Compliance & Regulation

The Rural Housing Service single-family loan program ran out of loan commitment authority two months ago, but at least one lender, a division of JPMorgan Chase, is still making these federally guaranteed loans.

While passing a bill that would create a consumer protection agency has proved challenging enough, that task may pale in comparison to actually setting up the new regulator.

Three anti-government zealots were indicted by a federal grand jury in connection with an alleged scheme to extort money from public officials and top executives of Mid-Hudson Valley Federal Credit Union, after the lender foreclosed on one of their homes.

Mortgage fraud is a serious problem - still. Of course, credit standards are much higher today than a few years ago, and it is difficult for a borrower to obtain a mortgage by fibbing about his income or otherwise doctoring his loan application. But where there is a will to defraud, fraudsters will find a way.

Mortgage investors are very interested in a refinancing program the Federal Housing Administration plans to roll out this fall to help underwater borrowers with non-FHA loans, according to a Government Accountability Office report. However, the GAO auditors also found that the investors don't believe many borrowers will qualify for this principal reduction program. The aim of the new program is to prevent strategic defaults by giving investors an incentive to reduce the principal amount of the first and second mortgages. The new refinance option requires servicers to write down the principal amount of the first mortgage by at least 10%. The loan-to-value ratio on the newly originated FHA mortgage cannot exceed 97.75%. If there is a second lien on the property, the combined LTV cannot exceed 115%. "Investors we spoke with supported the principal reduction in conjunction with an FHA refinance," the GAO report says. "However, they also noted that the program might reach only a limited number of borrowers as it would only help borrowers who are current on their existing first-lien mortgage payments," the report says. After the refinancing, the borrower's mortgage payments cannot exceed 31% of income. And other debts cannot push the back-end ratio over 50% unless the borrower has a strong credit history. FHA officials did not respond to requests for comment on the GAO report.

The Federal Reserve has no intention in the "near term" of selling off its $1.1 trillion portfolio of GSE-guaranteed mortgage-backed securities, according to Fed governor Kevin Warsh. But when the time comes, the Fed should take a gradual approach that is "communicated well in advance" in selling its Fannie Mae, Freddie Mac and Ginnie Mae MBS, he told the Atlanta Rotary Club on Monday. "Ultimately, in my view, gradual, predictable asset sales by the Fed should facilitate improvements in mortgage finance and financial markets," the Fed governor said. He also noted that sales of MBS or other assets would not necessarily signal that the Fed is going to raise interest rates. "Our [monetary] policy tools can indeed be used independently," Warsh said. The Federal Reserve began purchasing agency MBS in December 2008 to provide liquidity for the mortgage market during the financial crisis. The Fed stopped its purchases at the end of March 2010. However, the Fed said it engaged in a limited amount of coupon swaps on Tuesday to complete the final settlement of $9.2 billion in agency MBS. The Federal Reserve's latest report on its portfolio shows the central bank earned $11 billion in interest income during the first quarter on its agency MBS holdings.

Fannie Mae issued $36.2 billion in mortgage-backed securities in May, only slightly above Ginnie Mae's MBS issuance for the month. Ginnie Mae MBS issuance has been higher than Freddie Mac's for some time. But now it looks as if Ginnie Mae may be catching up to Fannie. Ginnie recently reported that its issuers securitized $33.9 billion in FHA and VA guaranteed loans in May. Meanwhile, the serious delinquency rate on Fannie Mae guaranteed single-family mortgages fell for the second consecutive month. The secondary market agency reported that 5.3% of its loans are 90 days or more past due in April, down 29 basis points since February. Fannie has a one-month delay in its reporting delinquency rates.

House and Senate conferees have come up with a new way to pay for the Dodd-Frank Wall Street Reform bill as the Democrats struggle to move the legislation across the finish line. Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., re-opened the conference due to opposition to a tax on large banks and hedge funds to cover the $18 billion cost implementing the 2,100-page regulatory reform bill. On Tuesday evening, the conferees approved an alternative "pay for" by using savings from terminating the Troubled Asset Recovery Program early and imposing an additional deposit insurance assessments on banks with more than $10 billion in assets. The House is slated to vote Wednesday on final passage of the bill. The Senate has delayed its vote until Congress returns from the July 4th recess.

The House has passed a bill to extend a closing deadline for the homebuyer tax credit to Sept. 30, but similar action in the Senate is uncertain. By a 409-5 vote, the House passed a stand-alone bill (H.R. 5623) to ensure homebuyers who are expecting to receive the tax credit are not disqualified because delays have pushed their closing past a June 30 deadline. Under the homebuyer tax credit that expired April 30, first-time buyers had until today (June 30) to close and qualify for the $8,000 tax credit. Repeat buyers are in line for a $6,500 tax credit. The National Association of Realtors estimates that 75,000 buyers won't meet the closing deadline due to loan processing delays and lapses in the National Flood Insurance Program and Rural Housing Service single-family loan program. "We are strongly urging the Senate to act quickly to pass their legislation and ease the minds and pocketbooks of these homebuyers," said NAR president Vicki Cox. Senate Democrats' leaders have inserted the homebuyer closing extension in a larger bill that extends benefits for unemployed workers through November. But a Republican filibuster has blocked passage of the $34 billion unemployed benefit package for several weeks. A House-passed bill (H.R. 5569) to re-start the National Flood Insurance Program also is pending in the Senate.

The death of Sen. Robert Byrd, D-W.Va., is likely to postpone a final vote on the sweeping regulation reform bill until the governor of West Virginia appoints a new Democratic senator. The 92- year senator had been ill for some time. But Democratic leaders were counting on Sen. Byrd and a few Republicans to muster the necessary 60 votes to pass the bill. Some key Republicans are having second thoughts about the bill because it includes an assessment on large banks and hedge funds to raise an estimated $19 billion. The bill creates a new resolution process to deal with the failure of large financial institutions, imposes risk retention on mortgage securitizations and creates a consumer protection agency. The assessments would cover the costs of implementing the legislation and two multi-year programs to prevent foreclosures and help municipalities deal with abandoned homes. One program, modeled after a Pennsylvania state program, would receive $1 billion annually to make loans to unemployed homeowners so they can make their mortgage payments. The other $1 billion program would renovate foreclosed homes so they can be rented. The House may vote on final passage of the bill on Tuesday.