Compliance & Regulation

Some real estate lending has improved since early April but May activity was generally slow compared to the prior month, according to the Federal Reserve's Beige Book. "Real estate lending increased even though standards on these loans remained tighter than on other loans, particularly for commercial mortgages," according to the report, which reflected data as of May 28. Commercial real estate activity continued to be characterized as weak but "residential real estate improved since the last report," which covered the period leading up to April 5. "Most districts noted an increase in home sales and construction prior to the April 30 deadline for the homebuyer tax credit, with contacts in many of these districts also indicating a corresponding slowing in activity in May."

The serious delinquency rate on FHA-insured home mortgages has been declining, loan modifications are accelerating, but foreclosures are still rising at an alarming rate. Yet, Federal Housing Administration officials are optimistic that foreclosures will start to decline if delinquencies continue to fall. "It is simply a timing lag" because servicers are still dealing with a large inventory of problem FHA loans, said chief risk officer Bob Ryan. FHA recently reported that 8.5% of its insured single-family loans were 90 days or more past due in April, down from 8.8% in March and 9.17% in February. "If we continue the trend of declining delinquencies, we will see a corresponding decline in claims (foreclosures) several months down the road," he said. (FHA officials refer to foreclosures as claims.) Servicers modified 70,800 FHA loans during the first seven months of fiscal 2010, up 78% from the same period in FY 2009, according to an April FHA report. But foreclosures totaled 53,300 during that same period, up 47% from FY 2009. The chief risk officer noted that current trends are positive and foreclosures should decline. However, he is worried about the performance of the modified loans and redefaults, which would push up foreclosures. "We hope we have been able to achieve modifications that provide meaningful relief for the borrowers," Ryan told National Mortgage News. The housing market is "fragile," he said. A weakening economy, more jobs losses, or other economic events, "could cause them to re-default," he said.

Armando Falcon Jr., a consultant that formerly headed up the Federal Housing Finance Agency's predecessor during the Clinton administration, has joined the American Securitization Forum as a senior policy advisor. Several other high profile mortgage industry executives also were named as new members of the group's board during the group's annual meeting in New York. WL Ross & Co vice chairman James Lockhart III, who also once headed up the government-sponsored enterprise regulator, was named as a new board member; as was Chase Home Finance senior vice president Jerome "Garry" Cipponeri and industry attorney Larry Platt of K&L Gates LLP. William "Bill" Moliski, managing director at MBS investor and issuer Redwood Trust, the company responsible for the first recent origination jumbo deal in some time, has been named the group's treasurer. Andrew Davidson, president of mortgage-backed securities analytics provider Andrew Davidson & Co., also was named to the board as the first vendor executive in that post. In addition, Davidson was named co-chair of the group's newly-added data and analytics subforum along with Ned Myers, chief marketing officer of Lewtan Technologies.

The American Securitization Forum is planning to issue a paper on risk retention proposals and related amendments. The paper was not immediately available at press time but executive director Tom Deutsch told this publication at the group's annual meeting Tuesday that it would weigh in with suggestions that the proposal allow for different treatment of different asset classes. It also would address a proposal to allow strict underwriting requirement to serve as a form of risk retention. Deutsch said the group is unified in calling for different forms of risk retention for different asset classes given differences in the way they are affected by regulatory capital requirements and recently-changed accounting standards. For example, while mortgage deals might be able to accomplish the 5% risk retention through a "vertical" slice of all the asset classes in a deal without triggering certain onerous accounting requirements, another type of securitized assets may not. Some issuers of non-mortgage assets would prefer the option of using a horizontal slice of the deal to accommodate this, he said. The group —which sometimes issues separate "educational" positions split between investor and issuer contingents when they cannot immediately agree on an issue —is currently divided when it comes to the underwriting issue, Deutsch said.

The Federal Reserve Board and other regulators will urge major banks to restructure their compensation packages to "discourage excessive risk taking," according to central banker Ben Bernanke. "We anticipate interagency guidance on this matter within the next few weeks," the Fed chief told a congressional panel Wednesday. He indicated that the guidance will include a "set of criteria and set of expectations" to ensure executives and traders are not compensated to take excessive risk without being penalized when those risks translate into losses for the banks. "We will be pushing the banks to move as quickly as possible" to implement new compensation policies, he said. The Fed has conducted a survey of bank compensation practices, discovering that many banks continue to use the same pay practices that were in place before the 2008 financial crisis. "We found many banks have not modified their practices," Bernanke testified in response to a question from Rep. Lloyd Doggett, D-Texas.

Federal Reserve chairman Ben Bernanke Wednesday blamed a weak housing market for restraining the pace of the economic recovery, saying residential real estate conditions have "firmed only a little" since mid-2009, despite homebuyer tax credits. The central banker also called the private label MBS market "nonfunctional," saying the "status quo" of using Fannie Mae and Freddie Mac to provide liquidity via securitizations is not sustainable. The Fed chairman told the House Budget Committee the economy would nevertheless continue its slow expansion with the nation's gross domestic product growing at a 3.5% this year and 4% in 2011. He noted that housing "activity is being weighed down, in part, by a large, inventory of distressed or vacant existing houses and by the difficulty of many builders in obtaining credit." At the last meeting of the Federal Reserve's monetary policy committee, members expressed concerns that the recovery in housing had "stalled," according to the minutes of the April 28 meeting. Federal Open Market Committee members noted that house prices have stabilized in many parts of the U.S. However, some members see "elevated foreclosures as posing a downside risk to home prices," according to the minutes of the meeting. The next FOMC gathering is June 22. Bernanke did have some good news, noting that there is a "glimmer of hope" in the commercial real estate market. He said the Fed, as a regulator, is working with lenders to restructure troubled CRE loans.

Industry groups are urging House lawmakers to pass a Federal Housing Administration reform bill while rejecting several amendments that would lower the insurer's loan limit to $500,000, reduce its market share to 10%, and increase downpayments. "We urge you to oppose these amendments that will only hamper this important program," according to a joint letter signed by the Mortgage Bankers Association, National Association of Home Builders, and National Association of Realtors. The House is about to begin debate on the bill (H.R. 5072) which would give FHA more flexibility in adjusting its mortgage insurance premium structure. The measure also strengthens the agency's hand in getting lenders to indemnify FHA for bad loans and to terminate lenders with excessive early default rates. Industry groups oppose an amendment by Rep. Scott Garrett, R-N.J., that would increase the FHA 3.5% minimum downpayment to 5% and prohibit closing costs from being rolled into the loan amount. The Garrett amendment is expected to be voted down. An amendment by Rep. Melissa Bean, D-Ill., that requires FHA to report annually on its downpayment policy discussions is expected to pass. FHA currently has a market share of 30% and Rep. Tom Prices, R-Ga., is offering an amendment to cap it at 10%. Rep. Michael Turner, R-Ohio, wants to reduce the agency's maximum loan limit to $500,000 from $720,000. Industry groups contend the amendment would be disruptive and hurt the housing recovery. Meanwhile, real estate, apartment and low-income housing groups are supporting an amendment by Reps. Anthony Weiner, D. N.Y, and Gary Miller, R-Calif., that increases the FHA multifamily loan limit for elevator properties in high-cost areas. The House is expected to vote on final passage of H.R. 5072 Thursday.

A bipartisan panel has issued a subpoena to Goldman Sachs & Co. after the investment banker failed to comply with a documents request and a request for interviews. Chairman Phil Angelides and vice chairman Bill Thomas of the Financial Crisis Inquiry Commission, who made the announcements regarding the subpoenas, stressed the commission's commitment "to using its subpoena power if there is a lack of, or delay in, compliance." They added: "Failure to comply with a commission request is viewed with the utmost seriousness, as the commission will not be deterred from getting desired information." In an e-mailed statement, a Goldman spokeswoman said, "We have been and continue to be committed to providing the FCIC with the information they have requested." Goldman is under investigation on several fronts for selling subprime CDOs to clients while playing a role in helping short sellers bet against the same securities. Meanwhile, renowned banking analyst Dick Bove said Tuesday that Goldman CEO Lloyd Blankfein should resign.

Roughly 71% of loan officers pass the national test to become qualified mortgage professionals the first time they take the exam, according to new figures released by the Nationwide Mortgage Licensing System. The state (first-time) pass rate is even better: 78%, according to NMLS. The results reflect tests administered between July 30 of last year and April 30, 2009. "Everyone seems to be passing these days," said Christopher Cruise, a continuing education trainer based in Maryland. The tests, which feature multiple choice questions, are required under the SAFE Act.

The House is likely to reject an amendment that would raise the minimum downpayment on Federal Housing Administration loans to 5% from 3.5%, but legislators might accept language giving the government insurer the authority to raise the downpayment as needed. The Rules Committee meets Tuesday evening to decide which amendments can be offered to the FHA reform bill (H.R. 5072) that the House of Representatives will vote on during Wednesday's session. If approved by the Rules Committee, Rep. Melissa Bean, D-Ill., will offer an amendment giving FHA the authority to raise its downpayment, or minimum cash investment, requirement. The Bean amendment also asks FHA to submit an annual report to Congress discussing proposed or actual increases in downpayment requirements. In the past, Rep. Bean has garnered the support of conservative Democrats and Republicans for her amendments. H.R. 5072 gives the FHA more flexibility in adjusting its mortgage insurance premium structure and rebuilding its capital reserves.