April, 2012

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THE LATEST SERVICING CFPB Will Review Mortgage Disclosure Forms The bureau is taking steps to form a small business panel to examine disclosure requirements. T Poor Servicer Oversight A new report targets both government housing entities, accusing them of lackluster review practices. T he inspector general of the Federal Housing Finance Agency (FHFA) released a report recently that criticizes the agency, Fannie Mae, and Freddie Mac for a series of ongoing oversight problems with mortgage servicers. The document charges the FHFA failed to implement ser- vice guidelines for the mortgage company last year and portrays today's environment as one in which the agency, GSEs, and servicers all punt responsibility down the ladder. "FHFA relies on the enter- prises individually to monitor counterparty risk as part of their ongoing risk management activities," the report said. "And, similar to FHFA's reliance on Fannie Mae and Freddie Mac, the enterprises routinely rely on mortgage servicers to manage the loans in their portfolios." It said that lack of oversight per- sists despite calls from "numerous 48 | THE M REPORT GSE executives" to aggressively revisit servicer contracts, which Freddie Mac approached by creat- ing so-called account plans. The office recommended that Freddie Mac address underper- forming servicers and others with high-risk loan portfolios— holdover problems that the office said "played a significant role" in the financial crisis. It also alleges that Fannie Mae and Freddie Mac by and large operate independently of each other, despite the fact the two companies routinely share some 300 different servicers. In one instance, the report said that contracts with servicers from September last year failed to require servicer access for the FHFA, preventing the agency from reviewing compliance with terms and conditions despite responsibilities it had assumed three years before. "Although it has undertaken affirmative measures, FHFA has not developed sufficient regulations or guidance govern- ing the enterprises' oversight and risk management of counterpar- ties, such as servicers," it added. The Office of Inspector General—which reports to Congress independently— recommended that the FHFA act to uncover and stymie servicer risk by devising new regulation, orders, and guidance for the companies. "When the enterprises turn to servicers to perform their responsibilities, the vendors' activities should be subject to the same risk management moni- toring that the FHFA would perform if the enterprises were conducting the contracted activi- ties themselves," the report said. It also called on the FHFA to take appropriate enforcement actions against non-compliant servicers, follow through with a so-called business plan to identify high-risk loans, and more thorough- ly supervise counterparty servicers contracted with Freddie Mac. FHFA, GSEs Criticized for he Consumer Financial Protection Bureau (CFPB) took steps recently to engage mortgage lenders by forming a small business panel to review the integration of mortgage disclosure requirements into a single uniform document. The Dodd-Frank Act obligates the bureau to streamline conflicting rules and statutory requirements from the Real Estate Settlement Procedures Act and Truth-in-Lend- ing Act. The CFPB billed the panel as a way to increase transparency with mortgage lenders, take into account their thoughts for a single form, and build a fairer and more comprehensive document for borrowers. "This is another step in the CFPB's wide-ranging efforts to gather the input of the people who will be affected by our rules," CFPB Director Richard Cordray said in a statement. "The CFPB is dedicated to issuing thoughtful, research- based rules that take into account not only the benefits to consumers, but also how businesses of all sizes will be affected." Among other ways, the bureau plans to task the small business panel with review of loan estimates, disclosure terms, and various requirements related to the two long-standing laws. The CFPB said in the statement that the formation of a panel builds on form-testing activities it has conducted in nine cities and more than 27,000 comments received from the public and industry sources. The bureau will move forward by proposing a rule for the disclo- sure form in the Federal Register by July. A report on the disclosure form is due two months after the panel assembles. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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