Washington News

The Title/Appraisal Vendor Management Association has sent a three-page letter to the National Association of Mortgage Brokers stating its attacks on appraisal management companies in the fight over the Home Valuation Code of Conduct are baseless. "Everyone in the industry knows there were serious problems with the collateral valuation part of the business," said Jeff Schurman, TAVMA executive director. "Maintaining an arms-length relationship between the loan originator and appraiser is the centerpiece of the HVCC. To characterize AMCs as the centerpiece of the Code is simply false." He added that there is no tangible data to suggest that AMCs are the problem. Instead, the real issue is that New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac felt that loan originators whose compensation depended upon the loan closing were trying to improperly influence appraisers, Mr. Schurman said.

The Department of Housing and Urban Development is revising its appraisal policies on Federal Housing Administration-insured loans with respect to appraisal management companies, according to an agency spokesman. Appraisal groups have been complaining that HUD's restrictions on appraisal fees and the lenders' increasing reliance on AMCs is driving many experienced appraisers away from taking assignments that involve Federal Housing Administration-insured loans. "The loss of these seasoned professionals is adding unnecessary and substantial risk to the FHA program," according to four appraisal trade groups which sent a letter to HUD secretary Shaun Donovan. "We already have a mortgagee letter in the clearance process addressing this issue," the HUD spokesman said. FHA borrowers are expected to pay no more than the "customary fee" for an appraisal, according to a 1997 HUD mortgagee letter on appraisal management companies. To cover their management fees, AMC hires appraisers that will accept a reduced fee, according to the appraisal coalition. As a result, "the consumer is receiving a much lower level of service - often from appraisers who do not know the local market - in many cases," the coalition says in its letter to HUD. The Appraisal Institute, American Society of Appraisers, American Society of Farm and Rural Appraisers and National Association of Independent Fee Appraisers signed the letter.

Industry groups are backing an Obama administration plan to simplify mortgage disclosures and make them more consumer friendly but first the trades want the Department of Housing and Urban Development to kill a Real Estate Settlement Procedures Act rule that is due to go into effect Jan. 1, 2010. The administration has endorsed the concept of merging the RESPA disclosures and the Federal Reserve Board's Truth in Lending Act disclosures into a single document as part of its legislative proposal to reform the regulatory system. "We believe development of a simple, single RESPA/TILA disclosure is achievable, and that such an effort can be undertaken and completed far sooner than broader legislative efforts to reform regulation of the financial industry," the industry groups say in a July 1 letter to top administration officials. To move this process along, the RESPA rule should be withdrawn and HUD and the Fed should commence a joint rulemaking effort, according to the letter, which was signed by 10 associations. Signers include: American Bankers Association, American Escrow Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, National Association of Mortgage Brokers and Real Estate Settlement Providers Council.

Fannie Mae and Freddie Mac have received the green light from their regulator to refinance underwater homeowners with loan-to value ratios as high as 125%. The special refinancing plan that Obama administration officials unveiled in February limited the refinancing option to loans with LTV ratios of 80% to 105%. But the 105% LTV limit would not offer any relief for borrowers who have seen the values of their home erode by 15% to 30%. "The higher LTV refinancings will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates," Federal Housing Finance Agency director James Lockhart said. Fannie Mae said it would accept delivery of the higher LTV loans starting Sept. 1. A Freddie Mac spokesman said it would start accepting the loans "now." The GSE financing program is only available to borrowers with loans that are owned or guaranteed by Fannie and Freddie. They also have to be current on their mortgage payments. "On the 105%-125% LTV loans, lenders can either sell us the loans for cash or deliver them into an MBS execution to be sold to other investors," a Fannie spokesman said.

Existing home sales bottomed out in the first quarter and sales should be up 3% when the final numbers come in for the second quarter, according to National Association of Realtors. NAR economists are forecasting that sales will total 4.72 million in the second quarter and rise another 5% in the third quarter. Housing affordability is at historic highs and the first-time home buyer tax credit is fueling demand. "Strong activity by entry level buyers is helping absorb inventory and [allowing] some existing owners to make a trade," said NAR chief economist Lawrence Yun. NAR pending sales rose ever so slightly in May to 90.7, up from 90.6 in April. The index tracks signings of sales contracts and it is a forward-looking indicator of existing home sales. But the Realtors are concerned that appraisal issues are hindering some sales. "Closed existing home sales have improved but are coming in lower than expected because some contracts are delayed or falling through," Mr. Yun said. NAR wants regulators to suspend the implementation of a new GSE appraisal code that went into effect May 1 that it blames for appraisal issues. Other market participants and observers say the problem may be driven less by the code's implementation and more by lower recent market prices and foreclosure sales.

Less than three in 10 mortgages that were modified by servicers in the first quarter of 2008 are still current, according to a new "mortgage metrics" report released by the Comptroller of the Currency. The report indicates that as loan modifications age the chance of a mortgage going delinquent again increases significantly. The OCC found that just 29.5% of loans modified in 1Q08 are still "current and performing" while 48.2% of those modified in the fourth quarter were current. As for mortgages modified in the first quarter of this year — with the stated goal being home retention by the mortgagor — almost 36% are already in some stage of delinquency, the OCC found. Even though the relapse rate is poor, mortgage servicers are under increasing pressure to help consumers. Loan modifications by mortgage companies increased by 172% in the first quarter compared to the same period last year. Servicers initiated 185,156 new loan modifications in 1Q — a 55% jump from the previous quarter. The report also shows that foreclosure actions in the first quarter totaled 290,900, up only 4% since the first quarter of 2008.

The number of completed loan modifications has fallen in April and May as servicers put more loans through a 90-day trial period as required by the Obama administration's Home Affordable Modification program. "Many of these trial modifications will result in formal reporting of modifications after 90 days," according to Hope Now, an alliance of mortgage servicers. Hope Now servicers reported that they modified 101,000 mortgages in May, down from 121,000 in April and 134,000 in March. Meanwhile, foreclosure sales jumped to 82,600 in May, up from 62,800 the previous month. Nearly two thirds of the foreclosure sales in May and April involved prime mortgages.

In an effort to pre-empt plans to bring credit unions under a new Consumer Financial Protection Agency, National Credit Union Administration chairman Michael Fryzel has proposed the creation of the agency's own consumer protection office. NCUA currently has authority over products and services offered by credit unions but rarely, if ever, determines whether they comply with consumer laws and regulations, leaving that to other agencies such as the Federal Reserve, Federal Trade Commission of the Securities and Exchange Commission. The new NCUA office would monitor compliance with mortgage laws and disclosures, credit card rules and regulations, and investment products sold by credit unions.

A strong Consumer Financial Protection Agency would even the playing field so community banks would not have to compete against unregulated mortgage bankers in offering products and services, according to the Treasury Department. "If you are a community bank or credit union, the last thing you want to do is compete against a set of unregulated players outside the system," Treasury assistant secretary Michael Barr told reporters. The American Bankers Association and Financial Services Roundtable oppose the proposed CFPA, claiming it will limit consumer choice and stifle competition. Financial institutions will have to offer plain-vanilla products, Mr. Barr said, so consumers can compare and make decisions about more complex mortgages based on products they actually understand. "The market can continue to offer whatever products it wants," he said. Mr. Barr made his comments after Treasury sent the text of a 150-page CFPA bill to Congress. House Financial Services Committee chairman Barney Frank, D-Mass, said the legislative text will make it easier for his committee to pass a CFPA bill before the August recess. "While the committee will, of course, exercise its own judgment on the specifics and we have already had a thorough hearing on the matter, it is helpful to have the administration's proposals as well because I believe there is a great deal of common ground between us," Rep. Frank said.

Freddie Mac's board of directors has selected Charles E. Haldeman Jr., a top executive at Putnam Investments, to be its next chief executive, according to a source familiar with the matter. "He's the leading candidate," said the source. The nomination has been sent to its regulator, the Federal Housing Finance Agency, which has yet to act on the pick. Mr. Haldeman would replace John Koskinen, a former Clinton Administration official. Mr. Koskinen replaced David Moffett who took control of the GSE when the government placed it into conservatorship this past fall. In other company news, the GSE said in a new regulatory filing that it received $6.1 billion in new funds from the Treasury Department to help offset its mounting liabilities. Counting the new infusion, the Treasury Department, to date, has given the GSE $51.7 billion to keep its net worth above zero.