Starting at the beginning of June, servicers will be responsible to manage law firms to handle all new referrals of default-related legal services associated with Fannie Mae mortgages, but Freddie Mac decided a few days before the original deadline to give servicers two more months to make the transition to some of these guidelines.
Under the requirements, servicers have to select and supervise attorneys/law firms in end-to-end default-related legal services such as foreclosure, bankruptcy, REO, and other litigation matters involving mortgages owned or guaranteed by the government-sponsored enterprises.
The rule changes replace Freddie Mac’s Designated Counsel Program and Fannie Mae’s Retained Attorney Network. As conservator for the GSEs, the Federal Housing Finance Agency directed the enterprises to phase out their current attorney networks and adopt a uniform set of requirements for managing default-related legal services.
All law firms selected by the servicers must meet minimum GSE requirements and complete training before providing default-related legal services for new referrals of Freddie Mac or Fannie Mae mortgages.
John Vella, chief operating officer at Equator, believes the adjustment will not be difficult for servicers since they have had plenty of time to adapt to these rule changes. The GSEs announced the new guidelines last November.
“Servicers have had enough time to prepare and what they’ve done is looked at historical report cards on attorney performance,” Vella said in an interview. “They’ve done compliance checks and reviews on how these firms performed due to past issues that have happened within the industry. A lot of due diligence has gone into this.”
For example, servicers tracked staffing at law firms to make sure they have enough capacity to handle the volume of possible cases that might occur due to longer foreclosure timelines in many states. Additionally, it is important to know that a firm is financially stable to support the case load assessments.
Another reason why Vella is optimistic that servicers are ready for the rule changes is because of technology now available to help them track, manage and report the entire process.
“Technology can be managed with exception reporting and data and analytics to ensure the servicer is maintaining compliance of what the investors need on how to manage the attorneys,” Vella added.
Besides choosing and engaging their attorneys, servicers will also have to monitor all aspects of the law firm’s performance and the firm’s compliance with applicable government-sponsored enterprises requirements. But Vella said many servicers have been managing attorneys in-house for several years now and third-party outsourcers are not too common anymore.
“Servicers are now directly interacting with the attorneys and controlling and managing the process which allows them to be more in tuned and allows for a better business model to comply with these requirements,” Vella told Mortgage Servicing News. “So the whole structure has been a positive for both the attorneys and servicers who are working directly together.”
Unlike Fannie Mae, which made its servicers adhere to the new guidelines starting on June 1, Freddie Mac announced a two-month extension for mandatory adoption of the requirements under “Servicer Use of Connectivity and Invoice Processing System.” This section of the rules relates to selection and retention of firms, firm minimum requirements, training and contracting, referral of default-related legal matters, prohibitions, and servicer use of connectivity and invoice processing systems.
However, Freddie’s extension for the mandatory adoption of the servicing requirements does not include a delay of the designated counsel program beyond May 31. Freddie said servicers that have already selected counsel that are eligible to receive referrals on June 1 may start sending legal matters to these firms immediately. For such referrals, servicers need to begin following the requirements set forth in the new rules, such as managing and monitoring firm performance and compliance with the limited retention agreement.
Additionally, as of June 1, Freddie said it is no longer allowing referrals to go directly to a trustee and that servicers will have to perform all valuation orders and foreclosure sale bidding requirements for all sales conducted on or after the original June deadline.
“Freddie Mac is working to ensure servicers have adequate time to comply with these requirements,” said Tracy Mooney, senior vice president of single-family servicing and REO for Freddie Mac, in a press release announcing the extension before the original June 1 deadline.
Furthermore, Freddie also advised servicers to submit servicer selection forms by June 15 if they have not done so yet so other requirements for law firm eligibility can be met by the new Aug. 1 time period.
“Fannie and Freddie have done a great job of communicating this out to the marketplace and setting expectations and putting processes in place to manage it, which has helped set clear direction for both the attorneys and the servicers,” Vella said. “Not only have the servicers put in better practices and more stringent controls, but if you look at the attorneys as well, they’re better prepared and they have better technology themselves. They’ve improved their processes and the handoffs to the management working with the servicers, too. So it’s working on both sides.”
