Compliance & Regulation

Morgan Stanley-owned Saxon Mortgage has been identified as the seller of a $6.9 billion bulk package of residential servicing rights to Ocwen Loan Servicing, West Palm Beach, Fla. Industry sources confirmed to National Mortgage News that Saxon was indeed the seller, although there was no investment banker of record on the transaction. A sale agreement was executed at the end of March but was not disclosed publicly until this week. OLS's parent company mentioned the acquisition in a filing with the Securities and Exchange Commission but provided no details on the portfolio, except to say it included 38,000 loans. Both Saxon and Ocwen did not return telephone calls about the sale. Servicing advisors noted that more bulk servicing sales were seen in the first quarter of 2010 than in all of last year. One of the most closely watched pending deals is the auction of roughly $20 billion in rights belonging to the now defunct AmTrust Bank of Cleveland. The Federal Deposit Insurance Corp. is selling the package through Milestone Merchant Partners.

The Department of Housing and Urban Development is raising the net-worth requirement for FHA-approved lenders-but by not as much as expected. HUD had originally proposed raising the $250,000 net-worth requirement to $2.5 million within three years. A final rule, expected to be released shortly, raises it to $1 million starting next year-but there are breaks for firms that are considered "small business" lenders. "Current FHA-approved small business lenders must possess a minimum net worth requirement of $500,000," HUD said. This means an independent mortgage-banking firm with less than $7 million in total annual receipts will qualify as an FHA small business lender. One source said an FHA lender that funds roughly $250 million in loans annually should qualify for the lower $500,000 net-worth requirement. Depository institutions with less than $175 million in assets also can qualify as an FHA-approved small business lender. The final rule also eliminates FHA's approval process for mortgage brokers.

The National Association of Realtors will press Congress to quickly pass a bill that extends the flood insurance program and makes it retroactive to March 29. Congress went on recess at the end of March and allowed the National Flood Insurance Program to expire. The lawmakers don't return to Washington until April 12. "Flood insurance is required by law for home sales on properties located in 100-year floodplain areas, which are left unprotected by this lack of congressional action," said NAR president Vicki Cox Golder. Homeowners with existing flood insurance policies are insured for flood damage. However, the Federal Emergency Management Agency cannot write new policies, renew policies or increase coverage until Congress passes a NFIP reauthorization bill. The Senate inserted a NFIP provision in a tax bill to extend the flood insurance program until April 30. But Republican senators blocked passage of the bill. Recent flooding in New England highlights the importance of flood insurance, the Realtors said.

FHA single-family originations have tailed off during the first two months of 2010 as loan production fell to $22.3 billion in February-off 25% since December. Lenders originated $30.1 billion in FHA-insured loans in December and $26 billion in January. February's loan production could be off because of severe winter weather. FHA's monthly activity report shows that the serious delinquency rate fell to 9.17% in February, down from 9.4% in the previous month. However, the "FHA Outlook" shows the federal mortgage insurance program is seeing heavy demand for streamline refinancings, which could be problematic. Streamlines involve refinancings of existing FHA borrowers so they can lower their mortgage payments. They used to be considered low-risk transactions. But FHA completed 329,400 streamline refinancings in the fiscal year that ended Sept. 30, 2009 and 5.5% are already 90 days or more past due, according to FHA. As of Feb. 28, FHA endorsed another 134,800 streamline refinancings. FHA is projecting it could do 311,500 streamlines by Sept. 30 when FY 2010 ends.

The Securities and Exchange Commission is proposing that private issuers of mortgage-backed securities retain 5% of the credit risk when conducting an expedited sale or shelf offering. Issuers would no longer need to get an investment grade rating. The SEC commissioners voted 5-0 to issue the proposed changes to its asset-backed securities rules for a 90-day comment period. As proposed, "the ABS sponsor would hold 5% of each class of asset-backed securities and not hedge those holdings," SEC said. In addition, the issuer's chief executive must certify that the assets have characteristics that provide a reasonable basis to believe they will produce cash flows as described in the prospectus. SEC chairman Mary Schapiro said the changes would increase investor protections and "better alignment of the interests of issuers and investors through a retention or 'skin in the game' requirement." But commissioner Kathleen Casey warned that the 5% risk retention requirement would create a permanent competitive advantage for Ginnie Mae, Fannie Mae and Freddie Mac MBS, which are exempt from SEC ABS rules. The SEC proposal also requires issuers to provide computer-readable loan-level data to investors and the SEC five days before the first sale in an offering. Issuers would be expected to update this loan level data on an ongoing basis if the proposal is adopted and finalized later this year.

Wells Fargo is the newest lender to implement First American CoreLogic's LoanSafe Fraud Manager in order to minimize loss from fraud and increase operational efficiency, according to First American Core Logic, Santa Ana, Calif. In addition to Wells Fargo, the technology tool is now in active evaluation with 10 other lenders, signaling significant market momentum for the solution and continued lender focus on solving the mortgage fraud problem. First American CoreLogic fraud scientists have created patented fraud models that assign each loan a fraud risk score spanning from one (lowest risk) to 999 (highest risk). By using these scores, lenders can realize revenue increases through quicker and more efficient underwriting and increase revenue by reducing default and foreclosure-related losses associated with fraud. The solution now also offers improved reporting with more loan information categories displayed and alerts grouped by likely fraud types. Additionally, this new fraud detection solution offers more input fields for greater functionality and tracking. The First American CoreLogic 2X guarantee promises that lenders will save twice as much in fraud losses as they did prior to using LoanSafe Fraud Manager and the savings will be at least twice as much as the cost of the solution.

The Federal Housing Administration is going easy on independent mortgage bankers as it increases its net worth requirements for larger lenders to $1 million, according to a long-awaited final rule. The final rule raises the net worth requirement from $250,000 to $1 million one year from now. For FHA-approved "small business lenders," the net worth requirement will be $500,000. Meanwhile, mortgage brokers will no longer have to go through the FHA approval process, which included an annual audit. "Mortgage brokers or other third-party originators, already approved by FHA, will be authorized to continue to originate FHA-insured loans through the end of the calendar year without sponsorship of an FHA-approved lender," HUD said. After three years, the Department of Housing and Urban Development will raise the net worth requirements again. "Approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million."

RoundPoint Mortgage Servicing Corp. has won a 50% equity stake in a $480 million pool of single-family loans from several hard hit states that it will manage for the Federal Deposit Insurance Corp. The Charlotte, N.C., servicer paid $34.4 million in cash to purchase its equity stake in a limited liability company that will own the troubled assets. FDIC retained a 50% equity interest as the receiver of the failed bank assets and it will share in the returns of the LLC with RoundPoint. About 51% of the 3,373 loans are 30-days or more past due and 80% of the loans are from three states-Florida, Georgia and Arizona. FDIC said it conducted a competitive auction for the portfolio on Feb. 24 and the sale was closed on April 1.

The Department of Housing and Urban Development has taken actions against two lenders and banned them from making Federal Housing Administration-insured loans. HUD's Mortgagee Review Board permanently withdrew the privileges of RSA Financial Inc., Atlanta, and 1st Alliance Mortgage, Houston, to participate in the FHA program. The board also imposed a civil money penalty of $267,900 against 1st Alliance and a $15,000 CMP against RSA Financial. 1st Alliance allegedly used independent contractors to originate 708 FHA loans after certifying they were full-time employees. HUD also claims the Houston-based firm failed to properly ensure that fees "paid outside of closing" were listed on the borrower's HUD-1 settlement statement. HUD discovered that the owner of RSA Financial had a criminal conviction and had been debarred by HUD on two occasions. The MRB also claims that the Atlanta mortgage company was not properly licensed in Georgia. And RSA engaged in prohibited branch arrangements and violated other FHA standards, it found. HUD also reported that Franklin First Financial, Melville, New York agreed to pay a $413,500 civil money penalty and indemnify FHA for possible losses on 31 loans.

The Department of Housing and Urban Development has taken actions against two lenders and banned them from making Federal Housing Administration-insured loans. HUD's Mortgagee Review Board permanently withdrew the privileges of RSA Financial Inc., Atlanta, and 1st Alliance Mortgage, Houston, to participate in the FHA program. The board also imposed a civil money penalty of $267,900 against 1st Alliance and a $15,000 CMP against RSA Financial. 1st Alliance allegedly used independent contractors to originate 708 FHA loans after certifying they were full-time employees. HUD also claims the Houston-based firm failed to properly ensure that fees "paid outside of closing" were listed on the borrower's HUD-1 settlement statement. HUD discovered that the owner of RSA Financial had a criminal conviction and had been debarred by HUD on two occasions. The MRB also claims that the Atlanta mortgage company was not properly licensed in Georgia. And RSA engaged in prohibited branch arrangements and violated other FHA standards. HUD also reported that Franklin First Financial, Melville, New York agreed to pay a $413,500 civil money penalty and indemnify FHA for possible losses on 31 loans.