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» GSES UPDATE SERVICING GUIDELINES TO PREPARE FOR CFPB RULES With the industry preparing for the January implementation of new rules from the Consumer Financial Protection Bureau (CFPB), Fannie Mae and Freddie Mac updated their servicing guides to align with the bureau's standards. The new guidelines address loss mitigation, foreclosure procedures, and the borrower appeal process. Under the new rules a servicer is prohibited from mentioning foreclosure earlier than 121 days into a delinquency situation. At the 121-day mark, a servicer has five business days to refer a loan to foreclosure. At that point, the servicer must take legal action to foreclose. However, if a borrower submits a "First Complete Borrower Response Package" more than 37 days before the scheduled foreclosure sale, the servicer must delay legal action. Additionally, a servicer must provide written receipt of a borrower response package within five days of receipt will allow servicers up to 15 days to complete pre-referrals for foreclosures. In cases of natural disaster, borrowers must complete a borrower response package in order to apply for forbearance longer than six months. When a servicer denies a loan modification, it must let the borrower know the reason for the denial, and the borrower has the right to appeal the denial within 14 days. The servicer must then respond to the appeal within 30 days. The servicer must also ensure the appeal review is completed by a different individual or set of individuals than those who originally denied the borrower a loan mod. Fannie Mae also addressed the single point of contact requirement, saying servicers must "develop an approach to managing delinquent borrowers that provides continuity of contact with the borrower and allows a borrower to contact one individual or a dedicated team of individuals in the servicer's organization." Freddie Mac's notice also reminds servicers that their "compliance with Freddie Mac's requirements does not ensure that the servicer is in compliance with the CFPB final rule or any other applicable laws." Most of the new rules will be implemented January 10, 2014, according to the GSEs, the same implantation date as the CFPB's new servicing rules. VISIT US ONLINE @ DSNEWS.COM Fannie Mae Prices First Capital Markets Risk-Sharing Transaction Fannie Mae priced its first risk-sharing transaction under the Connecticut Avenue Securities series (C-deals). The $675 million note offering is similar in structure to the $500 million offering of Structured Agency Credit Risk (STACR) securities offered by Freddie Mac this summer. That alignment was "definitely by design," according to Fannie Mae VP Laurel Davis. Like Freddie's transaction, Fannie Mae's C-deal is intended to attract private capital to the housing market and reduce taxpayer risk. In a conference call with reporters, Davis explained that based on investors' feedback following Freddie Mac's offering, Fannie provided ratings on its C-deal securities in order to attract a wider scope of secondary market traders. Some 80 investors participated in the pricing of Fannie Mae's offering, including hedge funds, insurers, asset managers, real estate investment trusts (REITs), and credit unions. Edward DeMarco, Federal Housing Finance Agency (FHFA) director, said Fannie's conservator was "pleased" with the first Connecticut Avenue Securities transaction. "The C-deal series will be direct debt transactions in which Fannie Mae issues bonds to investors, allowing private capital to assume a portion of the mortgage credit risk taken on by Fannie Mae," DeMarco explained. With the C-deal notes, the amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool of more than 112,000 single-family mortgage loans with an outstanding unpaid principal balance of $27 billion. This reference pool consists of a random selection of eligible loans acquired in the third quarter of 2012, underwritten using strong credit standards and enhanced risk controls, Fannie Mae explained. The loans included in the first C-deal transaction are fixed-rate, generally 30-year term, fully amortizing mortgages with loan-to-value ratios (LTVs) between 60 percent and 80 percent. C-deal notes are different than other Fannie Mae securities and debt issuances in that when Fannie issues fully guaranteed single-family mortgage-backed securities (MBS), it retains all of the default risk and losses associated with the underlying loans in exchange for a guaranty fee. With risksharing securities, Fannie transfers some of the retained credit risk to investors in exchange for sharing a portion of the guaranty fee payments. The GSE notes that investors in C-deals may experience a full or partial loss of their initial principal investment, depending upon the credit performance of the mortgage loans in the related reference pool. In early October, Fannie Mae finalized an agreement with National Mortgage Insurance Corporation (National MI) on a deal to provide credit risk coverage on more than $5 billion in single-family mortgages. This arrangement, too, is a vehicle for transferring credit risk away from Fannie and from taxpayers in support of a more private, more sustainable housing finance system. "The C-deal and the mortgage insurance pool policy transaction that Fannie Mae completed last week support FHFA's 2013 Conservatorship Scorecard and FHFA's Strategic Plan for the Enterprise Conservatorships. These transactions demonstrate different structures for transferring credit risk to investors thereby facilitating Fannie Mae's reduced footprint in the marketplace and ultimately protecting taxpayers," DeMarco commented. 21

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