Compliance & Regulation

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.

The growing number of credit union failures has forced NCUA's Asset Management and Assistance Center, which had been managing as many as 1,000 residential properties in south Florida, to expand into California and Las Vegas in recent months. The National Credit Union Administration still owns 633 houses in southwest Florida, as a result of previous CU failures. Of these, 220 are leased out, according to NCUA spokesman John McKechnie, who noted the agency originally had about 1,000 houses in the area. "Our plan is to sell 150 houses this year, so sales this year are slightly above plan," he said. "All sales of our residential properties are through local real estate brokers," he said. "We have a professional onsite property manager in southwest Florida, which is the only area where it has made economic sense to do so." NCUA is also considering selling some of the loans in packages but has no current plans to do so, and the agency is not holding any other significant assets from failed credit unions other than loans, he noted.

If home prices do not appreciate over the next few years, homeowners dealing with negative equity are likely to become renters, pushing down the U.S. homeownership rate to a level not seen since 2000, according to researchers at the New York Federal Reserve. "Negative equity households will very likely convert to renters when they move out of their current homes because they will be unable to save enough to cover negative equity, the transaction costs of selling their existing home and a downpayment on another home," three Fed researchers explain in their paper "The Homeownership Gap." The homeownership rate peaked at 69% in 2006 and has fallen to 67.2% by the end of 2009. If borrowers with negative equity are dropped from the homeownership calculation, the "effective" rate for the fourth quarter of 2009 would be 61.6%. In a separate report, mortgage analysts at Amherst Securities Group estimate that 250,000 homeowners a month are going delinquent for the first time. "These new delinquencies are primarily borrowers with negative equity: they are going delinquent for the first time at alarming rates," according to an Amherst Mortgage Insight article.

The former head of the Federal Housing Administration questioned the ability of the agency to continue its role as the bulwark of the mortgage market for much longer without an infusion of cash and staff. Brian Montgomery, who was FHA commissioner in the last Bush Administration, stopped short of predicting the agency's antiquated technology systems would eventually crash under the weight of insuring almost one-third of all residential loans. But he told the National Association of Real Estate Editors' annual conference in Austin that the agency wouldn't be able to keep pace with its lender-partners unless its computer systems are brought up to date and it can add much-needed new hires. Montgomery told NAREE that the FHA is running on a patchwork of 37 computer systems, "some of which are over 30-years-old." He also pointed out that while Fannie Mae has grown by something like 1,000 employees since it was taken into receivership by the government and still has more than 500 vacancies, the FHA is "still the same size it was" when he headed the agency and it had only a 3% market share. The former commissioner said at worst, the FHA and Ginnie Mae should be allowed to keep a portion of the revenues they generate so they can upgrade themselves. "Even if they kept only $100-$200 million of the $6.3 billion in receipts they turn over to the Treasury, they could update their systems and add staff," he said. But ideally, he added, the two should be allowed to become separate, autonomous government agencies.

The House of Representatives is expected to vote on, and pass legislation this week giving the Federal Housing Administration more flexibility in adjusting mortgage insurance premiums and tools to rebuild its capital reserves. The FHA reform bill (H.R. 5072) also strengthens the agency's hand in getting lenders to indemnify the agency against bad loans and to terminate lenders with excessive early defaults. The House Financial Services Committee approved the bill by a voice vote in April after rejecting (by a 52-12 vote) an amendment by Rep. Scott Garrett, R-N.J., to increase the FHA's 3.5% minimum downpayment to 5%. Getting the FHA reform bill through the Senate could be tougher. Sen. Richard Shelby, R-Ala., has tried several times to increase the FHA minimum downpayment to 5%. He likely will try again. The Senate is not expected to take up the FHA reform bill until after the July 4th recess, according to sources. If passed in its current form, H.R. 5072 would allow FHA to reduce its 2.25% upfront premium to 1% and raise its 55 basis point annual premium to 85 bps on single-family mortgages with loan-to-value ratios up to 95% and to 90 bps for LTVs above 95%. FHA officials estimate this change would increase the agency's reserve fund by $300 million a month.

Bank of America has agreed to pay the Federal Trade Commission $108 million to cover foreclosure-related servicing abuses by Countrywide Home Loans, the mega lender/servicer that it purchased almost two years ago. Overall, the settlement will benefit more than 200,000 consumers who were charged excessive fees while facing foreclosure or trying to save their homes from bankruptcy. Countrywide profited from failed loans and "illegally extracted the last dollar out the pockets of the most desperate consumers," FTC chairman Jon Leibowitz said in announcing one of the largest settlements in FTC history. "To have a major servicer like Countrywide piling on illegal and excessive fees is indefensible," he added. B of A bought Countrywide Financial Corp., the parent of CHL, in August 2008 and "took responsibility for fixing the problems," Leibowitz said. "Bank of America did step up to the plate." The FTC worked with bankruptcy trustees to investigate allegations that CHL made inaccurate claims to the courts on the amounts mortgagors owed on their loans. "Countrywide's outdated computer systems made the records incredibly difficult to sort out. But we believe thousands of borrowers in bankruptcy ended up overpaying," the FTC chairman said. He also noted that Countrywide used affiliates to provide default services such as property inspections and lawn mowing, charging excessive fees in the process. "Countrywide's mortgage contracts prohibited these inflated charges but that didn't stop Countrywide from passing on those markups in violation of the FTC Act," Leibowitz said.

The South Carolina State Housing Finance and Development Authority next week expects to price $100 million of homeownership revenue bonds in its first issuance under the Treasury Department's New Issue Bond Program. According to a report by the Bond Buyer, the deal includes $60 million of tax-exempt bonds the HFA will convert from short-term, taxable debt bought by the Treasury at the end of 2009. Like other issuers participating in the NIBP, South Carolina needs to convert the debt by the end of this year if it wants to use proceeds to purchase mortgage-backed securities. The deal also includes $40 million of new money tax-exempt bonds that the South Carolina HFA is required to issue to match the Treasury purchase. The bonds will be offered to retail investors Monday and to institutional investors Tuesday. Goldman, Sachs & Co. is lead underwriter, with Barclays Capital and Citigroup Securities. The Bond Buyer is an affiliate of National Mortgage News.

Mortgage servicers completed 104,300 proprietary loan modifications in April, down slightly from 114,900 in the prior month, according to the Hope Now alliance. Meanwhile, the 38 Hope Now servicers and others participating in the Home Affordable Modification Program completed 68,300 permanent HAMP modifications in April, according to newly released figures. The proprietary program allows servicers to be more flexible and help homeowners that don't qualify or fall out of the HAMP program. But it is unclear how they rate in terms of re-defaults. During the first four months of 2010, Hope Now servicers completed 409,800 proprietary modifications, compared to 232,150 under the HAMP program. "Our data continues to show that the industry's comprehensive loan modification efforts are making significant headway," said Faith Schwartz, senior advisor for HOPE NOW. "The total number of modifications, including HAMP, show that more than three million homeowners have received modifications since 2007."

The Department of Housing and Urban Development is taking another stab at preventing abuses by builders and others that entice consumers with bogus discounts that require them to use affiliated title and mortgage companies. HUD issued a proposal to address the issue of "required use" under its Real Estate Settlement Procedures Act rulemaking authority. The comment period ends September 1. "It is our intent to keep an open mind on how to approach this vexing question over what is, and what is not, required use," said HUD assistant secretary David Stevens. In early 2009, the National Association of Home Builders sued to block HUD from enforcing a newly adopted RESPA rule that banned builders from offering discounts to homebuyers that use affiliated settlement service providers. It is not uncommon for builders to offer borrowers cash discounts or upgrades on a house if the buyer agrees to use affiliated vendors. RESPA issues occur when the builder charges the consumer higher settlement costs (including the rate) than other non-affiliated providers. "HUD has received complaints that some homebuyers are committing to use a builder's affiliated mortgage lender without sufficient time to research their contracts or to comparison shop," HUD says in its proposal.