Loan modifications with principal reduction have significantly increased in the past year, with servicers seeing improved performance compared with other types of mods. The mods remain concentrated on securitized non-agency mortgages as well as portfolio loans, but performance varies considerably. After falling to a 2.7 percent share in the fourth quarter of 2010, principal reduction mods have accounted for a growing share of bank and thrift mod activity, according to the Office of the Comptroller of the Currency. Principal reduction was used in 7.8 percent of the mods completed by nine major bank and thrift servicers in the third quarter of 2011. ...

The one category of distressed loan that the federal government has the most control over – mortgages insured by the FHA and VA – continues to show the worst success rates for loan modifications. After 12 months of post-modification seasoning, over half (51 percent) of government-insured loans were 60 days or more past due, according to a report issued this week by the Office of the Comptroller of the Currency. That compared to an overall 60+ re-default rate of 39 percent. Fannie Mae and Freddie Mac mortgages, along with loans held in the servicer’s portfolio, showed the best...

Industry trade groups, as well as Fannie Mae and Freddie Mac’s regulator, are questioning the wisdom of Congress as lawmakers in both chambers have bills pending to hike the fees charged to guarantee GSE mortgages as a way to help offset the cost of extending the payroll tax cut through 2012.Both House and Senate versions of tax cut extension bills would add an additional 10 basis points to the guarantee fees charged by Fannie and Freddie through 2021. The increase would offset about $35.7 billion in costs, including $1.3 billion in the first year, according to the Congressional Budget Office.As Inside the GSEs went to press, the prospect of any tax cut extension was in doubt after the House rejected the bill calling for a two-month extension. Instead, House Republicans demanded immediate talks with the Senate on a year-long plan but the Senate ruled out further negotiations until the House passes the stop-gap measure.

The U.S. Solicitor General and a group of state attorneys general filed pro-borrower briefs in Freeman v. Quicken Loans, a case in which the U.S. Supreme Court will decide whether a plaintiff has to prove that an unearned fee for a real estate settlement service was divided between two or more persons.The court’s ruling is expected to determine the ability of the mortgage lending industry to decide on its own what to charge borrowers at the point of origination.At issue is Section 8(b) of the Real Estate Settlement Procedures Act, 12 U.S.C. §2607(b), which states that no person “shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”

The Supreme Court of the United States considered oral arguments recently in its second high-profile case this session that addresses key issues under the Real Estate Settlement Procedures Act.The case is First American Financial v. Edwards, in which the fundamental question is whether a private purchaser of real estate settlement services has standing under Article III, §2 of the U.S. Constitution to maintain an action in federal court in the absence of any claim that the alleged violation affected the price, quality or other characteristics of the settlement services provided. In this case, respondent Denise Edwards purchased a home in Cleveland in September 2006, obtaining title insurance through Tower City, which issued policies on behalf of First American. Edwards paid $455.43 towards the purchase of the policies (one for her lender and one for herself); the seller of the home paid $273.42.

Federal banking regulators recently put out some fresh signals that they are listening to the lending community and want to collaborate with the new Consumer Financial Protection Bureau to better harmonize their regulatory, supervisory and examination requirements and procedures to help lower the compliance load for lending institutions. “Our dealings with the CFPB over the last several months have focused on consumer complaints and policy and exam coordination,” John Walsh, acting comptroller of the currency, told members of the Senate Banking, Housing and Urban Affairs Committee during a recent hearing. “The CFPB currently has in process several rulemakings where interagency consultation will be critical, and we are working on a consultation agreement that will provide the prudential regulators with reasonable time to review, discuss and comment on CFPB rulemakings,” he added.

California. In XL Specialty Insurance Company v. Perry, No. 11-2078, U.S. District Court for the Central District of California ruled that the Federal Deposit Insurance Corp. cannot intervene in in a litigation dispute between former IndyMac Bancorp executives and their insurers. The court ruled the FDIC did not meet the standard for intervention as a matter of right, or the standard for permissive intervention. Connecticut. In RMS Residential Properties, LLC v. Anna M. Miller et al., the Connecticut Supreme Court recently ruled that RMS Residential Properties, LLC, with an assignment from Mortgage Electronic Registration Systems, Inc., had standing to foreclose after the borrower defaulted, and that MERS was a valid mortgagee at the origination of the loan, as the nominee for the original lender. The court rejected the claim of the defendant, who argued that that MERS, as third party, could not be named as a mortgagee because it was not the original lender or the party secured by the mortgage. The court also rejected the defendant’s request to declare the MERS mortgage to be void because MERS was not the owner of the debt.

Consumer Financial Protection Bureau. CFPB Now Accepting Mortgage Complaints. The Consumer Financial Protection Bureau began accepting mortgage complaints from consumers through its websitefs home page, as of Dec. 1, 2011. To file a complaint, a consumer has to describe what happened and what would be a fair resolution. The consumer is presented with a menu of options and has to specify the type of mortgage involved (conventional fixed-rate, FHA, etc.) as well as the part of the mortgage process involved that is the source of the complaint. Once the complaint is filed, the relevant company will be notified, and the consumer will be provided a tracking number.

Federal regulators have offered few clues on what is next for proposed qualified residential mortgage regulations, and the uncertainty in the marketplace has been cited as an impediment to the resumption of non-agency securitization. “The agencies are carefully evaluating all of the comments received and are now actively engaged in considering the many issues raised as we determine how best to proceed with the risk-retention rulemaking,” Acting Comptroller of the Currency John Walsh said last week. The extended comment period on the proposed rule closed in August ...

The Treasury Department increased its threats against non-agency servicers regarding Home Affordable Modification Program performance. In a report released last week, the Treasury was highly critical of JPMorgan Chase and a number of other non-agency servicers remain on notice. Freddie Mac, acting as the Treasury’s compliance agent for the Making Home Affordable program, conducts quarterly assessments of HAMP servicers. In the third quarter of 2011, Chase was deemed to be in need of “substantial improvement” in compliance with MHA guidelines, the third quarter in a row for the servicer ...