1301.2: Compliance with applicable law (03/02/16)

Owned by Kacey Olson
Nov 23, 2018
7 min read

© Freddie Mac Single-Family Seller Servicer Guide

(a) Seller/Servicer obligationsThe Seller/Servicer agrees to comply with all applicable federal, State and local laws, ordinances, regulations and orders, including, without limitation and as amended, the following laws and their applicable regulations:

  1. Title VI of the Civil Rights Act of 1964
  2. Title VIII of the Civil Rights Act of 1968, as amended
  3. Section 527 of the National Housing Act
  4. The Equal Credit Opportunity Act
  5. The Fair Credit Reporting Act
  6. All applicable laws, rules, regulations and guidance prescribed by Seller/Servicer's regulator(s), governing data privacy and/or the safeguarding of Borrower personal information including, without limitation, the Gramm-Leach-Bliley Act
  7. Executive Order 11063, Equal Opportunity in Housing, issued by the President of the United States on November 20, 1962
  8. The foreign assets control regulations, 31 C.F.R. Chapter V, as amended, and any authorizing legislation or executive order relating thereto, as administered by the Office of Foreign Assets Control (OFAC) within the United States Department of the Treasury (collectively "OFAC Regulations")
  9. The Bank Secrecy Act, the Money Laundering Control Act and Title III of the USA PATRIOT Act
  10. Section 5 of the Federal Trade Commission Act and similar laws that prohibit unfair or deceptive acts or practices
  11. The Truth-in-Lending Act
  12. The Real Estate Settlement Procedures Act
  13. The Fair Debt Collections Practices Act
  14. The Homeowners Protection Act of 1998
  15. Judicial and professional rules of conduct governing discussions with opposing parties in litigation when represented by counsel (e.g., solicitation of delinquent Borrowers in bankruptcy or Borrowers engaged in litigation with the Servicer)
  16. The U.S. Bankruptcy Code
  17. The Electronic Signatures in Global and National Commerce Act, as enacted by the United States government ("E-SIGN")
  18. The Uniform Electronic Transactions Act, as enacted by the applicable State ("UETA") unless superseded by E-SIGN

The Seller/Servicer agrees to indemnify and hold Freddie Mac harmless from and against all claims, judgments, losses, costs and expenses incurred by Freddie Mac arising out of the Seller/Servicer's violation of any federal, State or local law, regulation, regulatory guidance, ordinance or order.

A Seller/Servicer cannot assume that because it complies with all applicable Freddie Mac requirements that the Seller/Servicer therefore complies with all applicable federal, State and local laws, ordinances, regulations and orders.

(b) OFAC screening; notice of OFAC matchSeller/Servicers are expected to establish and maintain an effective OFAC compliance program that ensures compliance with OFAC Regulations.Sellers must screen each Borrower against OFAC's most recent list of Specially Designated Nationals and Blocked Persons ("OFAC SDN List") prior to delivery to Freddie Mac. If a Borrower is on the OFAC SDN List, the Mortgage is ineligible for sale to Freddie Mac.The Servicer must periodically screen the Mortgages that it services for Freddie Mac against the OFAC SDN List. The frequency of such screening should be based on the Servicer's OFAC compliance program and be commensurate with the Servicer's OFAC risk profile (i.e., Servicers could screen Freddie Mac Mortgages with the same frequency as they do their own portfolio).A Servicer that identifies a valid match against the OFAC SDN List must notify Freddie Mac via e-mail within 24 hours of blocking or rejecting a Mortgage or Mortgage transaction based on such valid OFAC SDN List match (see Directory 1). Such e-mail notification must also provide the following information:

  • Freddie Mac loan number
  • Borrower name
  • Name, title, e-mail address, and telephone number for the point of contact at the Servicer who will be able to discuss the OFAC SDN List match

Upon receipt of the notice, a representative from Freddie Mac will contact the Servicer to discuss the OFAC SDN List match and any potential next steps. Freddie Mac may also require the Servicer to provide documentation or additional information regarding the OFAC SDN List match.

Notifying Freddie Mac of a confirmed match against the OFAC SDN List does not absolve the Servicer from its responsibility to file a report with OFAC, as required by OFAC Regulations.

(c) Anti-money laundering (AML) compliance; reporting AML non-compliance and Suspicious ActivitySeller/Servicers subject to the AML provisions of the Bank Secrecy Act are expected to establish and maintain a compliance program that ensures compliance with all applicable provisions of the Bank Secrecy Act and implementing federal regulations.Seller/Servicers must, as permitted by law, notify Freddie Mac (see Directory 1) within seven Business Days of confirmation of any instances of the Seller/Servicer's own non-compliance or compliance failure related to the AML requirements of the Bank Secrecy Act, the Money Laundering Control Act, or Title III of the USA Patriot Act, and applicable implementing federal regulations.All Seller/Servicers, including those not subject to the AML provisions of the Bank Secrecy Act, must develop internal controls, policies and procedures designed to detect Suspicious Activity, and to report such Suspicious Activity to Freddie Mac (see Directory 1) in accordance with Section 3201.2.

(d) FHFA Suspended Counterparty ProgramSeller/Servicers must comply with the requirements set forth in Section 3101.2 applicable to FHFA's Suspended Counterparty Program.

(e) Seller lending practicesThe Seller must employ business practices that promote fair lending.

(f) Servicer responsibility for incident response program and notice of breachServicers must maintain a "Response Program" consistent with the requirements of the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice (the "Interagency Guidance") (12 CFR Parts 208 and 225).If the Servicer believes there has been a "security incident," defined as any unauthorized access to, or acquisition of, information that compromises the security, confidentiality or integrity of "sensitive customer information" (as defined in the Interagency Guidance) maintained by the Servicer, and that security incident is related to Mortgages owned by Freddie Mac, the Servicer must send the following notifications to Freddie Mac (see Directory 1)

  • Written notice of the security incident, including a detailed description of its scope and root cause (to the extent then understood) and a description of the notices provided to affected Borrowers, within a reasonable time after the security incident; and
  • If the Servicer does not send notices to all Borrowers affected by a certain security incident, the Servicer must provide written notice including a rationale and explanation for not sending notice to all affected Borrowers as soon as practicable after the security incident

If the Servicer intends to refer to Freddie Mac in any notices it sends to Borrowers on Mortgages whose information was affected by the security incident, the Servicer must notify Freddie Mac within a reasonable time prior to sending those notices to Borrowers. Freddie Mac must have the opportunity to review the content of the notices.

In all such cases, the Servicer must cooperate with Freddie Mac including, without limitation, by providing all information and assistance requested to enable Freddie Mac to comply with its legal obligations and to manage any issues arising out of the security incident.

(g) Servicers diversity practices - minority, women and disabled inclusionIn accordance with regulations adopted by the Federal Housing Finance Agency, 12 C.F.R. Pt. 1207, pursuant to the Housing and Economic Recovery Act of 2008, 12 U.S.C. § 4520 ("HERA"), each Servicer will:

  1. Practice the principles of equal employment opportunity and non-discrimination in all its business activities
  2. Contractually require each subcontractor that the Servicer engages to provide services or goods to Freddie Mac to practice the principles of equal employment opportunity and non-discrimination in all its business activities, and
  3. Upon request, provide Freddie Mac with information and appropriate certifications regarding:
  • The diversity status of the Servicer
  • The diversity status of subcontractors the Servicer engages to provide services or goods to Freddie Mac with respect to Servicing under the Purchase Documents
  • The amounts Freddie Mac pays to the Servicer for Servicing under the Purchase Documents
  • The amounts the Servicer pays to subcontractors to provide services or goods to Freddie Mac with respect to Servicing under the Purchase Documents, and
  • Any other information Freddie Mac requests to comply with HERA and applicable diversity and inclusion regulations

(h) Servicer adverse action noticesIf Freddie Mac participated in evaluating a Borrower for a workout or relief option that is not approved, Freddie Mac will provide the reasons why it did not approve the workout or relief option to the Servicer. If Freddie Mac participated in the decision and if the decision gives rise to an obligation to provide the Borrower a notice or notices under applicable law, including, but not limited to, adverse action notices required by the Equal Credit Opportunity Act or the Fair Credit Reporting Act, then the Servicer must provide such notices to the Borrower on behalf of Freddie Mac. In these cases, the notices provided by the Servicer to the Borrower must identify both the Servicer and Freddie Mac as having participated in the evaluation of the workout or relief option and the decision to deny the request.

(i) Repurchase requests related to compliance with laws representations and warranties

(i) Freddie Mac will only issue a repurchase request for Seller violations of law that:

  • Could be expected to impair Freddie Mac's or its Servicer's ability to enforce the Note or Mortgage
  • Impose assignee liability, or
  • Are found to have been violations of, or if Freddie Mac has made a finding based on the facts available to Freddie Mac that a violation may have occurred of, one or more of the following laws or related regulations:
    • OFAC Regulations
    • The Fair Housing Act
    • Anti-discrimination provisions of the Equal Credit Opportunity Act (ECOA)
    • Unfair, deceptive, or abusive acts or practices under federal and State laws (UDAAP), and
    • The Securities Exchange Act of 1934

With respect to UDAAP, Freddie Mac will take into consideration published federal and State announcements of interpretations as well as all published judicial and administrative decisions and will not enforce a repurchase if the matter can be cured by remediation to the injured party and the Seller makes such remediation. However, three or more years after the Settlement Date of a Mortgage, Freddie Mac may not seek repurchase on UDAAP grounds regarding a specific practice unless a lender self-reports or if a federal or State enforcement authority has indicated, asserted or claimed that such practice violates or may violate UDAAP, or a federal or State court has held that a specific practice violates UDAAP.

(ii) A repurchase demand based on a compliance with law violation by the Seller will include supporting facts and findings made by Freddie Mac in the course of considering the facts and circumstances before it. Freddie Mac's determination that a violation has occurred must be consistent with the facts and circumstances provided by the Seller and any other information obtained by Freddie Mac as part of its evaluation of the situation.

(iii) When Freddie Mac issues a repurchase request to the Seller in connection with a failure to comply with laws and there is pending litigation underway involving that same issue or a government agency with authority to make a determination regarding the issue has publicly stated that it is reviewing the issue, the Seller will not be required to repurchase until 30 days after the litigation has been dismissed, settled or concluded at trial in an adjudication or the governmental agency has made a final determination, as applicable (collectively, "the Resolution"). After the Resolution, the Seller may request that Freddie Mac review the appropriateness of the repurchase request in light of the Resolution. Freddie Mac will withdraw the repurchase request where appropriate.

(iv) Freddie Mac will not issue a repurchase request to the Seller based on violations of the ability to repay provisions under the Truth-in-Lending Act ("ATR") unless a court or regulator concludes the Mortgage did not comply with ATR.

(v) This section does not limit Freddie Mac's rights to issue repurchase requests for Servicer breach of its obligations regarding compliance with applicable laws.