Today, the Federal Housing Finance Agency (“FHFA”) announced an eagerly awaited policy allowing Fannie Mae and Freddie Mac (the “Agencies”) to address one aspect of the liquidity crisis for mortgage servicers facing mounting advance obligations due to forbearances. Going forward, once a servicer of single-family mortgage loans pooled into an Agency mortgage-backed security has advanced four months of missed payments on a loan in forbearance, it will have no further obligation to advance scheduled payments of principal and interest.[1] The FHFA reports that this applies to all Agency servicers.

This answers one of the four main questions that servicers have asked about forbearance required under the CARES Act in the context of Agency servicing advances. Whether a servicer has to advance for forborne payments is the first question. If so, for how long, is the second question. Third, when will a servicer be reimbursed by the Agencies for such advances. Last, will the Agencies, directly or through the Federal Reserve Board or Department of Treasury, provide a liquidity facility or financing for required advances?
Continue Reading Fannie and Freddie to Relax Servicer Advance Requirements for Loans in Forbearance

Any day now, maybe even today, Ginnie Mae will announce the details on its Pass-Through Assistance Program (“PTAP”), through which Ginnie Mae will provide a liquidity facility for issuers that need help meeting their obligation as issuers to pass-through payments of regularly scheduled payments of principal and interest, regardless of whether the loans are subject to forbearance.  While quickly trying to finalize PTAP program documents, on Monday April 7th, Ginnie Mae announced that it would recognize servicing advance financing facilities under its Acknowledgement Agreement. Previously, Ginnie Mae would not recognize a servicing advance receivable as  an independent component of mortgage servicing rights related to loans pooled into Ginnie Mae securities (“MSRs”).  This new recognition improves the ability of servicers to finance a valuable income stream, which has proven increasingly costly as the COVID-19 pandemic has greatly challenged liquidity in the housing market. But this recognition comes with limitations, which we detail below.

BACKGROUND

Like Fannie Mae and Freddie Mac, Ginnie Mae permits its servicers, called “issuers,” to grant a security interest in their MSRs to secure a commercial loan. Each also used its version of a master form Acknowledgment Agreement to spell out the relative rights and obligations of the servicer, the secured creditor and Ginnie Mae. Unlike Fannie Mae and Freddie Mac, however, Ginnie Mae does not permit a servicer to grant a security interest in its MSRs to one secured creditor and a security interest in its servicing advance receivables to another; only one Acknowledgment Agreement by servicer is permitted by Ginnie Mae.

This difference in treatment is in part due to the fact that, unlike Fannie Mae and Freddie Mac, Ginnie Mae does not itself reimburse servicers for advances. Servicers instead must instead look to subsequent mortgagor payments and mortgage insurance and guaranty proceeds on the underlying pooled mortgage loans. Moreover, a secured creditor is afforded a very “skinny” cure right, if a Ginnie Mae servicer defaults in its pass-through obligations. If the secured creditor fails to cure the monetary default (within one business day), its security interest is automatically extinguished. Ginnie Mae will neither reimburse the secured creditor for its outstanding debt, either directly or indirectly though net sales proceeds, nor require the successor servicer to remit to the secured creditor reimbursement of servicing advances as and when received.


Continue Reading Modest Improvements: Ginnie Mae’s Servicing Advance Facility Recognition

For many of us who have been around for a while, it seems as if we have seen this movie before.  An economic downturn leads to increased borrower delinquencies on mortgage loans with a progressively increasing obligation for the servicers of those mortgage loans to make principal and interest advances to cover the delinquencies.

But

While residential mortgage loan servicers, trade associations and various members of Congress have been urging the Department of Treasury and the Federal Reserve Board to provide a dedicated servicing advance facility, Ginnie Mae did just that. On April 10, 2020, Ginnie Mae announced the final terms of its much-anticipated Pass-Through Assist Program for Issuers of

The Taxpayer First Act (the “Act” or “TFA”) imposes new limits on the disclosure of US taxpayer tax information obtained on or after December 28, 2019.  The Act is designed, among other things, to overhaul and modernize operations at the Internal Revenue Service (“IRS”).  One provision of the TFA has a direct impact on a recipient of taxpayer return information obtained directly from the IRS.  Although questions remain about the reach of the new rule, it is already finding its way into structured finance and secondary market transactions.

Section 6103 of the Internal Revenue Code (the “Code”) governs the confidentiality and disclosure of tax returns and the information contained in tax returns.  The TFA, effective as of December 28, 2019, amends Code Section 6103(c) to require taxpayers to consent to: (i) the particular purposes for which the recipient will use the taxpayer’s tax return information (the recipient may not use the information for any other purpose); and (ii) the sharing of any information from the tax return with other persons.  Prior to the TFA amendment, Code Section 6103(c) simply authorized the IRS to release a taxpayer’s tax return information to parties designated by the taxpayer to receive it.


Continue Reading The Taxpayer First Act and the Impact on Secondary Market Participants

It is widely anticipated that the London Interbank Offered Rate (“LIBOR”) will be discontinued in 2021. As LIBOR commonly is used as an index rate for both residential mortgage and consumer loans, its discontinuance has the potential to have a significant impact on lenders, servicers, and consumers. In this Legal Update, we discuss the legal

According to the Mortgage Bankers Association, the Consumer Financial Protection Bureau intends to revise its Qualified Mortgage definition by moving away from a debt-to-income ratio threshold, and instead adopting a different test, such as one based on the loan’s pricing. The CFPB also apparently indicated it may extend, for a short time, the temporary QM

On October 30, 2019, SEC Chairman Jay Clayton announced that the SEC will review its RMBS asset-level disclosure requirements with “an eye toward facilitating SEC-registered offerings.”   The announcement notes the absence of SEC-registered RMBS securitizations in recent years and seeks input from investors, issuers and other market participants with respect to several questions posed in

On July 25th, the CFPB announced plans to allow the temporary Qualified Mortgage (QM) status given to loans eligible for purchase by Fannie Mae or Freddie Mac (the GSEs) to expire. However, the agency stated it could allow a short extension past the January 10, 2021 expiration date, and is in any case soliciting public comments on the general QM definition, including its income and debt documentation requirements.
Continue Reading CFPB to rip off the patch?

In this inaugural edition of our Structured Finance Bulletin, we discuss some trending issues that began impacting the structured finance and asset-backed and mortgage-backed securities spaces in late 2018, which will play a more prominent role in the execution and marketing of securitization transactions in 2019.
Continue Reading Mayer Brown’s structured finance bulletin