The Federal Housing Finance Agency (FHFA) rejected the pleas of many in the mortgage industry by adding a question about the applicant’s language preference to the future Fannie Mae/Freddie Mac Uniform Residential Loan Application (URLA) (Form 1003/65). While the FHFA is seeking to promote access to credit for consumers with limited English skills, lenders remained concerned that the revisions will raise the risk of confusing or misleading those consumers. Read more about the FHFA’s upcoming changes in Mayer Brown’s latest Legal Update.
When, if at all, should a mortgage lender or servicer be required to conduct business in a language other than English when the consumer has expressed a preference that language? The Federal Housing Finance Agency (FHFA) is seeking input on actions Fannie Mae and Freddie Mac could take to promote access to mortgage credit for qualified borrowers with limited English proficiency, and to ensure those borrowers have access to information to understand the mortgage process. This newest effort by the FHFA follows earlier efforts by that agency and others in the industry, but concerns about increased costs, legal risk, regulatory consequences continue to arise.
Mayer Brown’s latest Legal Update discusses the FHFA’s request and many of the complexities that quickly arise when considering how to access LEP borrowers.
On the theory that Fannie Mae and Freddie Mac cannot remain in conservatorship forever, on April 20, 2017, the Mortgage Bankers Association (MBA) issued a proposal for reform of Fannie Mae and Freddie Mac, titled “GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market” (accessible at the MBA’s GSE Reform web page). While the ultimate fate of any GSE reform effort in the current political environment is uncertain, there is at least a consensus that the Congress and the Trump administration should undertake such an effort, and each has promised to do so. The MBA’s proposal is intended to provide a voice for the mortgage banking industry in that process.
The proposal includes a mixture of changes to the GSE system as it exists today, and maintenance of existing processes and structures the MBA believes work well. It proposes a replacement or conversion of the GSEs with “Guarantors,” which would guaranty mortgage backed securities (MBS). The Guarantors would be structured as “private utilities”, meaning that they would be privately owned, but established through a government charter for the primary or exclusive purpose of providing the MBS guaranty, and heavily regulated. Think of a privately owned electric company, that is granted the right to participate in the electricity market, on the condition that it complies with various regulatory requirements and oversight, including rate approvals. The proposal even quotes from a paper regarding investor-owned electrical utilities. The expectation, as stated in the proposal, is that the Guarantors would be “low-volatility companies that would pay steady dividends over time, not growth companies that aggressively seek to expand market share or generate above-market returns.” Guarantors’ MBS guaranty would then be supplemented with an explicit government guaranty of the MBS, which would only be used if a Guarantor failed, and would only be used to support the MBS, not the Guarantors and their private investors.
The following is an outline of key elements of the MBA’s proposal, divided into elements reflecting changes to the current system, and those reflecting continuation of the current system in a similar form. Continue Reading MBA Issues Proposal on GSE Reform
The Federal National Mortgage Association (Fannie Mae) operates under a corporate charter, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). On January 18, the U.S. Supreme Court held that this “sue-and-be-sued” clause does not independently grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae. Instead, the Court (in Lightfoot v. Cendant Mortgage Corporation) held that the clause merely permits Fannie Mae to participate in a suit in any state or federal court that is already endowed with subject-matter jurisdiction over the suit.
The case arose when a mortgage borrower sued Fannie Mae in state court alleging deficiencies in the refinancing, foreclosure, and sale of her home. Fannie Mae removed the case to federal court, citing the sue-and-be-sued clause as the basis for federal jurisdiction. The district court denied a motion to remand the case back to state court, and the U.S. Court of Appeals for the Ninth Circuit affirmed that decision. The Supreme Court agreed to hear the case to resolve a split between the circuits.
On appeal, Justice Sotomayor, writing for a unanimous Supreme Court, explained that the Court had previously addressed the jurisdictional reach of sue-and-be-sued clauses in five other federal charters. In those cases, the Court had stated that a clause gives rise to federal court jurisdiction if, but only if, it specifically mentions the federal courts. Fannie Mae’s sue-and-be-sued clause specifically mentions federal courts, but also includes the phrase “any court of competent jurisdiction.” The Court found that this qualification limited the jurisdictional reach of the clause to any court with an existing source of subject-matter jurisdiction. Accordingly, the Court held that Fannie Mae’s sue-and-be-sued clause does not grant federal jurisdiction over any case involving Fannie Mae, but instead permits suit in any state or federal court that already has subject-matter jurisdiction.
Accordingly, under Lightfoot, Fannie Mae will no longer be able to remove a case to federal court citing only its charter’s sue-and-be-sued clause. Instead, in order for a case involving Fannie Mae to be brought in federal court or removed to federal court, there must be an independent source of diversity or federal-question jurisdiction.