Compliance & Regulation

Banker's Portfolio has fed over $10 billion in underwater mortgages through its "decisioning engine" that shows how many loans are eligible for a refinancing under the FHA "Hope for Homeowners" program.

Standard & Poor's has changed its outlook on the future prospects of the Seattle Federal Home Loan Bank to "negative" from "stable," citing risks posed by its private-label securities portfolio and the bank's capital position.

Fannie Mae and Freddie Mac--the Congressionally chartered mortgage giants that provide liquidity for 70% of all residential loans funded in the U.S.--are done. They have no friends in Congress and Republicans (and plenty of Democrats) blame them for creating the housing bubble.

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.