Compliance & Regulation

FHA single-family originations totaled $22.9 billion in April, basically unchanged from March and February, according to the agency. Nearly 68% of FHA loan endorsements were for borrowers purchasing a home. Of the 36,000 refinancings in April, 68% were conventional borrowers seeking low-downpayment FHA loans. The April report shows that FHA's 'Hope for Homeowners' program helped 23 underwater borrowers. Over the past seven months FHA has approved only 35 H4H refinancings where the lender has to reduce the principal amount of the loan to 97.5% of the current appraised value. Meanwhile, FHA reported that 8.5% of its insured single-family loans are 90 days or more past due, down from 8.8% in March and 9.17% in February.

The Agriculture Department has reopened the Rural Housing Service single-family program by offering lenders $2.5 billion of conditional loan commitments, according to Rep. Ruben Hinojosa, D-Tex. Agriculture secretary Tom Vilsack informed Rep. Hinojosa, D-Tex, about the decision on May 26, the day the additional loan commitments became available. The Texas lawmaker who chairs the Congressional Rural Housing Caucus said the loan commitments would be available until they are exhausted. "The decision to increase the commitment authority even conditionally will provide the guarantees needed to assist rural families, local housing markets, create jobs and general new tax revenues," Rep. Hinojosa said. The RHS exhausted its $13.1 billion of loan commitment authority for fiscal 2010 on May 17. Instead of providing additional loan commitments, Congress wants to increase RHS' 2% upfront premium to 3.5%, which will cover the costs of new loan guarantees, making the program self-funding. The Senate included the RHS premium increase in an emergency supplemental appropriations bill (H.R. 4899) that provides funding for the wars in Iraq and Afghanistan and natural disasters. The Senate passed the bill Thursday evening. The House is not expected to vote on final passage of H.R. 4899 until it returns from the Memorial Day recess on June 7.

The Federal Deposit Insurance Corp. next week will begin exploring investor appetite for $1 billion worth of mostly nonperforming whole loans that belonged to the now-defunct AmTrust Bank of Cleveland, market sources told National Mortgage News. Normally, the agency lists asset sales on its website but because this offering is likely a "structured sale" there is presently no information available to the general public. One investment banker familiar with the matter described the offering as "mostly residential, nonperforming whole loans," adding that the actual bidding will commence sometime in mid-June. An FDIC spokesman said he could not comment but advised that when the agency engages in "private placements we just don't want anyone to come in and bid. Some of these are complex transactions." AmTrust, a thrift, failed late last year with most of its branches and assets sold to New York Community Bank. But NYCB did not want the thrift's servicing portfolio or NPLs. The servicing, about $23 billion worth, also is up for bid.

The Financial Accounting Standards Board wants banks and thrifts to apply fair value accounting to the multifamily and single-family loans they hold on their books. The FASB proposal would require depositories to mark-to-market the value of their loans on a quarterly basis to provide more timely information on anticipated credit losses. The American Bankers Association claims mark-to-market accounting should not be used for assets that are not traded. "If a company's business is not based on mark-to-market, then using it as a basis of accounting can be misleading to users of financial statements," ABA president and chief executive Edward Yingling said. The ABA president also noted it will reduce the availability of long-term loans and increase "pro-cyclicality" in the financial system. The comment period on the FASB exposure draft ends Sept. 30, 2010. Under the proposal, non-public lenders with less than $1 billion in assets would have four years to implement the new accounting rule.

Fannie Mae and Freddie Mac seller/servicers will continue to face extra charges called "loan level price adjustments" which compensate the GSEs for buying certain non-vanilla mortgages. Federal Housing Finance Agency acting director Edward DeMarco told a congressional panel that the LLPAs the GSEs charge are periodically reviewed, but gave no indication there would be any coming reductions in these fees. Rather, he told Rep. Scott Garrett, R-N.J., that the mispricing of risk on loans the GSEs bought between 2006 to 2008 landed them in conservatorships that have cost taxpayers $145 billion, and counting. Despite better underwriting, Fannie and Freddie will continue to set their fees to cover expected losses on new loans. The regulator also noted that guarantee fees have been reduced and the performance of the 2009 book of loans is quite good. The current Home Valuation Code of Conduct regulation on appraisals is due to sunset in November. HVCC critics want to see it replaced or abolished, including Rep. Paul Kanjorski, D-Pa., who sponsored appraisal reforms that were incorporated in the House-passed financial services regulatory reform bill. But the FHFA director told Rep. Kanjorski that the HVCC regulation would still apply to Fannie and Freddie seller/servicers after November. FHFA also is reviewing a new practice of including a private real estate transfer tax in sale documents that allows investors to receive a percentage of future sales proceeds. DeMarco said he is "troubled" by this practice and FHFA is reviewing the matter to see if this transfer tax should be banned in Fannie/Freddie transactions.

The average FICO score on single-family loans purchased by Fannie Mae and Freddie Mac now stands at 750—up from 715 on purchases during 2006 and 2007, the two years that account for most of the GSEs' credit losses. The government sponsored enterprises have tightened their underwriting standards since being placed in conservatorship in September 2008, according to the Federal Housing Finance Agency's newly released annual report to Congress. The GSE regulator notes that the shift to higher credit quality also has resulted in lower guarantee fees and income. In addition, interest income in 2010 will be reduced due to an accounting change that will stop the GSEs from accruing interest income on delinquent loans. Meanwhile, Fannie and Freddie are still dependent on the U.S. Treasury for financial support. FHFA notes that credit losses on the GSEs' 2006-2008 book of business, in particular private label securities, will "remain substantial," adding that, "Consequently, financial results will be greatly affected by the success or failure of loss mitigation initiatives." Fannie and Freddie are major participants in the government's Home Affordable Modification Program.

Marking his 90th day on the job as president of the Government National Mortgage Association, Theodore Tozer said his goal is to "do a better job managing the Ginnie Mae brand on Wall Street." Speaking at the MBA trade show, Tozer said, "We're here to make things happen, not just as a participant, but as a major plus" to the market. Fresh from a long career at the now-defunct National City Mortgage, the Ginnie Mae president told NMN he is trying to tweak the agency's long-running programs so they can become "major solutions" for lenders. A case in point are the pending program changes that will allow lenders to securitize a single loan as part of Ginnie Mae's multi-issuer pools and permit the agency to issue Ginnie Mae II pools on a daily rather than a monthly basis. The changes have been on Tozer's wish list since his days at NatCity, and are intended to give lenders of all sizes a substantial boost in liquidity. "Both changes make a lot of sense," Tozer said. "It's the still the same program. We just took a program that lenders didn't think much about and made it better." The Ginnie Mae president said he's heard a lot of "really positive" feedback from lenders who plan to use the changes to clean up their pipelines and turn over their loans more quickly. "People who understand the issue are already positive about it, and once the changes are up and running, people will be even more so," he said. The changes will take effect with Ginnie Mae's July's issuances.

Citigroup Inc. sold a series of mortgage-linked securities without disclosing that Morgan Stanley helped shape them while betting they would fail, according to a report by Bloomberg News. The news service, quoting "two people with knowledge of the matter," reported that marketing documents for the $205 million Jackson Segregated Portfolio, underwritten by Citigroup Securities in 2006, do not say who picked the underlying mortgage bonds. A Morgan Stanley unit helped select the bonds, the people said, speaking anonymously because the deal was private, Bloomberg reported. Six of the seven series of Jackson bonds later defaulted, costing investors more than $150 million, data compiled by Bloomberg show. Citi said in the Jackson marketing documents that its interests in the deal "may be adverse" to those of investors in the CDO bonds. "We expressly disclosed in marketing the Jackson CDOs that the collateral selection may have included factors adverse to investors," said a Citigroup spokeswoman. "Having said that, we remain committed to enhancing the transparency of all financial transactions in which we are involved." Morgan Stanley spokesman Mark Lake said he could not comment.

The regulatory reform bill that cleared the Senate is supposed to impose risk retention requirements on MBS issued by Fannie Mae and Freddie Mac, but some legislative experts say the language adopted may have missed the mark. S. 3127 passed by the Senate imposes a 5% risk retention requirement on issuers of MBS through a change in the securities laws, according to an analysis prepared by Anne Canfield & Associates. The Washington consulting firm points out that under current securities law the GSEs are exempt from registering their MBS with the Securities and Exchange Commission. The bill, drafted by Sen. Chris Dodd, D-Conn., does not override that exemption and therefore, does not subject Fannie and Freddie's MBS to SEC regulation. "At best this is very unclear," Canfield told National Mortgage News. "But we don't think the GSEs are covered because the language in the bill does not address their underlying exemption in current securities law." The Mortgage Bankers Association would like Congress to specifically exempt the GSEs from risk retention. "Fannie, Freddie and Ginnie are not exempt from risk retention in the Senate bill, though the regulators could exempt them," said an MBA spokesman.

The Senate is slated to begin debate on an emergency appropriations bill Monday afternoon that includes a provision to get the Rural Housing Service program up and running again. The measure would allow the RHS to increase its current 2% upfront premium to 3.5% and make the single-family program self-funding. It would free RHS from the appropriations process and from seeking annual renewal of its loan commitment authority. RHS ran out of loan commitment authority on May 17. Some lenders are still using the program but only because the money has been committed, though not used. RHS is a key program for rural lenders of all stripes but also megabanks like Chase Home Finance. The emergency appropriations bill (H.R. 4899) includes funding for the wars in Iraq and Afghanistan and natural disasters stateside. Congress wants to pass this bill before the Memorial Day recess. It represents the fastest legislative vehicle to fix the RHS program. The House has already passed a RHS reform bill, sponsored by Rep. Paul Kanjorski, D-Pa., that increases the upfront premium to 4%, which means House appropriators likely will not object to the inclusion of the RHS provision in H.R. 4899.