Wednesday, October 6, 2010

Fannie: Directs Servicers to Review Foreclosure Procedures

On October 1, 2010, Fannie Mae issued Lender Letter LL-2010-11 which directs all of its servicers to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process.

Fannie issued this notice because it recently learned that there are potential defects with affidavits submitted by servicers in support of motions for summary judgment in states with judicial foreclosure processes. The issues pertain to "whether the individuals executing the affidavits on behalf of the servicer had the required personal knowledge of the information contained in the affidavits and whether the affidavits were notarized in accordance with applicable requirements."

The issuance provides citations to Fannie's Mortgage Selling and Servicing Contract and Servicing Guide provisions with regard to:

  • Servicer's basic duties and responsibilities
  • Compliance with applicable laws and mortgage documents
  • Servicer's audit and control systems
  • Consequences of non-performance of servicer's duties and responsibilities and non-compliance with applicable laws and mortgage documents


Servicer's Basic Duties and Responsibilities

The servicer must have sufficient and properly-trained staff, and adequate controls and quality assurance procedures in place:

  • to carry out all aspects of their servicing duties
  • to protect against fraud, misrepresentation, or negligence by any parties involved in the mortgage servicing processes
  • to protect Fannie Mae's investment in the security properties
  • to provide borrowers with assistance when it is requested
  • to ensure that its staff is knowledgeable in all aspects of mortgage servicing to comply with Routine vs. Non-routine Litigation procedures, and contact Fannie Mae's Regional Counsel via e-mail if:
    • any routine legal proceeding becomes contested (i.e., the defendant in any proceeding files any appeal, motion for rehearing, or similar procedure
    • the servicer receives notice of a non-routine action that involves a Fannie Mae-owned or - the securitized mortgage loan or that will otherwise affect Fannie Mae's interests, regardless of whether Fannie Mae is also named as a party to the action.

Compliance with Applicable Laws and Mortgage Documents

All federal, state, and local laws (including statutes, regulations, ordinances, administrative rules and orders that have the effect of law, and judicial rulings and opinions) that apply to any of its origination, selling, or servicing practices or other business practices (including the use of technology) that may have a material effect on Fannie Mae, including:

  • fair housing
  • equal credit opportunity
  • truth-in-lending
  • wrongful discrimination
  • real estate settlement procedures
  • borrower privacy
  • escrow account administration
  • mortgage insurance cancellation
  • debt collection
  • credit reporting
  • electronic signatures or transactions
  • predatory lending
  • terrorist activity
  • the enforcement of any of the terms of the mortgage loan

Servicer's Audit and Control Systems

The servicer must maintain adequate internal audit and management control systems to ensure that mortgage loans are serviced in accordance with sound mortgage banking and accounting principles; to guard against dishonest, fraudulent, or negligent acts; and to guard against errors and omissions by officers, employees, or other authorized persons.

Requires the servicer to provide for at least the following:

  • a delinquent loan servicing system
  • a system to control and monitor bankruptcy proceedings
  • a foreclosure monitoring system

Consequences of Non-performance of the Servicer's Duties and Responsibilities and Non-compliance with Applicable Laws and Mortgage Documents

  • Agreement to Indemnify and Hold Harmless
  • Compensatory Fees
  • Specific Breaches of Contract
    • Specific breaches of the Contract as they relate to execution of affidavits, verifications, and other legal documents include:
      • Failure To Properly Foreclose Or Liquidate
      • Failure To Properly Manage, Dispose Of, Or Effect Proper Conveyance Of Title
  • Remedies for Breach of Contract

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Fannie Mae: Servicer Review of Procedures Relating to the Execution of Affidavits, Verifications, and Other Legal Documents -
Lender Letter LL-2010-11
October 1, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.