Quality & Compliance Alert Highlights and Analysis of Mortgage Lending Quality Control and Regulatory Compliance

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1 OCTOBER 2017 VOLUME 31 NUMBER 10 Quality & Compliance Alert Highlights and Analysis of Mortgage Lending Quality Control and Regulatory Compliance Equal Credit Opportunity Act; HMDA CFPB MODIFIES ECOA REGULATIONS TO HELP LENDERS COLLECT HMDA RACE AND ETHNICITY DATA The Consumer Financial Protection Bureau (CFPB) has modified the Equal Credit Opportunity Act s (ECOA) Regulation B, to provide mortgage lenders with more flexibility in how they collect ethnicity and race information under the Home Mortgage Disclosure Act (HMDA). The CFPB believes the rules will be clearer and will help mortgage lenders comply with their obligation to collect information that ECOA and HMDA require to ensure that consumers are treated fairly. ECOA is a federal civil rights law that protects against discrimination in the financial marketplace. Regulation B implements ECOA and restricts a lender s ability to inquire about an applicant s race, color, religion, national origin or sex in most situations. However, since it is important to have public reporting on home lending patterns that may be discriminatory, ECOA and HMDA both require that lenders collect and report this information for mortgage applications. The rule applies to lenders making purchase and refinance mortgage loans involving an applicant s primary residence. Promoting Industry Consistency The CFPB says its changes will give mortgage lenders more flexibility and will support industry-wide use of consistent forms and compliance practices. The changes also mean that industry practices can be consistent without being affected by a lender s loan volume or other characteristics. These changes will allow more lenders to use application forms such as the revised Uniform Residential Loan Application (URLA), that include expanded IN THIS ISSUE Equal Credit Opportunity Act; HMDA CFPB Modifies ECOA Regulations To Help Lenders Collect HMDA Race and Ethnicity Data CFPB Proposes Guidance on How It Will Release of HMDA Data to the Public and Protect Consumer Privacy HUD/FHA-Insured Mortgages HUD Extends Temporary Condominium Project Approval Policy until Further Notice HUD IG Finds That FHA Did Not Adequately Review Insurance Claims for Loss Mitigation Deficiencies IG Finds That JPMorgan Chase Complied with FHA-HAMP Stand-Alone Partial Claims Requirements VA-Guaranteed Mortgages Urges Foreclosure Moratoriums for Victims of the Recent Hurricanes and Other Natural Disasters VA Extends Guidance on Liquidation Appraisals on Property Being Considered for Compromise Sale Fannie Mae Mortgages Fannie Mae Outlines Loan Origination Policies for Mortgages on Properties Affected by the 2017 Hurricanes Fannie Mae Clarifies Servicing Policies for Mortgages Affected by the 2017 Hurricanes Fannie Mae Will Offer New High LTV Refinance Option for Borrowers with a Satisfactory Credit History Fannie Mae Updates Mortgage Assistance Application Form To Streamline Loss Mitigation Process Freddie Mac Mortgages Freddie Mac Announces Temporary Suspension of Foreclosures on Properties Affected by Harvey Freddie Mac Announces Investor Reporting Revisions and Makes Other Servicing Policy Revisions Freddie Mac Revises Origination Requirements Related to Properties Affected by Hurricane Harvey Freddie Mac Provides Summary of the Requirements for the New High Loan-to-Value Refinance Offering Freddie Mac Updates Borrower Response Package Documentation and Makes Other Servicing Changes Freddie Mac Updates Selling and Servicing Requirements Following Hurricanes Harvey and Irma Freddie Mac Revises Credit Underwriting, Appraisal and Other Loan Origination Requirements Freddie Mac Extends the Disaster Servicing Requirements to Any 2017 Hurricane Disaster New Guidance and Issuances Recent Compliance and QC Documents Edited by William L. Caldwell and Suzanne McQueen, Members of the District of Columbia Bar

2 requests for information regarding a consumer s ethnicity and race. The new provisions for collecting and reporting conform with the 2015 changes to HMDA s Regulation C. These requirements allow lenders to report either the aggregate ethnicity and race categories or disaggregated ethnicity and race categories and subcategories as set out in the Regulation C appendix. Regulation B does not require lenders that are not HMDA reporters to change their compliance practices, but allows them to voluntarily use the 2016 URLA. It also allows them to voluntarily collect information about mortgage applicants. Generally, these lenders have voluntarily reported HMDA data in the previous five years or may report it in the near future. HMDA reporters who at some point no longer are required to comply with HMDA can continue to collect the applicant information. For further information, see, Final Rule, Official Interpretation, Amendments to Equal Credit Opportunity Act (Regulation B) Ethnicity and Race Information Collection, Consumer Financial Protection Bureau, 82 Federal Register, No. 189, p , October 2, This final rule is in the Quality Control Reference Service, October 1, Published by THE CALDWELL GROUP, INC., 4660 Broad Branch Road, N.W., Washington, D.C Editors: William L. Caldwell and Suzanne McQueen Website: MortgageRegs.com. publications@mortgageregs.com. Phone: Quality & Compliance Alert is published 12 times a year. The subscription price is $545. It highlights changes and trends in mortgage lending, with emphasis on quality control and regulatory compliance in processing and servicing HUD, VA, Fannie Mae and Freddie Mac loans. It is not legal or accounting advice. Inquiries concerning Quality & Compliance Alert should be directed to the editor. For subscriptions please visit our website at MortgageRegs.com or call CFPB PROPOSES GUIDANCE ON HOW IT WILL RELEASE OF HMDA DATA TO THE PUBLIC AND PROTECT CONSUMER PRIVACY The Consumer Financial Protection Bureau (CFPB) recently proposed new policy guidance on how it will disclose loan-level data that lenders report under the Home Mortgage Disclosure Act (HMDA). The policy guidance includes proposed modifications to protect consumers privacy that would apply to data made public beginning in HMDA requires many lenders to report and disclose to the public information about their mortgage lending activities. HMDA data is used for a variety of purposes, such as monitoring whether financial institutions are serving the housing needs of their communities and identifying possible discriminatory lending patterns. In 2015 the CFPB amended Regulation C, the rule implementing HMDA, to update the quality and type of data that financial institutions report. Financial institutions will begin collecting the new information in 2018, which includes data fields such as the property value, the interest rate of the loan and the applicant s debt-to-income ratio. In that same 2015 HMDA rule, the CFPB interpreted HMDA to require that it use a balancing test to determine whether and how HMDA data should be modified prior to disclosing it to the public to protect consumer privacy. It consulted with the Federal Reserve Board, the FDIC, the NCUA, the OCC, HUD, and the Rural Housing Finance Agency in developing this interpretation. Less Precise Data The proposed policy guidance would make the bulk of the loan level data public, but would protect consumers privacy by excluding some data, particularly the newly required data, such as the property address and applicant s credit score. It would make other data less precise, such as by giving an applicant s age as a range rather than a specific number. 2

3 Excluded Data The public data would not include: the universal loan identifier; the date the application was received or the date shown on the application form; the date of action taken by the financial institution on a covered loan or application; the address of the property; the credit score; the NMLSR unique identifier for the mortgage loan originator; or the automated underwriting system result. Also excluded would be free-form text fields for reporting: applicant or borrower race; applicant or borrower ethnicity; the name and version of the credit scoring model used; the reasons for denying the application, if applicable; and the automated underwriting system name. Loan Amounts and Property Values The loan amount, as well as the property value, would both be publicly disclosed as the midpoint for the nearest $10,000. The CFPB would also indicate whether the reported loan amount exceeds the conventional loan limit. Ranges of Values Many of the values would be less precise for the several data fields. The age of the consumer would be reported as ranges - 25 to 34, 35 to 44, 45 to 54, 55 to 64, and 65 to 74. Total monthly debt to income would largely be reported in ranges such as between 20 and 30 percent. Comment Requested Although the proposed guidance is exempt from notice and comment rulemaking requirements, the CFPB is requesting public comment to obtain public feedback on its application of the balancing test and to improve its decision-making. Comments are due by November 24, For further information, see, Notice of Proposed Policy Guidance with Request for Public Comment, Disclosure of Loan-Level HMDA Data, Consumer Financial Protection Bureau, 82 Federal Register, No. 184, p , September 25, This notice is in the Quality Control Reference Service, October 1, HUD/FHA-Insured Mortgages HUD EXTENDS TEMPORARY CONDOMINIUM PROJECT APPROVAL POLICY UNTIL FURTHER NOTICE HUD has extended the temporary condominium project approval policy provisions issued in Mortgagee Letter and Mortgagee Letter HUD says that it needs more time to complete and implement the condominium project approval and rulemaking process. It has extended the requirements until it publishes and implements the final rule of condominium project approval through publication of the Condominium Project Approval section of the HUD Single Family Housing Policy Handbook, HUD Handbook It will incorporate all policy updates in the handbook update. It has made no changes to the temporary condominium project approval policies. For further information, see, Mortgagee Letter 17-13, Extension of Temporary Approval Provisions for the Federal Housing Administration (FHA) Condominium Project Approval Process, Office of the Assistant Secretary for Housing Federal Housing Commissioner, August 30, This mortgagee letter is in the Quality Control Reference Service, September 15, HUD IG FINDS THAT FHA DID NOT ADEQUATELY REVIEW INSURANCE CLAIMS FOR LOSS MITIGATION DEFICIENCIES An audit of HUD s oversight of FHA servicers use of loss mitigation programs has found that the agency failed to adequately review mortgage insurance claims to determine whether the servicer engaged in the required loss mitigation activities. HUD s Office of Inspector General initiated the audit in response to an preaudit analysis of HUD data, which determined that servicers may not always evaluate borrowers with delinquent mortgages for loss mitigation. The audit objective was to determine whether HUD had adequate controls to ensure that servicers of single-family FHA-insured loans engaged in loss mitigation as required. It found that HUD did not adequately review claim loans that did not 3

4 have loss mitigation default status codes reported to HUD by servicers. From January 1, 2014, to December 31, 2016, there were 14,763 claim loans that indicated servicers did not engage in loss mitigation, and HUD reviewed only 194 (1.3 percent) of these loans. Also, a review of 90 statistically sampled claims that closed from January 1, 2012, to December 31, 2015, determined that 26 had significant servicing deficiencies. This condition occurred because HUD did not emphasize identifying or targeting these types of loans for review. The IG recommended that HUD require indemnification from the servicers for the 26 loans that had significant servicing deficiencies, resulting in $1.7 million in questioned costs. For further information, see, Audit Report Number: 2017-LA-0004, HUD s Oversight of Servicers Use of Loss Mitigation, Office of Audit, Region 9, Los Angeles, California, Office of HUD Inspector General, September 14, This HUD IG audit report is in the Quality Control Reference Service, October 1, IG FINDS THAT JPMORGAN CHASE COMPLIED WITH FHA-HAMP STAND-ALONE PARTIAL CLAIMS REQUIREMENTS The IG audited JPMorgan Chase s (Chase) FHA Home Affordable Modification Program (FHA- HAMP) stand-alone partial claims. It selected Chase for review based on its analysis of risk factors of loan servicers that filed FHA-HAMP stand-alone partial claims and in accordance with its annual audit plan. The audit objective was to determine whether Chase complied with HUD s FHA-HAMP stand-alone partial claim market rate requirements. The IG found that Chase complied with HUD s FHA-HAMP stand-alone partial claim market rate requirement. Specifically, for all 14 FHA-HAMP stand-alone partial claim cases that the IG reviewed, Chase ensured that the borrower s mortgage interest rate was at or below the market mortgage interest rate as required. The report has no recommendations. For further information, see, Audit Report Number: 2017-AT-1012, Federal Housing Administration, Home Affordable Modification Program, Stand-Alone Partial Claims, Office of Audit, Region 4, Atlanta, Georgia, Office of HUD Inspector General, September 15, This audit report is in the Quality Control Reference Service, October 1, VA-Guaranteed Mortgages VA URGES FORECLOSURE MORATORIUMS FOR VICTIMS OF THE RECENT HURRICANES AND OTHER NATURAL DISASTERS VA has issued standard circulars urging mortgage servicers to take steps to assist borrowers in distress due to hurricanes and other natural disasters over the past month, including Hurricanes Harvey, Irma and Maria, and also Idaho flooding, landslides and mudslides, and Iowa severe storms, tornadoes, straight-line winds and flooding. In each case VA is encourages servicers to extend forbearance to borrowers in distress as a result of the disaster. It requests that the servicer establish a 90-day moratorium, from the date of the disaster declaration, on initiating new foreclosures on affected loans. VA allows additional interest on a guaranty claim when termination has been delayed due to circumstances beyond the control of the servicer, such as VA-requested forbearance. Because of the widespread impact of these disasters, the servicer should review all foreclosure referrals before deciding that a borrower has not been affected significantly enough to justify delay in referral. VA also suggests late charge waivers and the suspension of credit reporting for the affected loans. Members of the National Guard may be called to active duty to assist in recovery efforts. VA encourages the servicer to extend special forbearance to National Guard members who experience financial difficulties as a result of their service. For further information, see, Circular , Special Relief Following Hurricane Harvey, Veterans Benefits Administration, Department of Veterans 4

5 Affairs, August 29, 2017; Circular , Special Relief Following Idaho Flooding, Landslides, and Mudslides, Veterans Benefits Administration, Department of Veterans Affairs, August 29, 2017; Circular , Special Relief Following Iowa Severe Storms, Tornadoes, Straight-line Winds, and Flooding, Veterans Benefits Administration, Department of Veterans Affairs, August 29, These circulars are in the Quality Control Reference Service, September 15, Also, see, Circular , Special Relief Following Hurricane Irma, Veterans Benefits Administration, Department of Veterans Affairs, September 18, 2017; and Circular , Special Relief Following Hurricane Maria, Veterans Benefits Administration, Department of Veterans Affairs, September 27, These circulars are in the Quality Control Reference Service, October 1, VA EXTENDS GUIDANCE ON LIQUIDATION APPRAISALS ON PROPERTY BEING CONSIDERED FOR COMPROMISE SALE VA has extended the rescission date for the circular on compromise sale appraisal requirements. The original circular updated the guidance on the procedures to complete a liquidation appraisal for a property that is being reviewed for a compromise sale. It provides that a liquidation appraisal for a property originally scheduled for foreclosure does not need a second appraisal if a subsequent short sale offer is made on the property. The exterioronly liquidation appraisal is sufficient to complete the compromise sale without any further delays. For further information, see, Circular , Change 1, Compromise Sale Appraisal Requirements, Veterans Benefits Administration, Department of Veterans Affairs, September 22, This circular is in the Quality Control Reference Service, October 1, Fannie Mae Mortgages FANNIE MAE OUTLINES LOAN ORIGINATION POLICIES FOR MORTGAGES ON PROPERTIES AFFECTED BY THE 2017 HURRICANES Fannie Mae is reminding lenders to pay attention to the selling policies for loans affected by a disaster, including Hurricane Harvey and is providing additional guidance specific to Hurricane Harvey. It has also announced that these policies also apply to properties affected by Hurricane Irma and to any other hurricanes occurring in the United States and its territories through the 2017 hurricane season. Fannie Mae has updated Desktop Underwriter (DU) to prevent a property in a zip code affected by Harvey from using a property inspection waiver (PIW), and has updated the information about reimbursement for property inspection costs for sellers and servicers. It has also reminded lenders that it doesn't require a property secured by a DU Refi Plus or Refi Plus loan that was damaged as a result of a disaster such as Hurricane Harvey to be repaired prior to delivery as long as the loan meets Fannie Mae s property insurance requirements. Disaster Areas Fannie Mae notes that it currently has a number of policies that address properties affected by a disaster. These policies cover any property affected by the disaster, including those identified by the Federal Emergency Management Agency (FEMA) as designated disaster areas that are eligible for individual assistance. Texas Hurricane Harvey was declared a major disaster by FEMA on August 25, Fannie Mae has further clarified that while it relies on the FEMA disaster declaration list for certain aspects of its policy, including the property inspection waiver, the FEMA declaration areas are made at the county level and may include or exclude areas with actual physical impact of the disaster. Fannie Mae s policies both in terms of lender obligations and many of the flexibilities offered apply to any property that may be 5

6 affected by the disaster regardless of whether or not the property is within a county listed by FEMA. Property Eligibility Fannie Mae says that it goal is to provide as much assistance as possible to lenders and homeowners in the affected areas, while also being prudent and fiscally responsible. Based on the extent of the damage from Hurricanes Harvey and Irma, there will be instances of property damage that will affect the acceptability of the property as security for Fannie Mae s loan. Before delivering a loan secured by a property in a disaster area, the lender must take prudent and reasonable actions to determine whether the condition of the property has materially changed since the effective date of the appraisal report. For loans in process as of the date of the disaster, the lender must determine whether the condition of the property has materially changed since the appraisal effective date so that an inspection of the property or a new appraisal is necessary. The lender may not exercise a property inspection waiver (PIW) offer for a property in an area affected by a disaster but must obtain an appraisal and resubmit the casefile to DU. For closed loans with note dates prior to the disaster declaration date, but not yet delivered to Fannie Mae, the lender must take prudent and reasonable actions to determine whether the condition of the property has materially changed. since the appraisal effective date This applies to all loans regardless of whether an appraisal or PIW was used. If the property has been damaged but the damage does not affect the safety, soundness or structural integrity of the property and the repair items are covered by insurance, the lender may deliver the loan to Fannie Mae. The lender must document the professional estimates of the repair costs and make sure that sufficient insurance proceeds are available for the borrower's benefit to guarantee the completion of the repairs. If the property has been damaged and the damage is uninsured or affects the safety, soundness or structural integrity of the property, the property must be repaired before the loan is eligible to be delivered to Fannie Mae. Condominium or Cooperative Unit Where the property is in a condominium or co-op project, the lender must assess both the condition of the unit and the condition of the building in which the unit is located. Updates to DU for Affected Areas Fannie Mae has updated DU to incorporate the ZIP codes included in the FEMA-declared disaster areas. DU will exclude these ZIP codes from consideration for a PIW. The update applies to DU Version 10.0 and DU Version 10.1 loan casefiles submitted or resubmitted after the ZIP codes are incorporated. The lender must resubmit the loan casefile for a property that may have been affected by a hurricane disaster. Fannie Mae says that it will monitor disaster-affected areas as damage assessments continue. Based on these assessments it may update the list of affected ZIP codes used by DU to determine PIW eligibility. DU Refi Plus and Refi Plus Loans Fannie Mae reminds lenders that it doesn t require a property secured by a DU Refi Plus or Refi Plus loan that was damaged as a result of a declared hurricane disaster to be repaired prior to delivery as long as the loan meets the Fannie Mae property insurance requirements. An additional inspection or new appraisal of the property is not required. Reimbursement for Property Inspection Costs Fannie Mae will reimburse both lenders and servicers for the costs associated with inspecting disaster-affected properties. This is true for properties associated with loans currently being serviced and those not yet delivered but that are ultimately delivered to Fannie Mae. Age of Credit and Appraisal Documentation Fannie Mae is providing additional flexibilities for loans affected by Hurricane Harvey. The underwriting documentation, including the credit 6

7 reports and verifications of income and assets, must be dated no more than 180 days before the note date. The lender may disregard a message in the DU underwriting findings report indicating that if the loan casefile has not already closed, the credit report has expired. The appraisal must be dated no more than 180 days before the note date. A loan that has income, employment or assets that have been validated through the DU validation service, will continue to retain the representation and warranty relief related to the specific component as set out in the DU underwriting findings report. The loan must be secured by a property located in the disaster area and must have an application date on or before August 25, 2017, and a note date after August 25, Additional Underwriting Flexibilities Fannie Mae is reminding lenders that it provides certain relief for borrowers seeking a mortgage loan following a disaster. The borrower may use lump-sum disaster relief grant or loan to satisfy Fannie Mae s minimum borrow contribution requirements. Also, the borrower can include the refinance of subordinate financing obtained to finance disaster-related repairs and obtain reimbursement for documented out-of-pocket expenses for completed repairs up to certain limits. For further information, see, Lender Letter LL , Selling Policies for Mortgage Loans Impacted by Hurricane Harvey, Fannie Mae, August 31, Also, see, Lender Letter LL , Additional Clarifications for Mortgage Loans Impacted by Hurricanes Harvey and Irma, September 13, These lender letters are in the Quality Control Reference Service, September 15, FANNIE MAE CLARIFIES SERVICING POLICIES FOR MORTGAGES AFFECTED BY THE 2017 HURRICANES Fannie Mae has clarified loan servicing policies concerning mortgages on properties affected by Hurricanes Harvey and Irma. These policies also apply to properties affected any other hurricanes occurring in the United States and its territories through the 2017 hurricane season. Fannie Mae is reminding servicers how its disaster relief, forbearance and other workout options are designed to work together to provide borrowers with the appropriate level of relief. It is suspending servicing transfers for affected mortgage loans and extending the amount of time the servicer has in which to submit a Report of Property Insurance Loss, Form 176. Fannie Mae defines a disaster as an event caused by earthquake, flood, hurricane or other catastrophe caused by a person or event beyond the borrower s control that results in destruction or significant damage to the property securing the mortgage loan. Delinquency Status Code The servicer must grant disaster relief, and report a delinquency status code of 42 - Delinquent, when the servicer is unable to contact a borrower who may have been affected by a catastrophe that was caused by nature or a person other than the borrower and the servicer has determined that the event may adversely affect either the value or habitability of a property securing a mortgage loan, or the borrower s ability to make further payments or payment in full on the loan. Where the servicer s review of the facts and circumstances indicates that the property, the borrower s employment or the borrower s income is seriously affected by a disaster event, the servicer is authorized to offer a forbearance plan, and must report a delinquency status code of 9 - Forbearance. The length of the initial forbearance plan is based on whether the servicer has achieved quality right party contact (QRPC): if so, the servicer can offer an initial forbearance plan of up to six months; if not, the servicer can offer an initial forbearance plan up to three months. Credit Reporting During the disaster relief or forbearance plan periods, the servicer must suspend reporting the delinquency to the credit bureaus and waive any late charges. 7

8 Sending the Borrower a Solicitation Package If a borrower is performing on a forbearance plan, the servicer doesn t need to send a Borrower Solicitation Letter (Form 745), or equivalent, or a complete borrower solicitation package by the 45th day of delinquency. Temporary Suspension of Foreclosure Sales The servicer must suspend the foreclosure sale for a mortgage loan in which the property or borrower is affected by either Hurricane Harvey or Hurricane Irma as of the date the disaster occurred and until December 31, This foreclosure suspension does not apply to mortgage loans on properties that were previously identified as vacant or abandoned. If the servicer identified the property securing the loan as vacant or abandoned prior to either hurricane, it may proceed with the foreclosure sale prior to December 31, A property inspection must have been completed to confirm that there is no damage to the property or any damage to the property must not be covered by insurance or eligible for state or federal disaster assistance. When applicable, the servicer must receive preapproval by the mortgage insurer or guarantor to suspend the foreclosure sale to avoid jeopardizing benefits of any applicable insurance or guaranty. Property Inspections The servicer must determine the extent and nature of the damage and its effect on the borrower s ability to continue making the monthly payments. If the servicer is not able to contact the borrower, it must inspect the property using the Property Inspection Report (Form 30) or its equivalent. If the property is in an affected area but the mortgage is current, the servicer must attempt to achieve QRPC to verify damage and determine the borrower s intent on filing an insurance claim and completing necessary repairs. If the servicer is not able to achieve QRPC, then it must inspect the property. If the initial inspection report shows damage, the servicer must make monthly property inspections until the damage is remediated. If the property is in an affected area, the mortgage is delinquent and the property is occupied or the occupancy status is unknown, the servicer must attempt to achieve QRPC to verify damage and determine the borrower s intent on filing an insurance claim and completing necessary repairs. If the servicer is not able to achieve QRPC, then the servicer must inspect the property and if the initial inspection report shows damage, the servicer must make weekly property inspections. If the property is in an affected area, the mortgage is delinquent and the property is vacant, the servicer must immediately inspect the property. If the initial inspection report shows damage, the servicer must continue bi-weekly inspections until the damage is remediated. Once the damage is remediated, it must make monthly inspections. If the initial inspection shows no damage, the servicer must make monthly inspections. Reimbursement for Property Inspection Costs Fannie Mae will reimburse for the costs associated with inspecting an affected property securing an existing mortgage loan. It will reimburse the servicer $15 for an exterior inspection and $20 when an interior inspection is necessary, in accordance with the amounts in the Defined Expense Reimbursement Limits in Servicing Guide, paragraph F- 1-06, Expense Reimbursement. However, if the servicer has already ordered a more expensive FEMA disaster inspection prior to September 21, 2017, the date of Lender Letter LL , Fannie Mae will reimburse the servicer for those costs. Fannie Mae will reimburse the inspection cost for any mortgage loan in which it holds the risk of loss and the property is affected by disaster on or after August 25, The servicer may submit the request for reimbursement beginning October 1, It must submit reimbursement requests for inspection costs on current mortgage loans within one year of the invoice date. 8

9 Performing Repairs and Addressing Urgent Conditions The servicer must immediately begin repair work for a delinquent mortgage loan if the last inspection prior to the disaster showed the property as vacant and the servicer determines, through the post-disaster inspection or QRPC, that the property is still vacant and there is damage to the property. Temporary Suspensions of Servicing Transfers Effective immediately, the servicer must remove a mortgage loan secured by a property located within a FEMA-declared disaster area eligible for individual assistance from any pending servicing transfer. If the servicer determines that the property is not damaged and the borrower s ability to make further payments has not been adversely affected by the disaster, it may include the loan in a future transfer. If a Request for Approval of Servicing or Subservicing Transfer (Form 629) has already been submitted to Fannie Mae that includes the loan secured by a property located in an affected area, the servicer must submit an updated Form 629 requesting removal of the affected loan as soon as possible. For further information, see, Lender Letter LL , Additional Clarifications for Mortgage Loans Impacted by Hurricanes Harvey and Irma, September 13, This lender letter is in the Quality Control Reference Service, September 15, Also, see, Lender Letter LL , Reimbursement for Property Inspections and Additional Servicing-Related Reminders., September 21, This lender letter is in the Quality Control Reference Service, October 1, FANNIE MAE WILL OFFER NEW HIGH LTV REFINANCE OPTION FOR BORROWERS WITH A SATISFACTORY CREDIT HISTORY At the direction of the Federal Housing Finance Agency (FHFA), Fannie Mae will offer a new high loan-to-value (LTV) refinance option designed for Fannie Mae borrowers who are making their mortgage payments on time, but whose LTV ratios exceed the maximum allowed for standard limited cash-out refinance transactions. This option will not be available for a number of months, but Fannie Mae is providing the details now to allow time for lenders to make any needed operational and system updates. It will update the Selling Guide with these requirements next year, closer to the time when lenders can begin originating these high-ltv refinances. Fannie Mae is also extending the expiration date of DU Refi Plus and Refi Plus. Lenders may continue to originate loans with application dates up to and including December 31, All whole loans must be purchased by Fannie Mae on or before September 30, 2019, or included in MBS pools with issue dates on or before September 1, High LTV Refinance Requirements The loan being refinanced must be a first-lien, conventional mortgage loan, owned or securitized by Fannie Mae and must have a note date on or after October 1, The current servicer or a new servicer may refinance the existing loan. A borrower who has previously applied for or received a loan modification is eligible provided the borrower benefit provision is met using the prevailing payment, and the payment history requirement is met. At least 15 months must have passed from the note date of the existing loan to the note date of the new loan. For example, if the note date on the existing loan is January 1, 2018, the note date on the new loan can be no earlier than April 1, Ineligible Transactions Transactions that are not eligible for the high LTV refinance include an existing DU Refi Plus or Refi Plus loan, a loan that is subject to outstanding repurchase demands and a loan that is subject to recourse, repurchase agreement, indemnification or another negotiated credit enhancement required at origination, unless the new loan is also subject to a credit enhancement that meets eligibility requirements, or the credit enhancement is not required for eligibility purposes on the new loan. 9

10 New Loan Requirements The new loan must have an application date on or after November 1, The borrower must execute a new Uniform Residential Loan Application (Form 1003/1003(S)) with all information completed, including borrower income, employment and assets. The existing loan may be a fixed-rate loan or an ARM. The new loan must be either a fixed-rate loan or an ARM that refinances an existing ARM with the new ARM having a minimum five-year fixed rate term. The term of the new loan may not exceed 30 years. It must meet current general or high-balance loan limits that apply at the time of loan delivery. The new loan cannot be originated pursuant to Section 50(a)(6) of Article XVI of the Texas Constitution. The loan cannot include a temporary interest rate buydown. The new loan amount is limited to the payoff of the unpaid principal balance (UPB) of the existing first mortgage loan being refinanced including accrued interest, the financing of closing costs, prepaid items, and points up to $5,000 total for the new loan and cash back to the borrower of no more than $250. Excess proceeds may be applied as a curtailment on the new loan. The lender may provide an incentive to the borrower in the form of a payment to pay off a portion of the existing loan being refinanced. Any such reduction of the existing loan balance will affect the LTV ratio as it is applied to the calculation of the new loan amount. The lender should be careful in that incentives have the potential to reduce the LTV ratio to below the minimum allowable for this program. Underwriting Requirements for the New Loan On the loan being refinanced, the borrower cannot have had any 30-day mortgage delinquencies in the most recent six-month period, or more than one 30-day delinquency in months 7 through 12. There is no minimum credit score requirement except for loans underwritten under the alternative qualification path. The lender must obtain a new credit report. There is no maximum debt-to-income ratio except for loans underwritten under the alternative qualification path. The lender is not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events or the payoff or satisfaction of a judgment identified on the credit report. The lender is not required to review or consider Form 1003 (or 1003(S)) VIII, Declarations (a through f) in the underwriting evaluation. For further information, see, Lender Letter LL , High Loan-to-Value Refinance Option, Fannie Mae, September 8, This lender letter is in the Quality Control Reference Service, September 15, FANNIE MAE UPDATES MORTGAGE ASSISTANCE APPLICATION FORM TO STREAMLINE LOSS MITIGTION PROCESS At the Federal Housing Finance Agency s direction, and to align with Freddie Mac, Fannie Mae has updated the Mortgage Assistance Application, Form 710. It has also revised policies related to the use of Form 710. The servicer can implement these revisions immediately but must do so by June 1, Fannie Mae has revised the maximum bankruptcy fee reimbursement for a reaffirmation agreement, payment change notification, notice of fees, expenses and charges, post-stipulation default and stay termination and response to final cure payment notice. As of October 1, 2017, Fannie Mae has incorporated Flex modification into the Servicing Guide and removed the Fannie Mae standard modification, streamlined modification, streamlined, modification post disaster forbearance, HAMP modification and 2MP modification. Form 710 Changes The changes to Form 710 eliminate requests for information that is not used to evaluate the bor- 10

11 rower for a workout option and remove multiple forms of income and hardship documentation. Fannie Mae has simplified the form s language by removing industry jargon and reducing the number of borrower certifications. It has also added contact information for the servicer, HUD and CFPB in case the borrower needs assistance completing the form and provided the borrower with information about obtaining language or translation assistance. Policy Changes Related to Form 710 Other policy changes related to the Mortgage Assistance Application revisions include providing guidance to verify adjusted gross income when the income is documented by bank statements. Now, when the borrower s income is documented by bank statements, the servicer must develop an adjusted gross income by adding an amount equivalent to 25 percent of the amount documented by the bank statements. If the servicer can determine that the actual amount of federal and state taxes is more than 25 percent of the borrower s income documented by bank statements, it can use that amount to establish the borrower s income. It has revised the requirements to provide that an executed IRS Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or IRS Request for Transcript of Tax Return (IRS Form T) is only required for a complete borrower response package (BRP) to reconcile inconsistencies between other information the borrower provided, such as information the borrower provided in the Form 710, and the income documentation or if Fannie Mae requests it. Fannie Mae now allows the servicer to use a borrower s credit report to determine the total monthly debt obligations and has removed the requirement that any non-borrower income income considered must be from a relative, spouse, domestic partner, or fiancé/fiancée. For further information, see, Servicing Guide Announcement SVC , Servicing Guide Updates, Fannie Mae, September 13, This announcement is in the Quality Control Reference Service, September 15, FANNIE MAE UPDATES UCD SUBMISSION REQUIREMENTS AND OFFERS PIWS FOR PURCHASE TRANSACTIONS Fannie Mae has updated the requirement for submission of the uniform closing dataset (UCD) file. Prior to delivery of the loan to Fannie Mae, the lender must electronically submit the UCD XML file containing the borrower data and the PDF copy of the borrower closing disclosure. This requirement applies to conventional loans with a note date on or after September 25, It applies, regardless of whether Regulation Z requires the closing disclosure, including a nonowner-occupied property loan. Fannie Mae now offers property inspection waivers (PIWs) on certain purchase transactions. Exercising a PIW offer gives the lender relief from enforcement of representations and warranties on the value, condition and marketability of the property. It has also updated the transactions that are ineligible for a PIW to include gifts of equity and the use of rental income from a subject investment property to qualify the borrower. When these apply to the loan, the lender must obtain an appraisal. For further information, see, Selling Guide Announcement SEL , Selling Guide Updates, Fannie Mae, September 26, This announcement is in the Quality Control Reference Service, October 1, Freddie Mac Mortgages FREDDIE MAC ANNOUNCES TEMPORARY SUSPENSION OF FORECLOSURES ON PROPERTIES AFFECTED BY HARVEY Freddie Mac has announced that for a mortgage secured by a property located in an eligible disaster area as a result of Hurricane Harvey, it is requiring the servicer to suspend all foreclosure sales for 90 days beginning on the date that the Federal Emergency Management Agency (FEMA) declared the area to be an eligible disaster area. Freddie Mac is also notifying counsel providing default-related legal services to suspend all eviction 11

12 activities until November 27, 2017, for borrowers with mortgaged property in an eligible disaster area as a result of Hurricane Harvey. For further information, see, Bulletin , Temporary Servicing Requirements Related to Borrowers Affected by Hurricane Harvey, Freddie Mac, August 29, This bulletin is in the Quality Control Reference Service, September 1, FREDDIE MAC ANNOUNCES INVESTOR REPORTING REVISIONS AND MAKES OTHER SERVICING POLICY REVISIONS Freddie Mac has revised the requirements for the Freddie Mac investor reporting change initiative, effective May 1, 2019, including a new Form 1132A, Authorization for Automatic Transfer of Funds from a Principal and Interest Custodial Account Through the Automated Clearing House (ACH). Each month, beginning June 2019, Freddie Mac will draft, via ACH transaction, principal and interest payments and payoff proceeds directly from the servicer s designated custodial account. The existing Form 1132 doesn t authorize Freddie Mac to draft funds from a principal and interest custodial or principal and interest disbursement clearing custodial account. Therefore, it is introducing a new form, Form 1132A, to allow the servicer to designate the proper principal and interest custodial account or principal and interest disbursement clearing custodial account and authorize Freddie Mac to initiate debits or credits by electronic transfer against the account. MERS and Maine Security Instruments Freddie Mac has suspended use of the MERS as Original Mortgagee authorized change to the Maine Security Instrument, Form 3020, as of mortgages with note dates on or after January 1, As of that date the lender must use the new Fannie Mae/Freddie Mac MERS Mortgage Assignment (Form 3749) to assign such mortgages to MERS. A mortgage with a note date on and after January 1, 2018, secured by property located in Maine will be ineligible for delivery to Freddie Mac if Form 3020 has been modified to name MERS as the original mortgagee of record solely as nominee for the lender or if the mortgage has been assigned to MERS using an assignment form other than Form The new Form 3749 will show a version date of August 2017 and originators may begin using the new form immediately. Electronic Documents Freddie Mac has removed the requirement that the lender or servicer retain a wet ink signed assignment of a mortgage or a modification agreement when those paper documents are electronically recorded. It has clarified that the lender or servicer may store the electronic copies of these documents as long as the copies or other recording confirmations from the recording office contain all of the recording information. If a modification agreement must be recorded and will be electronically recorded, the servicer must send the original wet-ink signed paper modification agreement to the document custodian to be maintained with the note within 25 days of receiving the executed modification agreement from the borrower. For further information, see, Bulletin , Selling and Servicing Updates, Freddie Mac, August 30, This bulletin is in the Quality Control Reference Service, September 15, FREDDIE MAC REVISES ORIGINATION REQUIREMENTS RELATED TO PROPERTIES AFFECTED BY HURRICANE HARVEY Freddie Mac has revised the age of documentation requirements for mortgages secured by properties located in Hurricane Harvey disaster areas that have application received dates on or before, and note dates after, August 25, The property valuation documentation, including the point value estimate from HVE or the new appraisal must be dated no more than 180 days before the note date and any required underwriting documentation, including Loan Product Advisor feedback certificates, credit reports, 12

13 verifications of income, employment and sources of funds, must be dated no more than 180 days before the note date. Loan Product Advisor will automatically pull a new credit report for a mortgage submitted or resubmitted to Loan Product Advisor 120 days or more after the date of the credit report. The most recent credit report must be used to analyze the borrower s credit reputation and determine the indicator score. Relief Refinance Mortgage Freddie Mac has reminded lenders that for a Freddie Mac Relief Refinance mortgage secured by a property affected by a disaster, the lender need not obtain a property inspection or new appraisal when a property valuation (either an HVE point value estimate or an appraisal) was relied on prior to a disaster, and the lender can use an HVE point value estimate with a high or medium confidence score after a disaster without obtaining a property inspection or appraisal to determine property condition. Property Damage The lender must take appropriate steps, including a property inspection, to determine whether the mortgage remains eligible for sale to Freddie Mac. This applies to determining whether the property was damaged by Hurricane Harvey for a mortgage with a note date prior to August 25, 2017, but not yet sold to Freddie Mac, and a mortgage in process as of August 25, If the lender determines that the property has been damaged to the extent that it affects the safety, soundness or structural integrity, the property is not acceptable as security for the mortgage and the mortgage is not eligible to be sold to Freddie Mac. For less severe damage, the lender may sell the mortgage to Freddie Mac if it ensures the damage is covered by insurance and that the insurance is adequate to protect against future loss. ACE Appraisal Waivers The lender may not accept an automated collateral evaluation (ACE) appraisal waiver offer for a property located in a zip code affected by Hurricane Harvey unless the related mortgage has a note date prior to August 25, 2017 and the lender has confirmed that the condition of the property has not been adversely affected by Hurricane Harvey. Collateral Representation and Warranty Relief For a mortgage with a note date prior to August 25, 2017, that is secured by a property located in a zip code affected by Hurricane Harvey and that received collateral representation and warranty relief through Loan Collateral Advisor, the lender must take appropriate steps to determine whether the property has been damaged by Hurricane Harvey. Freddie Mac will continue to offer collateral representation and warranty relief if the lender confirms and documents that the property has not been adversely affected by Hurricane Harvey and includes the documentation in the mortgage file. For further information, see, Bulletin , Selling Requirements Related to Properties Affected by Hurricane Harvey, Freddie Mac, September 7, This bulletin is in the Quality Control Reference Service, September 15, FREDDIE MAC PROVIDES SUMMARY OF THE REQUIREMENTS FOR THE NEW HIGH LOAN- TO-VALUE REFINANCE OFFERING Freddie Mac has provided a high-level summary of some of the requirements for its new, high-ltv refinance offering, the Freddie Mac Enhanced Relief Refinance, as well as details and Guide updates related to the extension of the current Relief Refinance offerings, Freddie Mac s business implementation of HARP. Effective for mortgages with application received dates on and after November 1, 2018, the Enhanced Relief Refinance mortgage provides a refinance opportunity to a borrower with an existing Freddie Mac mortgage who has been making the mortgage payments on time but cannot take 13

14 advantage of the Freddie Mac no cash-out refinance offering because the LTV ratio of the new mortgage exceeds the maximum limits. Mortgage Eligibility The Enhanced Relief Refinance mortgage must be a conventional fixed rate mortgage or a conventional 5-year, 5/1, 7/1 or 10/1 ARM, provided that the mortgage being refinanced is an ARM. If the mortgage is secured by a manufactured home, it must not be a five-year or a 5/1 ARM. The Enhanced Relief Refinance mortgage may be a super conforming mortgage but may not be a mortgage with a temporary subsidy buydown plan or be a Texas Equity Section 50(a)(6) mortgage. Borrower Benefit The Enhanced Relief Refinance mortgage must be originated for the purpose of reducing the interest rate of the first lien mortgage, replacing an ARM with a fixed-rate mortgage, reducing the amortization term of the first lien mortgage or reducing the monthly principal and interest payment of the first lien mortgage. Freddie Mac is extending the expiration date of the Freddie Mac Relief Refinance Mortgage Same Servicer and Relief Refinance Mortgage Open Access offerings, which must now have an application received date on or before December 31, 2018, and a settlement date on or before September 30, For further information, see, Bulletin , Relief Refinance, Freddie Mac, September 8, This bulletin is in the Quality Control Reference Service, September 15, FREDDIE MAC UPDATES BORROWER RESPONSE PACKAGE DOCUMENTATION AND MAKES OTHER SERVICING CHANGES Freddie Mac has updated its standard servicing policies not directly related to the special requirements designed to assist a borrower who is affected by a disaster. It has revised the borrower hardship, income and other documentation requirements associated with completing a borrower response package. It has revised the requirements regarding servicer maintenance and storage of security instruments that have not been electronically recorded. Freddie Mac has also increased the reimbursable expense limits for the expense codes that are associated with the preservation and maintenance of abandoned mortgaged property Borrower Hardship, Income and Other Documentation At the direction of the FHFA, and jointly with Fannie Mae, Freddie Mac has revised requirements related to hardship, income and other documentation that must be submitted for a complete borrower response package. It has rebranded Guide Form 710 from the Uniform Borrower Assistance form to the Mortgage Assistance Application (MAAp) and updated the form. These changes aim to reduce the supporting documentation required to substantiate the borrower s hardship and income and to simplify the solicitation process. These changes are effective June 1, 2018, but the servicer may implement them earlier. Among the changes, Freddie Mac is no longer requiring supporting documentation for disaster hardships or the disclosure of detailed information when a borrower or dependent family member is experiencing long-term or permanent disability, or serious illness. In these instances, the borrower is required only to provide a written statement or other documentation verifying disability or illness. It is also no longer requiring the disclosure of a business failure, as such a borrower is likely to experience reduced income. Maintenance and Storage of Security Instruments It has revised the requirements regarding servicer maintenance and storage of security instruments that have not been electronically recorded. The servicer may convert paper security instruments that are not electronically recorded into electronic records and electronically store and maintain them in the servicer s electronic storage system. These electronic records are then part of the mortgage file as electronic mortgage file documents. 14