the “Act”) required those agencies to issue a rule directing their respective regulated lending institutions to accept such insurance. The purpose of the requirement is reportedly to stimulate the private flood insurance market, which in turn supports the financial solvency of the National Flood Insurance Program (“NFIP”).
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