Compliance & Regulation

Quicken Loans, Livonia, Mich., is jumping into the private label origination business, offering its services to community banks and credit unions. The company said it has launched Quicken Loans Mortgage Services for lenders that want to originate home loans, but do not feel they have sufficient resources to hire loan officers, underwriters and support staff. Currently, PHH Mortgage is the largest private label funder in the U.S.

Despite aggressive efforts to stay alive, Midwest Bank and Trust Co., was closed late Friday by Illinois regulators. The failure of the $3.2 billion-asset, Chicago-area bank came on a night when the Federal Deposit Insurance Corp. also found buyers for three other institutions, bringing the year's failure total to 72. Midwest's collapse - brought on in part by losses tied to the government-sponsored enterprises - came despite its receiving bailout funds to address its capital needs. The FDIC sold the bank's operations to $12 billion-asset FirstMerit Corp. in Akron, Ohio. The government's losses from the failure were estimated at $216 million. The three other failed banks totaled $342 million of assets. They were: $136 million-asset Satilla Community Bank in Saint Marys, Ga., $109 million-asset New Liberty Bank in Plymouth, Mich., and $97 million-asset Southwest Community Bank in Springfield, Mo. Together, the four failures were estimated to cost the FDIC about $300 million. Like other institutions, Midwest, the bank subsidiary of Midwest Banc Holdings, suffered sharp losses in its preferred stock holdings when the government's 2008 conservatorship of Fannie Mae and Freddie Mac depleted the GSEs' value. Midwest's problems were compounded by rising loan losses.

Bank of America completed 23,500 permanent HAMP modifications in April, almost double what it processed the previous month. The nation's largest servicer of residential loans is becoming more proficient in the use of the Home Affordable Modification Program, which requires servicers to reduce a borrowers' mortgage debt to 31% of income, and put the applicant through a three-month payment trial before qualifying him for a permanent modification. "We continue to evaluate homeowners' eligibility and activate trial modifications while focusing on completing as many permanent modifications as possible," said Jack Schakett, B of A's credit and loss mitigation executive. B of A had completed 32,900 HAMP modifications as of March 30, overtaking JPMorgan Chase (31,460 completed mods) as the top HAMP servicer. "We continue to demonstrate momentum executing HAMP," B of A Home Loans president Barbara Desoer said recently. She noted that another 38,000 permanent modifications would be completed once the customers signed the contract. Since the Obama Administration launched HAMP in the spring of 2009, B of A has completed 56,400 modifications.

Sen. Tim Johnson (D-S.D.) is sponsoring a bipartisan amendment that would remove the Federal Home Loan Banks from concentration limits in the Wall Street reform bill. If approved, the regional FHLBs will not be forced to cut lending to their largest members. FHLB officials estimate the 12 banks would have to reduce their advances to some members with only $3 billion in assets under the current bill. One FHLB would have to cut advances by $1 billion up to $17 billion to each of its top 10 borrowers. The Council of Federal Home Loan Banks, the American Bankers Association, and other groups have warned that the reduction in lending will not only affect the economy, but would lead to a reduction in FHLB capital and services to smaller members, including thrifts and community lenders. The groups argue that members have to pledge collateral (mostly mortgages) to receive FHLB advances which means they are not risky unsecured loans. Under the concentration limits, "systemically important" institutions cannot lend more than 25% of their capital to any one borrower. The Johnson amendment exempts the FHLBs from this lending limit. The measure has 12 co-sponsors: six Democrats and six Republicans. "I am cautiously optimistic the concentration issue will be addressed satisfactorily," said Bob Davis, ABA executive vice president. The Senate resumes consideration of the Wall Street reform bill Monday afternoon.

With rumors mounting that some USDA offices are running out of money to fund its single-family insurance program, a Senate committee has included a premium increase for the Rural Housing Service in an emergency supplemental appropriations bill. Lenders that fund home mortgages in rural areas hope the measure will pass, placing the RHS program back on solid financial footing. The RHS provision, sponsored by Sen. Michael Bennet, D-Colo., allows the agency to increase its current 2% upfront premium to 3.5%, making the insurance program self-funding and removing it from the congressional appropriations process. The House passed a separate RHS reform bill, sponsored by Rep. Paul Kanjorski, D-Pa., that raises the upfront premium to 4%. House and Senate appropriators want to pass the emergency supplemental before Congress adjourns for the Memorial Day recess. Meanwhile, the Agriculture Department is being tightlipped about the funding status of the RHS program, frustrating many lenders that use it. It's believed the agency has exhausted its loan commitment authority, a belief shared by the Mortgage Bankers Association. "This is affecting independent mortgage bankers," said Tamara King, MBA's director of loan production. Even though the program may have run out of money, RHS has issued "conditional" commitments to some lenders. RHS officials have not responded to numerous requests by this newspaper for information about the status of the lending program.

For the fifth consecutive year, title underwriter premiums declined but appear to be showing signs of stabilizing. Last year premiums fell just 4.5%, according to new figures compiled by the American Land Title Association. Premiums peaked in 2005 at $16.9 billion. In 2009, underwriters took in $9.6 billion of premiums. However, ALTA chief executive Kurt Pfotenhauer noted that 2009 mortgage volume was driven by tax incentives and low interest rates. In 2010, he noted, refinancings are expected to contract from the 65% share in 2009, and purchase volume is expected to remain flat. California generated the most premium volume: $1.5 billion, up 8.4% over the previous year. The next three states, ranked by volume, all showed a decline from 2008: Texas, $1 billion (-17.6%), Florida, $700 million (-23.8%), and New York, $585 million (-22.7%). In terms of percentage, Alaska had the largest increase, 26.3%, followed by Wisconsin, 17.6%, and Montana, 15%. "As indicated by these results, the profitability of the title insurance industry always has been and always will be contingent on the cyclical nature of the mortgage market," Pfotenhauer said. "The scattered improvements illustrate real estate is an extremely local business. Each market performs differently depending on local economic conditions."

The former servicing manager of U.S. Mortgage Corp./CU National Mortgage has pleaded guilty to conspiring to defraud credit unions and Fannie Mae in the $140 million mortgage scandal. Leroy Hayden, 47, was convicted of conspiracy to assist U.S. Mortgage/CU National president Michael McGrath in his scheme to fraudulently sell Fannie Mae mortgages that the company was servicing on behalf of credit unions. "Frauds of this magnitude don't happen without someone to cook the books and push the paper," said U.S. Attorney Paul Fishman of Newark, N.J. "Leroy Hayden had to decide whether to go along with his boss' fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice." Hayden told authorities he provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions' portfolios, and 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 credit unions in the Mid Atlantic states stand to lose as much as $125 million in the case and are frantically negotiating with Fannie Mae for the return of their mortgages. Several of the credit unions are also in litigation with their insurer, CUNA Mutual Group's CUMIS Insurance Society over coverage of the fraud. McGrath pleaded guilty last June and is scheduled to be sentenced in July.

Though notably slower than a year ago, the pace of sales in California's new home communities picked up a tad between February and March, according to the state's builders. Sales in March at properties with at least 10 units were off 31% from the same month last year, but were up 13% from the preceding month, the California Building Industry Association reported. Still, only 2,189 new houses and apartments sold in the month in subdivisions tracked for the group by Hanley Wood Market Intelligence, Costa Mesa. Single-family sales were up by 5% from the previous month, but down 36% from a year earlier. Meanwhile, sales of townhouses and "plex" style units rose 24% from February but were off 32% from March 2009. Condo sales were up 37% on a month-to-month basis but down 16% year-over-year. The median price of the 2,189 sales was up 7% from last year, from $342,567 to $367,933. According to Hanley Wood's Jonathan Dienhart, the decline in year-over-year sales was due in part to the lower number of actively selling projects. "So while sales overall are off 30% from a year ago, the number of sales per project was off 10%," he said. "Still nothing to celebrate, but better than the 30 percent headline figure."

While the odds of passage remain strong, the process behind the regulatory reform legislation is increasingly chaotic. Senate Banking Committee Chairman Chris Dodd (D-Conn.) took to the floor late Thursday to beg his colleagues on both sides of the aisle to stop adding more amendments, warning the process is in danger of spinning out of control. In a rare spectacle, Dodd rebuffed another senior retiring Democrat, Sen. Byron Dorgan of North Dakota, and argued his plea to debate yet another amendment was threatening the legislation. "I'll be very candid with my friend from North Dakota, it complicates my job," Dodd said. "They all have amendments they want to bring up. ... We run the risk of losing this bill." This past week, several amendments directly affecting the residential mortgage industry were introduced, including language on risk retention, underwriting standards, yield spread premiums, and reverse mortgages.

If Congress fails to appropriate $250 million for the Federal Housing Administration reverse mortgage program, seniors could see the principal amount of a new loan reduced by 30%. "Without the budget request, we would be forced to reduce the amount of funds that would be available to seniors by more than 30%, which is, on average, a $23,000 to $27,000 impact," said FHA commissioner David Stevens. Last year, the Department of Housing and Urban Development requested $798 million in funding for the FHA home equity conversion mortgage program. When Congress rejected that request, HUD reduced the HECM principal limit by 10% for fiscal year 2010, which started October 1. During the first-half of FY 2010, FHA endorsed 45,200 HECMs, down nearly 22% from the same six-month period in FY 2009. The National Reverse Mortgage Lenders Association estimates that a significant portion of that reduction in loan volume is due to seniors coming up short at the closing table: the principal amount of the HECM is not enough to pay off the senior's existing mortgage. NRMLA president Peter Bell noted that funding is very tight with the appropriation process challenging this year. "We want to minimize any further principal limit reductions," he said. "Because every time we lower principal limits, we shut off access to the program for some seniors."