Compliance & Regulation

A senator from New York where several credit unions were victims of the $140 million U.S. Mortgage/CU National Mortgage fraud is calling on Fannie Mae's regulator to engineer a settlement on the disputed claims. In a letter to Edward DeMarco, director of the Federal Housing Finance Agency, Democrat Charles Schumer urges the agency and Fannie Mae to "work with the affected credit unions to come to a fair resolution of this dispute that does not threaten the viability of the credit unions." Schumer noted, "Ultimately, I am concerned about the fiscal well-being of thousands of my constituents who may suffer adverse financial impacts" because of U.S. Mortgage Corp. "The magnitude of this potential loss will have a significant adverse impact on these credit unions and their members, some of whom are employees of the U.S. government, as well as state and local governments." Schumer declined requests for further comment. The congressional intervention comes as Fannie Mae has begun mediation with several of the credit unions aimed at settling the dispute. Several New York credit unions, including Suffolk FCU, Sperry Associates FCU and TCT FCU, were among 28 credit unions that had their mortgages fraudulently sold to Fannie Mae by CU National president Michael McGrath. McGrath has pleaded guilty to the fraud and is scheduled to be sentenced next month.

Sen. Richard Shelby, R-Ala., is confident his fellow Republicans will vote "en block" Monday evening, preventing the Senate from starting debate on the financial services reform bill. "I believe the 41 Republicans, for right now, will stand together," Sen. Shelby told a meeting of the Independent Community Bankers of America Monday morning. If the GOP can hang together, Shelby said, it will give him a stronger hand in negotiating with Senate Banking Committee chairman Christopher Dodd, D-Conn., on a compromise bill. To prevent bailouts, Shelby wants tighter limits on Treasury and Federal Reserve lending to failing financial institutions. He also wants prudential banking regulators to have more "say" over the activities of a new independent consumer protection agency, which likely will be given sweeping powers over mortgage lenders. Dodd is now working with Shelby but wants the bill to reach the floor soon, so the amendment process can begin. Negotiations with Republicans have been ongoing for months. Dodd estimates there are only 40 to 50 legislative days left this year to pass a bill. The Republicans are wary of the amendment process, however, and want a compromise hammered out in advance of floor debates. If the reform bill passes the Senate, Shelby warned the bill could be in "peril" if changes are made in a conference with the House. The House passed its reform bill in December. Differences in the two bills are usually worked out in a House-Senate conference.

A Supreme Court decision could make it easier for consumers to sue collectors for sending erroneous collection notices. The high court, in a 7-2 opinion Wednesday, ruled that collectors cannot protect themselves from such lawsuits simply by stating they made a legal error when sending a notice. At issue were the actions of an Ohio law firm, Carlisle, McNellie, Rini, Kramer & Ulrich Co., that mistakenly started foreclosure proceedings on behalf of Countrywide Home Loans Inc. A homeowner later sued the law firm, arguing that it violated the Fair Debt Collection Practices Act by contending in the foreclosure suit that her alleged debt would be assumed to be valid unless she contested it in writing. The case will return to a lower court.

The Treasury Department is threatening to deny or even claw back incentive payments to mortgage servicers that are not modifying loans, according to the administration's guidelines. The department would not say how many servicers have broken the rules, let alone which ones. But consumer advocates say noncompliance is rampant in the Home Affordable Modification Program. They have documented cases in which servicers wrongly denied modifications or foreclosed before reviewing a borrower for HAMP. The program is voluntary, so withholding or taking back the incentive payments is the biggest club the Treasury holds over servicers. It pays $1,000 for each completed permanent modification for a delinquent borrower and $500 for each mod given to a current borrower. So far, servicer payments have totaled $68.4 million. (A total of 109 servicers are participating in the program.) At a meeting two weeks ago with consumer advocates and Freddie Mac, the department's compliance agent for HAMP, a Treasury official said the government had privately rebuked "four to six" servicers for "systemic noncompliance" with HAMP guidelines, according to three people who were in the room. "Everyone asked, 'How come we haven't heard about this?' " said Andrew Jakabovics, an associate director for housing and economics at the Center for American Progress. The Treasury has "been doing compliance checks, and they've found systemic problems," he said, "but we don't know what actions have been taken to fix the problems or even if they are working on it."

The Senate is moving closer to voting on a financial services regulatory reform bill and industry groups are pressing hard on the risk retention issue to get a qualified mortgage exemption. The current version of the bill requires securitizers to retain up to 5% of the credit risk with some of that risk shared with lenders. Industry groups are urging Senate Banking Committee leaders to give regulators more flexibility in determining risk retention requirements on different mortgage types. But they also want certain loans to be totally exempt from risk retention. "To ensure a liquid and efficient market for core mortgages, we think it is imperative that a mandatory 'zero' risk category be created for 'qualified mortgages' -- those that meet minimum standards for safely underwritten residential mortgages," says a letter penned by five trade groups: The Financial Services Roundtable, Mortgage Bankers Association, National Association of Home Builders, Community Mortgage Lenders of America and Community Mortgage Banking Project. In a separate letter, the MBA warned that the future of small independent mortgage bankers would be threatened if they are forced to retain a percentage of the loan amount on their books. Without a qualified mortgage exemption, these small local lenders might have to shut their doors and between 45,000 to 50,000 jobs could be at risk, MBA senior vice president Steve O'Connor told National Mortgage News. Final changes to the bill are expected to be worked out this weekend as the Senate prepares for a test vote on Monday evening.

The Department of Housing and Urban Development is urging Congress to appropriate $250 million to the Federal Housing Administration for its reverse mortgage program to prevent further cuts in the cash seniors receive from a Home Equity Conversion Mortgage. Congress rejected HUD's request for a $100 million appropriation last year and FHA cut HECM loan proceeds by 10%. This year HUD is proposing to increase the annual insurance premium to 1.25% from 0.5% and cut the loan proceeds by 1% to 5%. Without a $250 million increase, FHA commissioner David Stevens told appropriators loan proceeds would be reduced $23,000 to $27,000 on average. This cut would result in a "serious decline" in loan volume "as HECMs would no longer be viable to many seniors who need to access their home equity while staying in their homes," Stevens testified.

The House Financial Services Committee Thursday morning approved a bill that could make the Rural Housing Service single-family program self-funding by imposing higher loan guarantees fees and prevent a shutdown of the program in the next few weeks. The House is expected to pass the RHS bill (H.R. 5017) next week, sending it over to the Senate. The committee approved the bill by a voice vote. The measure, sponsored by Rep. Paul Kanjorski, D-Pa., doubles the upfront guarantee fee to 4% from 2% and allows the Agricultural Department to assess a 0.5% annual fee on the loan balance. Rep. Kanjorski said the Agriculture secretary plans to impose a 3.44% upfront fee, which can be rolled into the loan amount. (The program is administered by the U.S. Department of Agriculture.) It is estimated the increase would require borrowers to pay an extra $11 a month on a $120,000 loan. As of April 15, the RHS loan guarantee program had used $11.6 billion of its $13.1 billion in loan commitment authority for fiscal year 2010, which ends Sept. 30. The Kanjorski bill increases RHS' commitment authority to $30 billion.

First American CoreLogic, a provider of advanced property and ownership information, analytics and services, is partnering with The Prieston Group to offer a comprehensive fraud prevention and insurance solution to mortgage lenders. The solution combines First American CoreLogic's pattern-recognition fraud tool with TPG's risk management services, indemnity programs and training. Through this partnership, TPG will help lenders establish business rules and guidelines and employ the First American CoreLogic LoanSafe Fraud Manager tool to enforce those policies in the lender's daily operations. Lenders who use this joint solution will be insured against fraud losses by Lloyd's of London, which has a special relationship with TPG. The anti-fraud tool integrates patented pattern-recognition technology with a national property and fraud database. Tim Grace, senior vice president of fraud solutions at First American CoreLogic, said fraud is a $13 billion problem for the lending and investor communities. "This partnership will help lenders focus on best practices, products and processes and provide enterprise- and loan-level metrics to measure results. Our new joint effort will improve loan quality and rebuild confidence levels among lenders and investors," added Arthur Prieston, TPG's chairman.

Pennsylvania is cracking down on misleading marketing tactics from residential lenders that are hunting for refinancing opportunities. The Department of Banking's Office of Consumer Services said that some homeowners are receiving letters that look like they come from their lender or the federal government. In some cases, the company that sent the letter only has its name mentioned in fine print. Consumers call the number on the solicitation thinking they are talking with their lender or the federal government, but discover they are actually speaking with a competing lender. "These communications are brazenly misleading and intended to frighten and confuse consumers," said secretary of banking Steve Kaplan. "We are contacting the offending institutions as well as their marketing companies and ordering them to put an end to this practice."

Freddie Mac's full menu of relief policies for borrowers affected by disasters is being extended to families whose homes were damaged or destroyed by the recent floods in Rhode Island, Massachusetts, New Jersey and West Virginia and are located in federally declared major disaster areas. "We are instructing our servicers to work with borrowers with Freddie Mac-owned mortgages to receive forbearance on their mortgage payments for up to one year," said Ingrid Beckles, senior vice president of default asset management at Freddie Mac. The GSE gives servicers the discretion to reduce or suspend mortgage payments for up to 12 months for borrowers. Each case must be individually assessed to determine, however, Freddie Mac also strongly encourages servicers to help affected borrowers by waiving assessments of penalties or late fees against borrowers with disaster-damaged homes; not reporting forbearance or delinquencies caused by the disaster to the nation's credit bureaus; and suspending foreclosure and eviction proceedings for up to 12 months. The U.S. Department of Housing and Urban Development is also stepping up to help borrowers. HUD said it will speed federal disaster assistance to six counties in New York State, including Nassau, Orange, Richmond, Rockland, Suffolk and Westchester, and provide support to homeowners and low-income renters forced from their homes. HUD has granted a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration-insured home mortgages. HUD's Section 203(h) program provides FHA insurance to disaster victims who have lost their homes and are facing the daunting task of rebuilding or buying another home. Borrowers from participating FHA-approved lenders are eligible for 100% financing, including closing costs. HUD's Section 203(k) loan program enables those who have lost their homes to finance the purchase or refinance of a house along with its repair through a single mortgage.