Mortgage Servicing Rights (MSR’s) &the RESPA Virus -

Buyers Edge Does your FNMA & FHLMC / Mortgage Servicing Portfolio contain a “RESPA Virus”?

“Meeting the challenges of protecting your Investors and Shareholders while preserving the value of the assets you purchased”

E-bRM Services delivers success by focusing on the individual loan-level details to provide a comprehensive, automated MSR legal profile that articulates attributes and data that can immediately

impact your mortgage default portfolio

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MSR-Buyers Edge – RESPA VirusThe VirusMortgage ServicersMortgage Servicers earn fees for handling payments, escrows, collections, management and performance reporting. A partial list of attributes that help determine market price are; projected duration of the underlining asset (IO), anticipated CPR performance and potential interest rate migration over the life of the asset, etc.

Unfortunately, when one acquires MSR’s from an originator, there may be compliance related operational risk factors. These risks are not part of the normal mortgage servicing evaluations, attestations performed by rating Agencies and investment professionals, because they rest with past Servicer actions or inactions and is not related to the current or projected future state of the portfolio. Similar to a hidden virus, these legacy issues (Many RESPA driven) travel from Owner to Owner with potential legal and financial consequence. For example, failure to execute a “21 Day Notice of Payment Change” – FRBP 3002.1(A) and (B) RESPA regulation would represent a breach of contract and depending on the specific circumstances create a cascading series of on-going breaches that would silently infect the new portfolio and potentially create a series of breaches for the new Owner if they were not able to diagnosis the legacy RESPA breach infraction.

Regarding operational risk mortgage default management, unless you have the ability to review the portfolio at the loan level, generic statistical modeling may not satisfy the Buyers or Sellers need for an accurate valuation due to the potentially high compliance and operational risk and data variability down to the loan level.

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MSR-Buyers Edge – RESPA VirusRules and Legal SanctionsRules and Sanctions for Failure to Comply with FRBP 3001(c)

Proof of Claim – FRBP 3001(c)(1) and 3001(c)(2)

The bankruptcy court can impose sanctions against a Creditor who files a Proof of Claim, but fails to provide the documentation and information required by FRBP 3001(c). Those sanctions can be evidentiary, monetary or punitive.

Signature: Proofs of Claim must be signed under pains and penalties of perjury that the statements in the Claim are “true and correct to the best of my knowledge, information and reasonable belief.” The penalty for presenting a fraudulent Claim is a fine of up to $500,000 or imprisonment for up to 5 years, or both.

Liability: Changes in FRBP 3001 and 3002.1 come from cases with circumstances that the Courts found to be unacceptable. The liability for Attorneys and Proof of Claim preparers who sign the forms is substantial.

21 Day Notice of Payment Change – FRBP 3002.1(A) and (B)

Must be filled out no later than 21 days before the new payment is due. Consists of a change in the mortgage payment amount: Including those changes which

arise from escrow adjustments or from interest rate changes. Notice of Payment Change: Must be served upon the Debtor, the Debtor’s Counsel and the

Chapter 13 Trustee. The Notice of Payment change must be filed as a Proof of Claim supplement in the Proof of Claims registry.

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MSR-Buyers Edge – RESPA VirusRules and Legal Sanctions

• 21 Day Notice of Change Sanction: Consequences for the Mortgage Creditor who fails to file a timely Notice of Payment Change will render the payment change ineffective. Mortgage Creditors who fail to comply can expect evidentiary sanctions, where the Court can prohibit a Creditor from presenting evidence in a dispute about the claim. The Court also has the discretion to “award appropriate relief, including reasonable expenses and Attorneys’ fees”.

180 Day Notice of Post Petition Fees – FRBP 3002.1(A) and (B)

Post petition fees and charges must be filed within 180 days: Mortgage Creditors in Chapter 13 cases whose claims are secured by a security interest in a Debtor’s principal residence and whose claims are being paid through a Chapter 13 plan, are required to file a Notice of Fees, Expenses and Charges every 180 days (the “Notice of Fees”) while the Chapter 13 case is ongoing. The Notice of Fees must be filed as a supplement to the Mortgage Creditor’s Proof of Claim in the bankruptcy court’s claims registry, it must be served on the Debtor, the Debtor’s Attorney and the Trustee within 180 days of when the charges were incurred.

Sanctions for Failing to file a Notice of Fees: Failure to timely file the Notice of Fees will result in the inability for the Creditor to collect the fees and expenses which should have been disclosed in the Notice of Fees. In addition to the possible disallowance of the fees, expenses and charges that should have been disclosed, the consequence for the Creditor who fails to file a timely Notice of Fees can be evidentiary, where the Court can prohibit a Creditor from presenting evidence in a dispute about the claim or the Court has discretion to “award appropriate relief, including reasonable expenses and Attorneys’ fees”.

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MSR-Buyers Edge – RESPA VirusRules and Legal Sanctions

Notice of Final Cure FRBP 3002.1(f)-(h)

Within 30 days after a Debtor completes all Chapter 13 plan payments, the Trustee must file and serve a notice stating the Debtor has paid in full the amount required to cure the default on the Creditor’s claim (the ”Final Cure Notice”). The Final Cure Notice must include a statement that advises Mortgage Creditors of their obligation to file a response within 21 days after the Final Cure Notice is served. The concern for Mortgage Creditors is that compliance with the 21-day response period is going to be difficult. Creditors are urged to pay attention to the 21-day response period as failure to file the written response within this time period may be fatal to the Creditor’s position.

The Mortgage Creditor’s Response must state (1) whether it agrees with the assertion that the Debtor has paid the amount needed to cure the default on the Creditor’s claim; (2) whether the Debtor is otherwise current; or (3) if the Creditor asserts the Debtor has not cured the default, the Creditor must provide an itemization of the cure amount. Note that the Mortgage Creditor’s required response must be filed as a supplement to the Mortgage Creditor’s Proof of Claim in the bankruptcy claims registry, in addition to being served on the Debtor, Debtor’s Attorney and the Chapter 13 Trustee.

Sanctions for Failing to file a response to the Notice of Final Cure

The consequences for the Mortgage Creditor who fails to file a response to the Final Cure Notice can be evidentiary, where the Court can prohibit a Creditor from presenting evidence in a dispute about the claim, or the Court has discretion to “award appropriate relief, including reasonable expenses and Attorneys’ fees”. In addition, if the Mortgage Creditor’s records are not identical to the Trustee’s records, such that the Trustee asserts the Mortgage Creditor’s claim is paid in full, but the Mortgage Creditor’s records show there are still funds owed to the Mortgage Creditor, the Mortgage Creditor who fails to file a response will be prohibited from collecting those additional funds.

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MSR-Buyers EdgeSolution ComponentsE-bRM has a series of automated programs that are vetted and flexible to provide efficient and cost effective solutions within the mortgage default space.

• Data Gathering Tools National Prospector

Assembles and analyzes from unfriendly sources Folio

Assembles and re-presents/formats from friendly sources

• Data Distribution Tools Data Administrator

Distribution based on set standards Data Accelerator

Distribution based on rule-based processing

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MSR-Buyers Edge Service & Application Flow Chart

Data Gathering

• Obtain Client Data• Identify/Analyze Gap - Application: Data Accelerator• Acquire necessary data - Applications: National Prospector & Folio

Workflow

• Prepare filing media - Application: Data Accelerator• Prepare filing workflow - Application: Data Administrator

Distributio

n

• File with BK court and retrieve confirmation data/image - Application: Data Administrator• Return data/image to client - Application: Data

Administrator

7

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MSR-Buyers Edge – RESPA VirusChallenges of Harvesting Value from MSR Purchases in 2013-2014

Finding Value The challenges of harvesting value from MSR for the Buyer or

Seller has become more complicated with the added layers of new legislation, RESPA compliance and operational risks particularly in the Mortgage Default space. Manually executed solutions for high volume loan transactions are complicated, time intensive, prone to error (Particularly related to how the put-back clauses are built into MSR contracts for potential operational omissions that may have taken place prior to the purchase by the new Owner) and often incomplete due to lost or missing documentation that is required to be produced and utilized when calculating and accurate final dollar statement to remediate or cure the loan.

E-bRM has a series of automated programs that are vetted and flexible to provide efficient and cost effective solutions within the mortgage default space while also helping the Client establish a remittance desk to assist in collecting any deficiencies that may be required to bring the legacy loans into compliance with your purchase contract and the law. Specialized use of technology to address a problematic portion of your portfolio quickly and accurately can help improve your Buyers edge.

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MSR-Buyers EdgeContact Information

E-bRM – professional services, risk management and project management, licensed software solutions for mortgage industry.

E-bRM - is positioned to work with clients to identify all your legal, compliance, RESPA, valuation, mortgage default data needs, implement projects to gather, organize, analyze and distribute information and to execute portfolio restructuring and loan-level solutions as each Client’s requirements dictate.

Automated solutions for high value transactions are available now. Upon completion of a set-up the solutions are: fast, accurate and comprehensive.

For more information or a live demo, contact:

Richard Ellis

www.e-brm.com

914.443.6111