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 Related Information



FHFA Completes Guarantee Fee Review: G-fees to Remain at Current Levels with Modest Adjustments17704<p> <strong>​Washington, D.C.</strong>&#160;– The Federal Housing Finance Agency (FHFA) today announced the results of its comprehensive review of guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises). &#160;FHFA has determined that current fees, on average, are at an appropriate level and that some modest adjustments to upfront guarantee fees are also appropriate.&#160;</p><p>As a result of its review, FHFA is directing Fannie Mae and Freddie Mac to eliminate the adverse market charge put in place in March 2008 and to replace the revenue that resulted from the adverse market charge with targeted increases in guarantee fees to address various risk-based and access-to-credit considerations. &#160;In making adjustments to the guarantee fees for certain categories of loans, FHFA took into account its decision – also announced today – to strengthen financial and operational eligibility standards for mortgage insurance companies. &#160;Overall, the set of modest changes to guarantee fees are roughly revenue neutral for the Enterprises and will result in either little or no change for most borrowers.&#160;</p><p>“This is the culmination of months of review and analysis and reflects input received from a wide range of stakeholders,” said FHFA Director Melvin L. Watt. “Our goal is to assure taxpayers, homeowners and industry that we are striving for an appropriate balance between safety and soundness and liquidity in the housing finance market,” Watt said.</p><p>FHFA will continue to monitor guarantee fees closely and make adjustments, as necessary, on an ongoing basis. &#160;</p><p> <a href="/Media/PublicAffairs/Pages/Results-of-Fannie-Mae-and-Freddie-Mac-Guarantee-Fee-Review.aspx">Link ​to Related Fact Sheet</a>​</p>4/17/2015 8:15:44 PM1751http://www.fhfa.gov/Media/PublicAffairs/Pages/Forms/AllItems.aspxhtmlFalseaspx
Fannie Mae and Freddie Mac Issue Revised Private Mortgage Insurer Eligibility Requirements17705<p><strong>Washington, D.C.</strong> – The Federal Housing Finance Agency (FHFA) today announced that Fannie Mae and Freddie Mac (the Enterprises) are issuing revised requirements for private mortgage insurance companies that insure mortgage loans either owned or guaranteed by the Enterprises.&#160; The revised eligibility requirements set financial and operational standards that private mortgage insurers must meet to receive approved insurer status with Fannie Mae or Freddie Mac and are designed to reduce risk to the Enterprises.&#160; The requirements are effective December 31, 2015. </p><p>As Conservator of the Enterprises, FHFA directed Fannie Mae and Freddie Mac to align and strengthen their risk management requirements for mortgage insurance counterparties. &#160;In July 2014, FHFA sought broad input on draft private mortgage insurer eligibility requirements.&#160; The finalized requirements reflect a multi-year effort to produce a clear and comprehensive set of standards that incorporate a new, risk-based framework to ensure that approved insurers have sufficient financial and operational strength to weather an economic downturn.&#160; Fannie Mae and Freddie Mac are issuing these requirements after the Enterprises and FHFA consulted with a range of stakeholders, including state insurance commissioners, private mortgage insurers, consumer advocates and seller/servicers.</p><p>&quot;The requirements announced today are prudent steps to align and strengthen Fannie Mae and Freddie Mac's operational and financial requirements for private mortgage insurance companies, which will reduce the Enterprises' overall risk and protect taxpayers,&quot; said FHFA Director Melvin L. Watt.&#160; &quot;Completion of this requirement fulfills a key Scorecard item for the Enterprises.&quot;</p><p>Links&#58;</p><p><a href="http&#58;//www.fanniemae.com/portal/about-us/media/statements/2015/statement-bonsalle-041715.html" target="_blank">Fannie Mae Statement​</a></p><p><span style="line-height&#58;1.6;"><a href="http&#58;//freddiemac.mwnewsroom.com/press-releases/statement-on-revised-pmi-eligibility-standards-by-dave-lowman-1188580" target="_blank">Freddie Mac Statement​​</a></span></p>4/17/2015 8:15:47 PM1899http://www.fhfa.gov/Media/PublicAffairs/Pages/Forms/AllItems.aspxhtmlFalseaspx
Results of Fannie Mae and Freddie Mac Guarantee Fee Review17707<p> <span style="line-height&#58;22px;text-decoration&#58;underline;"><strong>​​​Summary</strong></span><span style="line-height&#58;22px;"> – The Federal Housing Finance Agency (FHFA) has completed a comprehensive review of the agency's policy for guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises).</span><span style="line-height&#58;22px;">&#160; </span> <span style="line-height&#58;22px;">FHFA's review considered multiple factors, including responses to the agency's June 2014 request for public input, analyses by housing finance market participants of the implied guarantee fee pricing from the Enterprises' credit risk transfers, and internal analyses of Enterprise pricing, credit guarantee loss data, and modeling.</span></p><p>FHFA's review focused on reaching an appropriate balance between FHFA's statutory obligations to&#58; 1) ensure the safety and soundness of the Enterprises, and 2) foster a liquid national housing finance market.&#160; In light of this balance, FHFA determined, based on both internal and external analysis, that the current average level of guarantee fees appropriately reflects the current costs and risks associated with providing the Enterprises' credit guarantee.&#160; </p><p>As a result, FHFA finds no compelling economic reason to change the general level of fees.&#160; FHFA, however, is making certain minor and targeted fee adjustments.&#160; To implement these decisions, the agency is directing the Enterprises to make changes to their guarantee fees that will slightly reduce, maintain, or increase costs for different categories of loans.&#160; Since all of the guarantee fee changes are small, the agency does not expect the adjustments to cause any material changes to the Enterprises' loan volume in any of the loan categories and expects the small changes to be revenue neutral.</p><p>The guarantee fee adjustments directed by FHFA fall into two categories&#58;</p> <span style="line-height&#58;16px;"> <ul><li> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">First, </span> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">the foundational adjustment is removing the 25 basis point upfront adverse market charge.</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">&#160; </span> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">The Enterprises established this fee in 2008 as an on-top pricing increase to reflect the unfavorable condition of the national housing market at that time.</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">&#160; </span> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">FHFA believes it is appropriate to remove this housing crisis-era fee in light of improvements in the housing markets.</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">&#160; The agency is also setting aside its December 2013 decision to retain the adverse market charge in certain states with higher than average foreclosure related costs.</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;22px;">&#160;</span><br></li><li> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">Second, </span> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">the agency is applying targeted and small fee adjustments to a subset of Enterprise loans.</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">&#160; </span> <span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">This includes small fee increases for certain loans in the Enterprises' upfront loan-to-value (LTV) ratio/credit score pricing grid and for certain loans with risk-layering attributes (i.e., cash-out refinances, i</span><span style="font-family&#58;inherit;font-size&#58;inherit;font-weight&#58;inherit;line-height&#58;16px;">nvestment properties, loans with secondary financing, and jumbo conforming loans).</span><br></li></ul></span> <p> <span style="text-decoration&#58;underline;"><strong>How the Enterprises Determine Guarantee Fees</strong></span> – The Enterprises acquire single-family loans from lenders and securitize them in the form of mortgage-backed securities (MBS).&#160; For investor-held MBS, the Enterprises guarantee timely payment of principal and interest to the investor.&#160; Guarantee fees cover three cost components that the Enterprises expect to incur in providing their guarantee.&#160; They are&#58; 1) the expected costs that result from the failure of some borrowers to make their payments; 2) the cost of holding the modeled capital amount necessary to protect against potentially much larger unexpected losses that result from the failure of some borrowers to make their payments in a severe stress environment; and 3) general and administrative expenses.&#160; Collectively, these costs comprise the estimated cost of providing the credit guarantee.</p><p>Of these three components, the second (cost of capital) is by far the most significant.&#160; Despite the Enterprises' inability to retain capital under the Senior Preferred Stock Purchase Agreements (PSPAs) entered into with the U.S. Department of the Treasury in 2008, FHFA has established guarantee fee levels consistent with the amount of capital the Enterprises would need to support their guarantee businesses if they were not in conservatorship and retained capital.&#160; </p><p> <span style="text-decoration&#58;underline;"> <strong>How Guarantee Fees Impact Borrowers</strong></span> – As compensation for providing the guarantee on MBS, the Enterprises charge lenders guarantee fees.&#160; &#160;The Enterprises charge lenders a base, or ongoing, fee that is primarily based on the product type (e.g., 30-year Fixed Rate, 15-year Fixed Rate, 5/1 ARM).&#160; The Enterprises also charge upfront guarantee fees, also known as loan level pricing adjustments (LLPAs) or delivery fees, that are based on certain risk attributes of the borrower or the loans (e.g., LTV/credit-score grid, cash-out refinance, investor properties, secondary financing at origination, jumbo conforming loan).&#160; While the Enterprises assess LLPAs or delivery fees as an upfront fee, most lenders convert them into the interest rate on the mortgage, which the borrowers pay over time, like ongoing guarantee fees.[1]&#160;Together, ongoing guarantee fees and LLPAs/delivery fees make up the Enterprises' total compensation for providing the credit guarantee.&#160; In addition, since 2008, each Enterprise has assessed an adverse market charge as a surcharge for challenging housing market conditions.</p><p> <span style="text-decoration&#58;underline;"><strong>FHFA Review of Capital Adequacy</strong></span> – In performing its review of guarantee fees, FHFA evaluated appropriate levels of required capital and target rates of return.&#160; In doing so, the agency reviewed Fannie Mae and Freddie Mac's capital and credit models.&#160; FHFA also independently compared the Enterprises' most recent loan acquisition profile with the actual losses experienced on similar loans from the recent crisis.&#160; </p><p>In addition, the agency considered analytical reports by firms in the financial services industry about the Enterprises' credit risk transfer transactions.&#160; The reports assess the implied level of guarantee fees based on the pricing of an early 2015 Freddie Mac credit risk transfer (STACR) transaction, and most conclude that the Enterprises' current level of fees is appropriate.&#160; Similarly, some public response letters and industry reports, which are based on the respondents' own capital and rate of return assumptions, asked FHFA to either maintain or modestly lower guarantee fees from their current levels.</p><p>As a result of FHFA's review of guarantee fee levels, the agency concludes that the current guarantee fee level is appropriate under current circumstances.</p><p> <span style="text-decoration&#58;underline;"><strong>Elimination of the Adverse Market Charge</strong></span> – Each Enterprise instituted an adverse market charge in 2008 to compensate for their credit risk models not adequately assessing the extra costs and risks from the difficult market conditions and declining house prices at that time.&#160; That justification no longer applies.&#160; The housing market has improved significantly in recent years, and the Enterprises' credit risk models now incorporate the experience of the recent crisis.</p><p>As described above, FHFA's analysis concludes that the current average level of guarantee fees is appropriate based on current assessments of cost and risk. &#160;Because these average guarantee fees currently include the adverse market charge, removing this fee component necessitates other guarantee fee adjustments.&#160; As a result, FHFA is directing the Enterprises to replace the revenue attributable to the adverse market charge with targeted changes in fees that address various risk-based and access-to-credit considerations.&#160; Overall, FHFA expects these changes to be revenue neutral to the Enterprises based on their recent mix of business.</p><p> <span style="text-decoration&#58;underline;"><strong>Set Aside of State-Level Pricing</strong></span> – When FHFA announced its decision to eliminate the adverse market charge in December 2013, the elimination was for all states except Connecticut, Florida, New Jersey, and New York.&#160; The adverse market charge would have been unchanged in those four states to compensate, approximately, for the difference in the foreclosure timeline related costs relative to average costs across the country.&#160; </p><p>Although foreclosure costs are significantly higher in these four states compared to other states, the agency is setting aside the previous decision to implement these geographically based fees.&#160; FHFA will explore opportunities to engage with states to better understand the reasons for longer foreclosure timelines and to share with sta​tes the cost implications to the Enterprises as well as potential impacts to borrowers.&#160; At the same time, FHFA will continue to work toward finding an appropriate balance between allowing sufficient time for borrowers to obtain loss mitigation alternatives and ensuring timely resolution of foreclosures. </p><p> <span style="text-decoration&#58;underline;"> <strong>Targeted Fee Adjustments</strong></span> – The decision to eliminate the adverse market charge yet maintain the overall average level of guarantee fees required a plan to recover this revenue.&#160; The set of targeted adjustments to guarantee fees described below only apply to the Enterprises' upfront fees and do not affect base, ongoing guarantee fees.&#160; The fee changes will become effective for loans delivered to the Enterprises beginning on September 1, 2015.&#160; The agency does not expect a material change in the Enterprises' loan volume as a result of these changes.</p><p>The targeted fee adjustments include the following categories&#58;</p><ul><li> <span style="text-decoration&#58;underline;"><strong>LTV/Credit Score Grid</strong></span> – In the Enterprises' LTV/credit score grids, which apply to loans with terms exceeding 15 years, FHFA is directing the Enterprises to increase the upfront fees by 25 basis points for loans that have both an LTV ratio of 80 percent or less and credit-score of 700 or more.[2]&#160;&#160;</li></ul><p>For loans that have an LTV ratio above 80 percent or a credit score below 700, FHFA is generally leaving the upfront fees the same.[3]&#160;As a result, these loans will receive the full benefit of the 25 basis point adverse market charge elimination.&#160; Contributing to the determination to leave the upfront fees the same for this LTV/credit score group is FHFA's separate action to finalize new standards for mortgage insurers – Private Mortgage Insurer Eligibility Requirements (PMIERs).&#160; Loans with less than a 20 percent down payment are required to have credit enhancement, which lenders typically satisfy with private mortgage insurance.&#160; FHFA anticipates that the finalized PMIERs will provide a modest cost savings to the Enterprises from reduced mortgage insurer counterparty exposure.</p><ul><li> <span style="text-decoration&#58;underline;"><strong>Cash-Out Refinances, Investment Properties, and Loans with Secondary Financing</strong></span> FHFA is directing the Enterprises to increase guarantee fees on certain higher-risk loan types to improve risk-based pricing.&#160; Specifically, the agency is increasing fees by 37.5 basis points on cash-out refinances, investment properties, and loans with simultaneous secondary financing. &#160;Consistent with the practice today, when a loan falls into more than one category (e.g., both a cash-out refinance and investment property), the add-on fees are cumulative, which results in the net increase in those cases being higher than 37.5 basis points.[4]&#160;</li><li> <span style="line-height&#58;16px;text-decoration&#58;underline;"><strong>Jumbo Conforming Loans</strong></span><span style="line-height&#58;16px;"> </span> <span style="line-height&#58;16px;">–</span><span style="line-height&#58;16px;"> FHFA is directing the Enterprises to increase the fee on jumbo conforming loans (over $417,000) by 25 basis points.</span><span style="line-height&#58;16px;">&#160; </span> <span style="line-height&#58;16px;">Congress allowed the Enterprises to acquire these higher balance loans in certain high cost areas of the country in response to the housing crisis.</span><br></li></ul><p> <span style="text-decoration&#58;underline;"><strong>Ongoing Safety and Soundness Oversight</strong></span><strong> </strong>– As part of our ongoing oversight of the Enterprises, FHFA collects data on new loan acquisitions, monitors changes in the composition of loan purchases, evaluates quality control activities, and assesses the implications of these and other factors for risk to the Enterprises and their level of guarantee fees.&#160; Since FHFA recognizes that market conditions affecting mortgage credit risk will change over time, the agency will continue to conduct these oversight activities.&#160; Should FHFA determine in the future that market conditions necessitate adjustments in guarantee fees to sustain the safety and soundness of the Enterprises, FHFA will provide sufficient advance notice before the effective date of any such changes.</p><p> <span style="text-decoration&#58;underline;"><strong>Upfront Fee Schedules</strong></span> – The Fannie Mae and Freddie Mac upfront fee schedules are available at the following URLs&#58;</p><p><a href="https&#58;//www.fanniemae.com/content/pricing/llpa-matrix.pdf">https&#58;//www.fanniemae.com/content/pricing/llpa-matrix.pdf</a></p><p><a href="https&#58;//www.fanniemae.com/content/pricing/llpa-matrix-refi-plus.pdf">https&#58;//www.fanniemae.com/content/pricing/llpa-matrix-refi-plus.pdf</a></p><p>​<a href="http&#58;//www.freddiemac.com/singlefamily/pdf/ex19.pdf">http&#58;//www.freddiemac.com/singlefamily/pdf/ex19.pdf</a></p><p>​Footnotes&#58;&#160;&#160;​</p><p><span style="line-height&#58;22px;">[1]&#160;As an example, the 25 basis point upfront adverse market charge is approximately equivalent to 5 basis points ongoing mortgage rate (or 0.05%).</span><span style="line-height&#58;22px;">&#160;</span><br></p><p>[2] Small exceptions&#58; 1) the upfront fee is not being changed for one loan group (61-70% LTV/700-719 credit score), and 2) Fannie Mae is increasing upfront fees by 25 basis points for three additional loan groups (71-75% LTV/660-679 credit score, 76-80% LTV/660-679 credit score, 71-75% LTV/640-659 credit score) to align their pricing with Freddie Mac.</p><p>[3] See footnote 2 for certain technical exceptions.</p><p><span style="line-height&#58;22px;">[4]&#160;There are a few exceptions to this cumulative add-on practice.&#160;</span></p>4/17/2015 8:15:50 PM1586http://www.fhfa.gov/Media/PublicAffairs/Pages/Forms/AllItems.aspxhtmlFalseaspx
Refinance Report - February 201517699<h2>February 2015 Highlights</h2><ul><li>Refinance volume increased in February 2015 as mortgage rates fell to 20 month lows in January.</li><li>In February 2015, 10,673 refinances were completed through HARP, bringing the total refinances through HARP from the inception of the program to 3,291,718.</li><li>HARP volume represented 6 percent of total refinance volume in February 2015.</li><li>Year to date through February 2015, borrowers with loan-to-value ratios greater than 105 percent accounted for 24 percent of the volume of HARP loans.</li><li>In February 2015, 8 percent of the loans refinanced through HARP had a loan-to-value ratio greater than 125 percent.</li><li>Year to date through February 2015, 28 percent of HARP refinances for underwater borrowers were for shorter-term 15- and 20-year mortgages, which build equity faster than traditional 30-year mortgages.</li><li>Year to date through February 2015, HARP refinances represented 15 percent of total refinances in Florida and Georgia,<br>more than double the 6 percent of total refinances nationwide over the same period.</li><li>Borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program.</li></ul>4/16/2015 5:01:03 PM240http://www.fhfa.gov/AboutUs/Reports/Pages/Forms/AllItems.aspxhtmlFalseaspx
Statement of Alfred M. Pollard, General Counsel, FHFA, before the Nevada State Legislature Judiciary Committee17651<p>​Chairman Brower and members of the Committee, thank you for the opportunity to appear before you today to address Senate Bill 306, which makes certain revisions to the Uniform Common Interest Ownership Act as adopted in Nevada.&#160; SB 306 makes important changes to the law regarding the appropriate exercise of certain lien rights of common interest communities and the relationship to the important property rights of homeowners and lenders.&#160; This has been the subject of recent attention due to a decision of the Nevada State Supreme Court.&#160; As the Federal Housing Finance Agency (FHFA), the Agency for which I serve as General Counsel, and Fannie Mae and Freddie Mac are parties to litigation across the state following that decision, I will not be addressing any matters involved in these cases.&#160;&#160; I may address topics that are raised in the litigation insofar as they relate to the legislation before the Committee that amends current law.&#160;&#160; For purposes of brevity, I may refer to common interest communities as homeowner associations or HOAs during my remarks, although I am aware of the various forms of such arrangements.&#160; </p><p>In sum, Senate Bill 306 with the proposed amendments does no harm to the principle of supporting homeowner associations seeking to maintain common areas at a time when certain unit owners are unwilling or unable to pay their monthly assessments.&#160; The revisions contained in the bill will assist in assuring proper and timely notice to all interested parties of unpaid assessments and possible foreclosure actions.</p><p> <strong>FHFA and the Enterprises</strong><br>FHFA is responsible for the effective supervision and regulation of Fannie Mae and Freddie Mac (the Enterprises) and the Federal Home Loan Bank System, which includes twelve Federal Home Loan Banks and the Office of Finance.&#160; FHFA’s mission is to ensure that these regulated entities operate in a safe and sound manner and that they serve as a reliable source of liquidity and funding for housing finance and community investments.&#160; Since 2008, FHFA has also served as conservator of Fannie Mae and Freddie Mac. </p><p>The Enterprises are major supporters of housing finance in Nevada and have significant positions in lending for units in common interest associations.&#160; The Enterprises act through approved sellers that originate such loans and servicers that manage the collection of principal and interest payments and address any problems facing unit owners in meeting their obligations. </p><p>FHFA is concerned about state super-priority liens granting priority rights in foreclosure proceedings to HOAs.&#160; The existence of super liens increases the risk of losses to the Enterprises and, ultimately, the taxpayers.&#160; Today, I will discuss FHFA’s concerns and how SB 306 and the proposed amendment can help address some of those concerns.&#160;&#160;</p><p> <strong>The Problem</strong><br>The financial crisis and its attendant economic displacement have created problems for many HOAs, not only here in Nevada but across the country.&#160; In many cases, associations have had a larger than normal number of delinquent unit owners failing to meet their obligations to pay monthly assessments.&#160; This point remains critical—such payments are fundamentally the responsibility of the unit owner, not of a lender who financed the purchase of the property or a secondary market participant like the Enterprises.</p><p>HOAs have had to cajole, threaten and even resort to legal action to secure payments of these monthly dues.&#160; Certain states, such as Nevada, have created so-called “super-priority” liens that provide if a property is sold at foreclosure, then a portion of the proceeds of a sale should go to the association to cover a certain amount of unpaid dues and these proceeds should be senior to all other liens, including an existing first mortgage.&#160; As HOAs have struggled, some states have sought to add additional expenses beyond dues to the priority lien that HOAs enjoy over other creditors of a particular unit.&#160; </p><p>With a super priority lien, the first lien holder—who may experience losses regarding a unit in the form of unpaid mortgage obligations—is being asked to cover additional costs that were not its responsibility and which would be, unlike payments for taxes and insurance, which are foreseeable, virtually impossible to escrow.&#160; Still, first lien holders have been willing to shoulder some of the burden beyond their own risks by making reasonable contributions to cover unpaid association dues.&#160; The reason is simple—maintaining common areas assists in maintaining the value of units in the&#160; association, which is to everyone’s benefit.&#160; But again, that concept has limitations and, at some point, too great a burden may be placed on lien holders who may find that altering their underwriting policies may be the appropriate course.&#160; If the risks to a first lien mortgage increase, then there may be required adjustments in mortgage pricing.&#160; How to address all these competing issues, including the ability in certain states for associations to move to a foreclosure and extinguish a pre-existing first mortgage, is the subject of this hearing.</p><p>Another aspect of the current state of the law is the impact on unit owners.&#160; First, if underwriting standards change, some unit owners may face challenges in securing a loan to buy a unit or refinance.&#160; Second, unit owners may face situations where a HOA moving to foreclosure interrupts efforts at a loan modification. </p><p> <strong>Senate Bill 306</strong><br>Under Nevada law, a common interest association may foreclose on a unit on its own, employing a non-judicial foreclosure process in which lenders have little or no notice or ability to cure any unpaid HOA assessment amounts due under the priority lien.&#160; The HOA lien does not have a priority over a first mortgage lien in ordinary circumstances, but has priority in Nevada to the extent that certain costs and assessments for common expenses have not been paid.&#160; </p><p>As you are aware, a recent Nevada Supreme Court case held not only that the foreclosure by an association is in line with Nevada law, but as well that the first security lien is extinguished under the law if proper notice is provided.&#160; This was a first interpretation of the statute by the Court and endorsed the concept of extinguishing a first mortgage, which had not been the practice before.</p><p>As a result, this means an unpaid assessment of $2,000 or $3,000 could extinguish a mortgage in the hundreds of thousands of dollars.&#160; A lender therefore needs to decide whether it is willing to risk losing an obligation in the hundreds of thousands for another party’s losses in the thousands. </p><p>Senate Bill 306 as amended would improve certain elements of the current statute for parties in interest including unit owners and lenders.&#160; </p><p>I would note that the statutory provisions regarding the priority lien—NRS 116.3116-116-31168—even as amended are very complex and involve multiple possible procedural requirements.&#160; For the most part, I am addressing revisions that address the core issue of notification and the foreclosure process.</p><p>Section 1 of the bill places necessary limits on what an HOA may seek to recover.&#160; While FHFA may not agree with every provision, this section does provide much needed clarity and retains the concept that unpaid obligations are obligations of the unit owner.&#160; Section 1 provides a number of changes to clarify the scope, limitations and rules for collection of unpaid assessments.</p><p>Section 2 makes the most important contribution to certainty for all parties. First, Section 2 creates clear safeguards, including notice to the unit owner or their successor in interest and notice to the holder of a recorded first mortgage security interest of a delinquent assessment.&#160; This formal notice requirement, which requires specificity on unpaid obligations, may spur unit owners to pay their delinquencies, but in addition provides an opportunity for a security interest holder to address the lien payment.&#160; Associations must provide a formal statement of the amount of the overall deficiency with a breakdown of what the charges are for, including a separate statement of the amount of the association’s lien that is prior to the first lien mortgage and a statement that the&#160; association may foreclose and extinguish the first security lien.&#160; While I believe that such extinguishment of a first lien is not an appropriate approach for an HOA assessment, assuring proper and timely notice to holders of security interests and providing them the ability to pay the unpaid assessments and thereby protect their position is a positive step.&#160; By receiving timely notice, under the proposed amendment, the mortgagee would have until five days before a sale occurs to cure the unpaid dues obligation.</p><p>Section 3 of the bill provides for more specific guidance on notices, by certified or registered mail, to each holder of a recorded security interest or their registered agent.&#160; This is important to assure proper notice to all parties in interest.&#160; </p><p>In Section 4, the bill provides for publication in a “public place” and in a newspaper as part of the notice process.&#160; I would offer to the Committee that, if not already noted elsewhere in Nevada statute, adding “county website” to the “public place” language or otherwise clarifying that “public place” includes a county website, if such exists, would be beneficial as that is where many parties now turn along with newspapers to see if an encumbrance or potential sale affects a property.</p><p>In Section 6, the bill provides that if a payment is made by the holder of a first security interest of the amount of the priority lien no later than five days before a sale, the association’s lien does not extinguish the security interest.&#160;&#160; This is a prudent approach.&#160;</p><p>Finally, the redemption period provided in Senate Bill 306 is a rational approach to a time frame that should be workable for all parties in interest, including unit owners, so long as it assures that protections exist that are workable for first mortgage lien holders. </p><p>In sum, the majority of amendments to current law improve the current statute.</p><p> <strong>Reservations</strong><br>I must be clear, however, that while the bill improves parts of the current statute, provisions that purport to extinguish first security interests of lenders are of great concern to FHFA.&#160; While I am keenly aware of the concerns of common interest associations, the remedy contained in the law remains very controversial and, in my mind, disproportionate to the goal and it will give pause to lenders doing business in such jurisdictions.&#160; Clearly, the state and, indeed, lenders want to protect associations in maintaining common areas; I hope you would still consider whether such a drastic remedy is appropriate to enforce something that is primarily the obligation of the unit owner.</p><p> Extinguishing property rights is no inconsequential matter.&#160; FHFA, which operates under federal law addressing such matters, must consider this as Fannie Mae and Freddie Mac review not only the legal issues involved, but as well the underwriting standards that apply in states that maintain such potential extraordinary remedies.&#160; FHFA has an obligation to protect Fannie Mae's and Freddie Mac's rights.</p><p>By way of summary, FHFA does find that most of the provisions of SB 306 improve the situation for lenders and secondary market participants in Nevada and support common interest communities, while we continue to have concerns with other sections of the existing law and practices under that law.&#160; </p><p>Again, thank you for the opportunity to appear before you today on this important topic.&#160; </p>4/7/2015 11:04:13 PM420http://www.fhfa.gov/Media/PublicAffairs/Pages/Forms/AllItems.aspxhtmlFalseaspx

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