Compliance & Regulation

Nine mortgage industry groups along with the U.S. Chamber of Commerce are urging the Department of Labor to reconsider and withdraw its recent ruling that requires residential lenders to pay overtime to certain loan officers. "The interpretation constitutes a sharp break from existing law that will result in both very considerable costs to, and adverse effects on, employers and employees alike," the industry groups say in a letter to DOL's director of Wage and Hour Division. On March 24, DOL issued an interpretation that requires lenders to pay overtime to retail loan officers that work in an office. There are currently 110,000 retail mortgage loan officers and they are "well compensated by commissions and frequently work irregular hours," the May 19 letter states. The trade groups contend DOL made the new interpretation without notice and it represents a "sharp break" with the department's 2004 interpretation. "The interpretation should be withdrawn and the department should embark on a new rulemaking with notice and comment if it wishes to change policy or implement new requirements in this area," the joint letter says.

Commercial banks originated $122 billion of single-family loans through retail means in the first quarter, a 17% decline from the previous period. It marks the third quarterly decline since the second quarter of 2009 when originations by banks topped $222 billion during the refinancing boom. New call report figures released by the Federal Deposit Insurance Corp. show that 762 commercial banks and savings banks were active residential lenders in the first quarter, down from 869 in the fourth quarter. Banks are required to report origination data to FDIC only if they have assets of $1 billion or greater or they originated more than $10 million in one-to-four family loans in the past two quarters. The FDIC also reported a decline in wholesale lending activity. FDIC banks purchased $200 billion of residential loans during the quarter, down 19% from the previous quarter and nearly unchanged from a year ago. Banks also sold $359 billion of residential first mortgages.

Banks and thrifts posted their best earnings in two years during the first quarter due to an improvement in mortgage buybacks and lower loan losses, according to new figures compiled by the Federal Deposit Insurance Corp. A key contributor to the bottom line was a steep, 50% drop in mortgage buybacks from the first to the fourth quarter. Overall, banks and thrifts repurchased $9.3 billion of home mortgages, after being slapped with claims from secondary market investors including Fannie Mae and Freddie Mac. Net charge-offs on residential and construction loans both declined in the first quarter, a sign that charge-offs may be peaking. Overall, the industry earned $18 billion. FDIC-insured institutions charged off $13.5 billion of one-to-four family loans, down 13% from fourth quarter. However, the serious delinquency rate rose to 7.98%, up 57 basis points from the previous quarter. Part of the rise may be due to banks shrinking their holdings of residential mortgage loans and loan modification efforts. On construction loans, the percentage of loans 90 days or more past due fell to 22.8% in the first quarter, down nearly 300 bps. But net charge-offs totaled $1.7 billion down from $2.5 billion in the previous quarter.

Financial institutions are sounding the alarm over an amendment to the Senate bill that many initially deemed harmless but now see as threatening a key source of capital: trust-preferred securities. Unanimously approved last week, the amendment would give regulators the power to impose strict risk- and size-based capital standards on banks and their holding companies as well as nonbank financial firms identified as systemically risky. The measure was not debated and few observers paid much attention to it as they focused on other aspects of the bill, such as a controversial interchange amendment. But the provision by Sen. Susan Collins, R-Maine, is fueling uncertainty among investors and others, who argue it would eliminate the use of trust-preferred securities as a form of Tier 1 capital for bank holding companies. "If adopted, the language would force a U.S. capital standard for all banks--not just big ones--far more stringent than that now under discussion," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. While the language is ambiguous, the amendment defines capital requirements for holding companies by referring to a 1991 law detailing prompt corrective action standards, which do not include trust-preferred securities in the ratio of Tier 1 capital to total assets.

Calyx Software has expanded The Calyx Network with an interface update that provides links to new compliance, fraud prevention and verification vendors. The Calyx Network allows users of the Calyx Point LOS application to connect directly with lenders and mortgage service providers, automating data exchange. The May update contains a new connection to three new mortgage service providers including fraud detection and compliance vendor Interthinx Inc., product and pricing vendor Mortgage Pricing System and verification services T Transcript Processing. The Calyx Network interface update is automatically installed into Point versions 7.0 and higher when users open their software and connect to the Internet.

The Senate Tuesday rejected an attempt to strike from the regulatory reform bill new authority for state attorneys general to take enforcement actions against national banks for violations of federal consumer protection laws. The amendment by Sen. Bob Corker, R-Tenn., to keep state AGs out of national banks failed on a 55-43 vote. Corker also wanted to strike a section of the bill (S. 3127) that rolls back the Office of the Comptroller of the Currency's powers to pre-empt state consumer protection laws. The Senate went on to pass an amendment by Sen. Tom Carper, D-Del., that clarifies the state AG has the authority to enforce rules promulgated by the proposed Consumer Financial Protection Bureau which will have oversight over residential lending. "It preserves the state attorneys general role in protecting their citizens from abusive practices," said Sen. Chris Dodd, D-Conn. The Carper amendment clarifies that the AGs can enforce the CFPA rules to prevent unfair, deceptive and abusive lending practices, but AGs cannot use their own interpretations of the underlying statutes. The Senate approved the Carper amendment by an 80-18 vote.

Federal prosecutors in Newark are negotiating guilty pleas with at least three more executives of U.S. Mortgage/CU National Mortgage in the fraudulent sale of $140 million of credit union mortgages to Fannie Mae, according to sources close to the case. Court records in last week's guilty plea by Leroy Hayden, the former servicing manager at U.S. Mortgage, name three other co-conspirators who have yet to be charged in the case. Sentencing for Michael McGrath, the company's president who allegedly masterminded the huge fraud, has been delayed until July while other suspects negotiate guilty pleas, several sources told The Credit Union Journal. Hayden told authorities that he provided reports to credit unions falsely stating that loans that had been sold were still in the credit unions' portfolios. He also allegedly falsified records, at McGrath's direction, to conceal these fraudulent sales. Hayden also admitted that he modified data in U.S. Mortgage's servicing system to help carry out the scheme. As many as 28 CUs in the mid Atlantic stand to lose as much as $125 million in the case and are frantically negotiating with Fannie Mae for the return of their mortgages. CUJ is an affiliate of National Mortgage News.

The Federal Deposit Insurance Corp. has once again pushed back the bid deadline on the sale of $23 billion in servicing rights that once belonged to AmTrust Bank, Cleveland, according to officials close to the deal. "It's just taking longer to get bidders in to conduct due diligence," said one investment banker who has reviewed the package. Originally, the FDIC had hoped to hold a first round of bidding in early May then pushed it back to later in the month. The new bid deadline is mid June. It's anticipated that the receivables could fetch a decent price: just 3.29% of the underlying loans are delinquent. Milestone Merchant Partners is the FDIC's advisor on the sale. The company declined to comment.

In denying a mortgage application, lenders will have to show the borrower their credit score under an amendment approved by the Senate and attached to the Wall Street Reform bill. Sen. Mark Udall, D-Colo., said his amendment will "empower consumers" by giving them immediate access to their credit score for free. "If you are turned down for credit because you have applied for a loan or you have a higher loan rate, you will have access to your credit score," Sen. Udall said. The Senate approved the Udall amendment Monday evening by a voice vote. The Senate also approved an amendment preserving the Federal Trade Commission's existing consumer protection mandate. The amendment by Sen. John Rockefeller (D-W.Va.) aims at getting the FTC and the new Consumer Financial Protection Bureau created by the reform bill (S. 3217) to work together. "The amendment directs the FTC and the new bureau to enter into a memorandum of understanding and coordinate their regulatory efforts," Rockefeller said. "The bottom line is that businesses will not be subject to multiple layers of regulation and rules," he added.

Ginnie Mae issuers repurchased $15.5 billion of delinquent government-guaranteed mortgages out of MBS pools in the first quarter -- a significant decline from the prior period. In 4Q buybacks approached a staggering $57.6 billion. In 1Q 2009 repurchases came in at almost $5 billion. GNMA issuers can repurchase residential loans out of securities when they become 90 days or more past due. Issuers are required to advance interest and principal payments to investors which make it expensive to leave delinquent Federal Housing Administration, Veterans Affairs, and Rural Housing Service guaranteed mortgages in GNMA pools. Government National Mortgage Association president Ted Tozer attributed the 4Q surge to issuers cleaning house. He also noted that servicers allowed delinquent loans to pile up last year while they focused on implementing new loan modification programs.