Mortgages: Now US Federal Agencies weigh in over repossession action failures

In a statement issued 1 October, The FHFA said "“Recent accounts of deficiencies in foreclosure documentation by two large mortgage servicers raise concerns for home-owners and mortgage investors alike. FHFA, as conservator for Fannie Mae and Freddie Mac, supports efforts by the Enterprises to remind servicers and other parties engaged in processing foreclosures to do so in accordance with their seller-servicer agreements and applicable laws and regulations. Where deficiencies have been identified, FHFA has directed the Enterprises to work collectively to develop and implement a consistent approach to address any problems. In addition, FHFA is coordinating with appropriate regulators on this issue.

"Our goal is to assure the integrity of the foreclosure process and to see that any corrections in processes be tailored to the problem, protecting the rights of borrowers and investors without causing any undue disruption to the mortgage markets.”

So, the regulator is telling the banks to comply with the law. That's hardly world-shattering.

Yesterday, the FHFA issued a further statement. It said "“On 1 October, FHFA announced that Fannie Mae and Freddie Mac are working with their respective servicers to identify foreclosure process deficiencies and that where deficiencies are identified, will work together with FHFA to develop a consistent approach to address the problems. Since then, additional mortgage servicers have disclosed shortcomings in their processes and public concern has increased.

Today, I am directing the Enterprises to implement a four-point policy framework detailing
FHFA’s plan, including guidance for consistent remedy of identified foreclosure process
deficiencies. This framework envisions an orderly and expeditious resolution of foreclosure
process issues that will provide greater certainty to home-owners, lenders, investors, and
communities alike.

In developing this framework, FHFA has benefited from close consultation with the
Administration and other federal financial regulators.

The country’s housing finance system remains fragile and I intend to maintain our focus on
addressing this issue in a manner that is fair to delinquent households, but also fair to
servicers, mortgage investors, neighbourhoods and most of all, is in the best interest of taxpayers and housing markets.”

Fannie Mae promptly issued its own statement: "These principles reinforce the directive issued by Fannie Mae last week, requiring our servicers to 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.

We continue to expect prompt execution of our directive. A servicer's failure to comply with any provision of law, or any provision of our servicing requirements, constitutes a breach of the servicer's contractual agreements with Fannie Mae. Our servicers are obligated to adhere to all legal requirements as part of the foreclosure process. They must inform us of and rectify any issues that may arise in this regard.

Fannie Mae recognises that foreclosure is an extremely difficult experience for affected home-owners and we are working to ensure borrowers are treated fairly and respectfully. Fannie Mae has halted foreclosures, evictions, and REO sale closings when necessary for a servicer to perform required remedy. Our actions are intended to protect the rights of borrowers facing foreclosure, enable a fair and equitable legal process for all affected parties and allow new home-buyers to close on their transactions in a timely manner. These steps will also help ensure the proper functioning of the mortgage market overall so as to meet our goals of maintaining liquidity in the market and minimising taxpayer exposure." (edited).

Fannie Mae is doing what it can to distance itself from the mess. Its statement makes it clear that it does not directly lend to consumers; that it distributes federal funding to intermediary lenders who then lend to consumers. It says "Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America. "

So, Fannie Mae, as lender to lenders, has told its intermediary lenders, to cease all repossession actions until they establish the the proper procedures have been followed and threatened (subtly) legal action where repossessions have been improperly managed.