APR 19, 2013

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What We're Hearing

Talking Out of Both Sides

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WE’RE HEARING that HUD is sending mixed signals to lenders.

The Department of Housing and Urban Development issued a mortgagee letter recently and it has caused quite a stir among the Federal Housing Administration’s largest lenders due to the tough language.

“HUD may now demand lender insurance mortgagees indemnify HUD against possible losses in instances of fraud, misrepresentation or serious and material violations of HUD requirements,” the April 8 mortgagee letter says. “This guidance is effective immediately.”

HUD has always had the power to seek indemnification from LI lenders when loans go bad. Generally lenders could negotiate with FHA officials and seek a settlement.

The letter makes it sound like that process has been eliminated. But all that has been taken away is an appeals process that generally was considered a dead end and avoided.

Meanwhile, HUD secretary Shaun Donovan is pressing Congress to pass a FHA reform bill that will allow FHA to press for indemnification against all FHA direct endorsement lenders. (LI lenders originate roughly 70% of the FHA loans.)

“Increasing our enforcement authorities is a critical step and we have four specific proposals enhancing our ability to increase returns,” he told House appropriators last week.

The secretary indicated the enforcement powers would help FHA press claims against lenders and improve collections on older legacy loans. That would reduce losses to the FHA mortgage insurance fund, which might have to seek a $943 million draw from the U.S. Treasury later this year.

HUD’s message to Congress is not very soothing to lenders ears. And it comes at a time when the Obama administration, including Secretary Donovan, wants lenders to ease up and make loans to more borrowers—particularly first-time homebuyers.

A few weeks ago the Washington Post ran a story about HUD officials trying to get the Justice Department and the HUD Inspector General to provide some assurances to top FHA lenders that submitted loan files to federal investigators last year.

“Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default,” the Post story says.

Such assurances would allow lenders to breathe easier. But HUD seems to be sending mixed signals and it’s having a negative impact.

SHOUT OUT: Those hirin’ folks at Churchill Mortgage have done it again. As you know, we give a shout out every Friday to anybody that has made ten net new hires in the past year (believing that this is the way our national and mortgage economies will recover). This week the Brentwood, Tenn., lender announced another 16 hires around the country (they are a repeat member of the Shout Out Club). Branches getting new hires are located in Tennessee, Texas, Virginia and Washington. To date, the lender has hired more than 35 new employees within the first three months of the calendar year. Nice job(s), guys.

MOST READ/MOST EMAILED: The most read content on the site this week was Evan Nemeroff’s piece about the extension of the federal HARP refi program for the next two years. Imagine if this caused a hot market in refis (NOT tied to decreasing mortgage interest rates) to go along with a developing hot market in purchase mortgages, at the same time! It would be happy days here, again. The most emailed was Brian Collins’ story about banks making additional mortgages to first-time homebuyers, switching from jumbos down to conventionals.

THEY LIKE US, THEY REALLY LIKE US: Leave it to our Grapeviners to find out that the Consumer Financial Protection Bureau has a Facebook page and wants you to like them. As you might imagine they have some forthright opinions on what to leave in the “comments” box.

BUBBLE VIDEO: We recently appeared on a panel presentation on the housing bubble at the American Enterprise Institute. AEI films these events. We’re not immodest enough to suggest that you check out NMN’s video remarks, but not shy about recommending those by fellow panelist Thomas Zimmerman of UBS. We get together every six months on this topic, under the auspices of AEI’s Alex Pollock.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

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