Secondary Markets and Securitization

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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:

Continue Reading Freddie Mac’s Investor Reporting Changes

Mayer Brown’s Lauren Pryor will speak at the Mortgage Bankers Association Whole Loan Trading Workshop in Houston, Texas on Thursday, November 8. Lauren will participate on a panel entitled “Getting Deals Done,” and will address legal considerations arising in connection with the purchase and sale of residential mortgage loan portfolios.

The ABA Business Law Section is holding its 2018 Annual Meeting in Austin, Texas on September 13-15, 2018. The Meeting will offer over 80 CLE programs and many more committee meetings and events, and will feature several Mayer Brown panelists.

Financial Services Regulatory & Enforcement (FSRE) partner Laurence Platt will participate in a panel discussion on the future of housing finance.

FSRE partner Marc Cohen will participate in a panel discussion on what the Anti-Terrorism Act and Alien Tort Statute mean for banks.

FSRE associate Eric Mitzenmacher will participate in a panel on current developments in consumer financial services.

Stuart Litwin, co-head of Structured Finance and Capital Markets, will moderate a panel on the transition away from LIBOR and similar rates.

FSRE partner David Beam will moderate a panel on the differences between P2P and interbank payment systems.

FSRE associate Matthew Bisanz will moderate a panel discussion on current trends in banking enforcement actions against individuals.

Fannie Mae and Freddie Mac (the “agencies”) have developed new uniform instruments for use with Texas home equity loans beginning January 1, 2018. Those forms will reportedly be available on the agencies’ web sites as that date approaches. In addition, the agencies are imposing a temporary moratorium on purchasing Texas home equity loans while lenders transition to new disclosures.

As we described here, Texas voters recently ratified amendments to the state constitution’s strict requirements for equity loans secured by homestead property. Among other topics, the amendments addressed fee restrictions for those loans, and loosened the limitation that a home equity loan can only be refinanced into another home equity loan that is subject to all the same strict requirements. Those amendments become effective in connection with loans made on and after January 1, 2018.

In addition, the agencies announced that they will not purchase any Texas home equity loans closed during the period of January 1 through January 12, 2018. The reason for the moratorium relates to a 12-day waiting period until closing that starts when the lender provides the borrower a mandatory disclosure describing the borrower’s rights and protections in connection with Texas home equity loans. That disclosure has been amended to reflect the recent amendments. That 12-day waiting period represents a conundrum in connection with loans for which the application process spans the new year. Accordingly, the agencies will temporarily decline to purchase Texas home equity loans closed during the first 12 days of January.

The agencies also, as expected, remind lenders that they must comply with all state law requirements, including the revised requirements for Texas home equity loans.

 

Is it possible for an investor to participate in the economics of agency residential mortgage servicing rights without being an approved holder of the servicing rights? Acquiring excess servicing fees is one way that investors are exploring to accomplish this objective.  Mayer Brown partners Larry Platt and Jon Van Gorp wrote an article for Bloomberg BNA’s Banking Report on the subject of acquisition of excess servicing fees for mortgage servicing rights, which can be found here.

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

Financial services providers, marketplace lenders and secondary market purchasers doing business in the state of New York can breathe at least a temporary sigh of relief this week.   Controversial changes proposed to the state’s Licensed Lender Law included in a pair of companion budget bills were dropped when these bills were amended on Monday.  Assembly Bill 3008 and Senate Bill 2008, as introduced in the legislature on January 23, 2017 would have expanded the scope of consumer and commercial loans, and types of business activities, subject to licensing by the New York Department of Financial Services (the “Department”) under the Licensed Lender Law. If enacted into law, these proposed amendments would have triggered new licensing obligations for companies doing business in the state, potentially reaching marketplace lenders, other Fintech companies and secondary market purchasers.

Continue Reading Controversial Changes to New York’s Licensed Lender Law Dropped from Latest Version of Budget Bills*

The United States Securities and Exchange Commission’s (“SEC”) Division of Enforcement continues to target issuers of Ginnie Mae mortgage-backed securities and charge those who violate federal securities laws.  Importantly, those cases seek penalties not only against the companies but also their senior executives.  Issuers of Ginnie Mae securities must comply not only with HUD/GNMA regulations, but be prepared to demonstrate their compliance with the US securities laws and regulations, or face potentially significant consequences.  Read more about the latest enforcement action, costing a Ginnie issuer and its executives $12.7 million, in Mayer Brown’s Legal Update, available here.

The controversial decision in Madden v. Midland Funding, LLC, was “incorrect” and “reflects an unduly crabbed conception of [National Bank Act] preemption,” said the Solicitor General and the Office of the Comptroller of the Currency (“OCC”) in the amicus brief filed with the United States Supreme Court on Tuesday.  Still, the Solicitor General and the OCC advised the Court not to review the decision of the Second Circuit in Madden.  They concluded that this just isn’t the right case for the Court to resolve the important questions of whether and under what circumstances the National Bank Act preempts state usury laws for assignees of loans made by national banks. Continue Reading Madden Update: Solicitor General Says the Second Circuit Got it Wrong—But that the Decision Should Still Stand for Now