Fannie Mae Issues Reminders for Loan Servicing Compliance – Recap of STAR Rating
by: Anna DeSimone
March 28, 2014 Fannie Mae issued Servicing Notice: Late or Inaccurate Mortgage Loan Reporting announcing that effective May 1, 2014, Fannie Mae will begin issuing warning letters to and assessing compensatory fees on servicers that submit late or inaccurate reports.
Currently, Fannie Mae sends a Failed Business Rules Report to a servicer that fails to submit its Fannie Mae investor reporting system reports on a timely basis or fails to use the correct data and formats. Fannie Mae may assess a compensatory fee for these failures and may elect to offer a remediation period.
The Notice referred to Announcement SVC-2012-21, Servicing Guide Updates to Conform to the FHFA Directive on Harmonized Contracts, issued on October 3, 2012 (provided below). The update revised the maximum compensatory fee assessment for each instance of late or inaccurate loan reporting. A servicer may be assessed these fees to reimburse Fannie Mae for the losses and damages that result from such servicing breaches, including reimbursement for Fannie Mae’s internal administrative costs in tracking, reporting, and correcting these errors.
- Greater of $250 or $50 per mortgage loan, up to a maximum of $5,000, for the first instance of late or inaccurate reporting;
- Greater of $500 or $50 per mortgage loan, up to a maximum of $10,000, for the second instance of late or inaccurate reporting (if it occurs within one year of the first instance; and
- Greater of $1000 or $50 per mortgage loan, up to a maximum of $15,000, for each subsequent instance of late or inaccurate reporting (if any subsequent instance occurs within one year of the most recent previous instance).
Effective May 1, 2014, Fannie Mae will begin issuing warning letters and assessing compensatory fees to affected servicers for failing to meet these servicing requirements. Alternatively, Fannie Mae reserves the right to issue an indemnification demand to any servicer that breaches these servicing requirements.
Servicing Guide Updates to Conform to the FHFA Directive on Harmonized Contracts
(Ann. SVC-2012-21)
With this Announcement Fannie Mae introduced additions and revisions to existing policies and practices including requirements dealing with:
- Performance Metrics for Performing and Non-Performing Loans
- Servicer Violations and Remedies
- Compensatory Fees
- Events of Default
- Servicing Terminations and Transfer of Servicing Remedies
- •Response Time Frames and Appeal Process for Remedies
- Miscellaneous Contractual Changes
Performance Metrics for Performing and Non-Performing Loans
Fannie Mae measures the servicer’s performance utilizing various performance metrics, which may include servicer reviews and the Servicer Total Achievement & Rewards (STAR) Program for those servicers which Fannie Mae has identified for inclusion in the Program. Servicers selected to participate in STAR will receive written notification from Fannie Mae prior to being added into the program. STAR encompasses Operational Assessments and Scorecards.
STAR is one of Fannie Mae’s performance management frameworks designed to determine a servicer’s overall performance based on Operational Assessments and Scorecards. The STAR Reference Guide is the program’s primary information resource. The STAR Reference Guide is located on Fannie Mae’s website on the STAR program page and is incorporated herein by reference. Fannie Mae may change the STAR Reference Guide from time to time.
Operational Assessments and servicer reviews measure a servicer’s performance based on key criteria in certain servicer performance categories, which may include, without limitation: customer service; escrow administration; hazard, flood and mortgage insurance; collections; loss mitigation; investor relations/reporting; mortgage payment processing, remitting, accounting and reporting; bankruptcy, foreclosure and REO management; data integrity; delinquency and annual financial and management reporting; and document custody and record retention. Fannie Mae reserves the right to amend the performance criteria, modify how the results are determined and revise the content of the performance metrics from time to time.
Fannie Mae may also communicate individual performance targets which may not be included in the STAR Program Operational Assessments and Scorecards. Fannie Mae will regularly monitor each servicer’s performance.
Performance Improvement Plans
A servicer’s performance may be measured by Fannie Mae through any number of servicing quality and compliance reviews, including the STAR program, servicer reviews, as well as, timely payment of its obligations, compliance with the Servicing Guide, and other key performance metrics.
Servicers with unacceptable performance, including those that are presumed to have unacceptable performance because their STAR ranking is in the bottom 25% of ranked servicers, may be subject to a performance improvement plan issued by Fannie Mae.
Performance improvement plans may require the servicer to take actions and/or meet targets within defined time frames in order to remedy servicing deficiencies which may include one or more of the following areas: customer service; escrow administration; hazard, flood and mortgage insurance; collections; loss mitigation; investor relations/reporting; mortgage payment processing, remitting, accounting and reporting; bankruptcy, foreclosure and REO management; data integrity; delinquency and annual financial and management reporting; and document custody and record retention.
Servicer Violations and Remedies
Consistent with its customary practices and as set forth in the Servicing Guide, Fannie Mae, may, in addition to any other remedy available at law or in equity, require a party responsible for a breach to pay a compensatory fee, repurchase Fannie Mae’s interest in a mortgage loan, remit a make whole payment, as hereafter defined, or indemnify or otherwise hold Fannie Mae harmless for any loss or damages as provided in Part 1, Section 201.05, Indemnification for Losses of the Servicing Guide.
Notice of Title Defect
Servicers are reminded that with respect to each first-lien mortgage loan sold to Fannie Mae, the following warranties, among others, are made to Fannie Mae:
- that the mortgage is a valid and subsisting lien on the property;
- that the property is free and clear of all encumbrances and liens having priority over it except for liens for real estate taxes, and liens for special assessments, that are not yet due and payable; and
- that the mortgage and any security agreements, chattel mortgages, or equivalent documents relating to it have been properly signed, are valid, and their terms may be enforced by Fannie Mae, its successors, and assigns.
Additionally, the servicer has servicing obligations in the Servicing Guide the breach of which may result in a title defect. If a servicer is notified or otherwise becomes aware that there is a title defect with a loan, the servicer must promptly notify Fannie Mae by emailing servicing_violation@fanniemae.com notification of the existence of the title defect, a description of the title defect, the servicer’s intended actions to resolve the title defect, and the date which the servicer became aware of the title defect.
Bifurcated Mortgages
If the selling representations and warranties or prior servicer obligations were not assumed by the servicer and either an origination or servicing title defect exists, as applicable, once the servicer is notified or otherwise becomes aware of the title defect the servicer must promptly notify Fannie Mae. The servicer must cooperate with the responsible party and take reasonable steps to cure an origination title defect. The servicer need not take actions or advance any funds that would not be approved by Fannie Mae unless the responsible party separately agrees to reimburse the servicer for such amounts in attempting to cure the title defect on the bifurcated mortgage in the manner suggested by the responsible party.
Late or Inaccurate Loan Reporting
Servicing Guide, Part I, Section 201.11.09: Late Submission of Fannie Mae Investor Reporting System Reports and Part IV, Section 106: Reporting Conversions for Portfolio Mortgage Loans.
Fannie Mae is revising the maximum compensatory fee assessment for each instance of late or inaccurate loan reporting. A servicer that fails to submit its Fannie Mae investor reporting system reports by the required deadlines or fails to use the correct data and formats may be subject to the following compensatory fees for Fannie Mae’s internal administrative costs: Greater of $250 or $50 per mortgage loan, up to a maximum of $5,000, for the first instance of late or inaccurate reporting; Greater of $500 or $50 per mortgage loan, up to a maximum of $10,000, for the second instance of late or inaccurate reporting (if it occurs within one year of the first instance); and Greater of $1000 or $50 per mortgage loan, up to a maximum of $15,000, for each subsequent instance of late or inaccurate reporting (if any subsequent instance occurs within one year of the most recent previous instance).
Please refer to Ann. SVC-2012-21 for further information on the topics listed below and other announcements.
- Untimely Reporting of ARM Conversions
- Failure to Comply with Reporting Deadlines
- Delayed Remittance of Collections
- Incorrect MBS Security Reporting
- Liquidation Processing Delays
- Foreclosure Rescission and Eliminations
- Conduct of Foreclosure Proceedings
- Delayed Remittance of FHA Claim Settlement
- Filing Claims for FHA Coinsured Mortgage Loans
About the Author
Anna DeSimone is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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