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Showing posts with label Foreclosure Policies. Show all posts
Showing posts with label Foreclosure Policies. Show all posts

Friday, December 16, 2011

OCC Issues Foreclosure Guidance - Part II

In yesterday's newsletter, Part I of this two-part series, I outlined the role of the bank as owner and servicer of foreclosed property, as described in the recent guidance issued by the Office of the Comptroller of the Currency (OCC) with respect to a bank's obligations and risks related to foreclosed property. (See OCC 2011-49)
A bank's obligations with respect to foreclosed residential properties may differ depending upon the bank's role in the foreclosure. For instance, a bank may be (1) an owner of the foreclosed property, or (2) a servicer and/or property manager, or (3) a securitization trustee.
Additionally, there are specific obligations when lenders release a lien securing a defaulted loan rather than foreclose on a residential property.
In today's newsletter, Part II or this two-part series, I outline the role of the bank as trustee of a securitization trust, and also releasing a lien rather than foreclosing.
For detailed information and guidance, please consult with us or a regulatory compliance professional.
In this Newsletter
Safety and Soundness
Bank as Trustee of Securitization Trust
Releasing a Lien Rather Than Foreclosing
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Safety and Soundness
As a matter of safety and soundness banking practices, banks should have robust policies and procedures in place to address risks associated with foreclosed (or soon to be foreclosed) properties.
Acquiring title to properties through foreclosure - either for the bank or as servicer for another mortgagee - results in new or expanded risks, including operating risk (which may include market valuation issues), compliance risk, and reputation risk.
Banks should be sure they have identified all the risks, and have policies and procedures for monitoring and controlling these risks. In each risk management consideration, it is critical to establish and implement policies and procedures, and bank management and the Board of Directors should consider, at a minimum, the role of the bank in foreclosure procedures and obligations.
Bank as Trustee of Securitization Trust
The securitization trustee is primarily responsible for holding a lien on the trust assets for the benefit of the investors who purchase securities issued pursuant to the securitization and administering the trust in conformance with requisite agreements.
The trustee's duties and responsibilities are established by a PSA, trust agreement, or indenture. These agreements direct a securitization trustee to perform various complex administrative functions. Such functions usually include ensuring the timely receipt of payments from the servicer, calculating payments, remitting payments to the investors, circulating information to investors, monitoring compliance, and determining if an event of default is triggered.
As permitted by the PSA, the trustee should work with the servicer to ensure the performance of its responsibilities. The securitization agreements may require a trustee to appoint a successor servicer or to take over servicing in the event the original servicer fails to perform its duties or defaults. These agreements generally do not grant the trustee any powers or duties with respect to the foreclosure or with the maintenance, sale, or disposition of foreclosed properties. Instead, these responsibilities typically reside with the servicer.
Nevertheless, to the extent a servicer undertakes foreclosure actions in the trustee's name as the secured party, a bank trustee should be aware of potential reputation and litigation risks. (See my comments in Part I, relating to reputation risk.)
Additionally, if the securitization agreements require a bank trustee to act as a replacement servicer until a successor servicer is appointed, the bank trustee would also be exposed to credit risk.
Releasing a Lien Rather Than Foreclosing
At times, lenders may release a lien securing a defaulted loan rather than foreclose on the residential property.
This decision is often based on financial considerations when the bank or servicer and/or investor determines that the costs to foreclose, rehabilitate, and sell a property exceed its current fair-market value. When this decision is made after a bank or servicer has initiated foreclosure, the borrower may have already abandoned the property or discontinued the care and maintenance of the property, increasing the chance of a blighted property in the community.
Because the decision to release a lien is typically a financial decision, banks and servicers should ensure that their valuation of the property provides the best information practicable, while complying with investor requirements, before initiating foreclosure and subsequently deciding to release the lien. While the financial risk must be considered, banks and servicers should also consider the potential for reputation and litigation risk arising from their position as a prior mortgagee or servicer of a now-abandoned property.
If the decision is made to forego foreclosure and release the lien, the bank or servicer should notify, or attempt to notify, the borrower of the decision. Borrowers should be notified that (1) the mortgage holder is not pursuing foreclosure and has released the mortgage lien, (2) the borrower may continue to occupy the property, and (3) the borrower is obligated to maintain the property consistent with all local codes and ordinances and to pay property taxes and the debt owed. The bank or servicer should also make appropriate notifications to the local jurisdiction when it makes the decision to release a lien in lieu of foreclosure.
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Office of the Comptroller of the Currency (OCC)
Foreclosed Properties
Guidance on Potential Issues
With Foreclosed Residential Propertie
s
OCC 2011-49
December 14, 2011
* Jonathan Foxx is the President and Managing Director of Lenders Compliance Group

Thursday, December 15, 2011

OCC Issues Foreclosure Guidance - Part I

The Office of the Comptroller of the Currency (OCC) is providing guidance to banks on obligations and risks related to foreclosed property. Issued on December 14, 2011, this guidance highlights legal, safety and soundness, and community impact considerations. It primarily focuses on residential foreclosed properties. (See OCC 2011-49)
A bank's obligations with respect to foreclosed residential properties may differ depending upon the bank's role in the foreclosure. For instance, a bank may be (1) an owner of the foreclosed property, or (2) a servicer and/or property manager, or (3) a securitization trustee.
Additionally, there are specific obligations when lenders release a lien securing a defaulted loan rather than foreclose on a residential property.
Furthermore, understanding the requirements imposed by Fannie Mae and Freddie Mac (GSEs) or the U.S. Department of Housing and Urban Development (HUD) on servicers is particularly important.
I will analyze the OCC's guidance as it relates to the aforementioned three roles of the bank in foreclosing on residential properties.
This is a two-part newsletter. I will offer a brief overview of the OCC 2011-49 bulletin pertaining to guidance on potential issues with foreclosed residential properties. Today, in this first part, I will outline the role of the bank as owner and servicer of foreclosed property. Tomorrow, in the second part, I will outline the role of the bank as trustee of a securitization trust, and also releasing a lien rather than foreclosing.
For detailed information and guidance, please consult with us or a regulatory compliance professional.

In this Newsletter
Safety and Soundness
Bank as Owner of Foreclosed Property
Bank as Servicer of Foreclosed Property
Library

Safety and Soundness
As a matter of safety and soundness banking practices, banks should have robust policies and procedures in place to address risks associated with foreclosed (or soon to be foreclosed) properties.
Acquiring title to properties through foreclosure - either for the bank or as servicer for another mortgagee - results in new or expanded risks, including operating risk (which may include market valuation issues), compliance risk, and reputation risk.
Banks should be sure they have identified all the risks, and have policies and procedures for monitoring and controlling these risks. In each risk management consideration, it is critical to establish and implement policies and procedures, and bank management and the Board of Directors should consider, at a minimum, the role of the bank in foreclosure procedures and obligations.
Bank as Owner of Foreclosed Property
Obligations and Actions
  • In acquiring title to foreclosed properties, banks assume the primary responsibilities of an owner, including providing maintenance and security, paying taxes and insurance, and serving as landlord for rental properties.
    • Banks should communicate with localities, including homeowner associations, about specific requirements with respect to foreclosed residential properties (i.e., localities may have requirements about certain aspects of upkeep, such as lawn mowing, property maintenance, and security, et cetera).
    • In the absence of these actions, banks should be aware of potential nuisance actions or the exercise of local receivership powers to seize properties.
  • For FHA-insured mortgages, the bank must ensure compliance with property and preservation guidance issued by HUD to preserve the insurance claim and obtain reimbursements for allowable expenses.
  • Following foreclosure, the bank must record its ownership interest in local land records.
  • Banks must comply with the other real estate owned (OREO) appraisal and accounting requirements.
  • Banks should maintain appropriate insurance on the property.
  • Some localities may require registration of foreclosed properties, properties in foreclosure, or vacant properties. Banks should be aware of and comply with such requirements.
  • The Protecting Tenants at Foreclosure Act of 2009 (PTFA) provides tenants with protections from eviction as a result of foreclosure on the properties they are renting.
    • When a bank takes title to a house after foreclosure, it must honor any existing rental agreement with a bona fide tenant and must provide 90 days' notice to the tenant prior to eviction whether or not the tenant has a rental agreement.
    • State laws may impose additional requirements that are not preempted by the PTFA.
    • Additional potential requirements with respect to rental properties include:
      • reviewing the lease to determine if the property can be shown to prospective purchasers; and
      • returning any security deposit upon termination of the rental agreement.

Wednesday, November 30, 2011

OCC: Fixing Deficient Foreclosure Practices

Jonathan Foxx
President & Managing Director
Lenders Compliance Group


The Office of the Comptroller of the Currency (OCC) issued a report on November 22, 2011 on the actions by 12 national bank and federal savings association mortgage servicers to comply with consent orders issued in April 2011 to correct deficient and unsafe or unsound foreclosure practices.
The report, entitled Interim Status Report: Foreclosure-Related Consent Orders, summarizes progress on activities related to the independent foreclosure review announced November 1, 2011, as well as other activities to enhance mortgage servicing operations, strengthen oversight of third-party service providers and activities related to Mortgage Electronic Registration Systems (MERS), improve management information systems, assess and manage risk, and ensure compliance with applicable laws and regulations.
Based on information in the relevant OCC issuances, much of the work to correct identified weaknesses in policies, operating procedures, various control functions, and audit processes would be substantially complete in the first part of 2012, but other, longer term initiatives will continue through the balance of 2012.
In addition to the interim report, please note that the OCC also released engagement letters that describe how the independent consultants, retained by the servicers, will conduct their file reviews and claims processes to identify borrowers who suffered financial injury as a result of deficiencies identified in the OCC's consent orders.
For those of you who have not had to respond to and implement a consent order, I would say that the engagement letters are generally pro forma and consistent with similar terms and conditions we require in our own commitments and proposals for such audits and due diligence reviews. As a general proposition, the review process being implemented at some companies may differ from that described in the engagement letters because of subsequent coordination with the OCC to ensure a consistent process among the servicers.   
The engagement letters identify the names of the independent consultants conducting the reviews and include language stipulating that consultants would take direction from the OCC throughout the reviews. In fact, the terms of engagement specifically prohibit servicers from overseeing, directing, or supervising any of the reviews. Limited proprietary and personal information has been redacted.
Newsletter Sections
Interim Report
Engagement Letters
Correcting Foreclosure Deficiencies
Professional Assistance
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Interim Report
The interim report summarizes actions taken by national banks and federal savings associations to correct deficiencies in mortgage servicing and foreclosure processing identified in consent orders issued on April 13, 2011, by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) against 12 mortgage servicers.
The OCC took action against eight national bank servicers: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. The OTS took action against four federal savings association servicers and two holding companies: Aurora Bank, FSB; EverBank (and the thrift holding company, EverBank Financial Corp.); OneWest Bank, FSB (and its holding company IMB HoldCo LLC); and Sovereign Bank.
The consent orders were based on examiner findings during an interagency review of major residential mortgage servicers conducted in the fourth quarter of 2010.
A summary of the findings of the interagency review is available in the "Interagency Review of Foreclosure Policies and Practices," produced by the OCC, Board of Governors of the Federal Reserve Board (FRB), and OTS.
Engagement Letters
Pursuant to 12 C.F.R. § 4.12(c), the listing order of the engagement letters at the OCC's election has no precedential significance.
The engagement letters were submitted by the independent consultants that were retained by servicers regulated by the OCC. These independent consultants will be conducting foreclosure reviews pursuant to the requirements of the April 13, 2011 consent orders. 
The engagement letters describe how the independent consultants will conduct their file reviews and claims processes to identify borrowers who suffered financial injury as a result of servicer deficiencies identified in the OCC's consent orders.  
Limited proprietary and personal information has been redacted from the engagement letters.
Since the acceptance of the engagement letters in September of this year, the independent consultants have further refined and made adjustments to the processes, procedures, and methodologies outlined in the engagement letters in consultation with OCC supervision staff.
For instance, there were a number of changes made to integrated claims processes to ensure a single, uniform process among the servicers.
Correcting Foreclosure Deficiencies
Independent Foreclosure Review
As part of those consent orders, federal regulators required servicers to engage independent firms to conduct a multi-faceted review of foreclosure actions in process in 2009 and 2010.
Under the orders, independent consultants are charged with evaluating whether borrowers suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure practices and determining appropriate remediation for those customers. Where a borrower suffered financial injury as a result of such practices, the agencies' orders require financial remediation to be provided.
As part of that program, 14 mortgage servicers covered by the enforcement actions will begin mailings November 1, 2011 that will continue through the end of the year. The mailings are intended to provide information to potentially eligible borrowers on how to request a review of their case if they believe they suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure proceedings related to their primary residence between January 1, 2009 and December 31, 2010. The mailings will include a request for review form.
Borrowers may also visit the Independent Foreclosure Review for more information about the review and claim process. Furthermore, assistance with the form and answers to questions about the process are available at 1-888-952-9105, Monday through Friday from 8 a.m. to 10 p.m. (ET) and Saturday from 8 a.m. to 5 p.m. (ET).
Requests for review must be received by April 30, 2012.
The third-party consultant will assess whether any errors, misrepresentations, or other deficiencies resulted in financial injury to borrowers. Where a borrower suffered financial injury as a result of such practices, the consent orders require remediation to be provided. 
During the review, customers may be contacted by mortgage servicers for additional information at the direction of the independent consultant.
Professional Assistance
Contact Us-2
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Interim Status Report: Foreclosure-Related Consent Orders
November 2011
Interagency Review of Foreclosure Policies and Practices
April 2011