Compliance & Regulation

The Government National Mortgage Association should be given its independence from the Department of Housing and Urban Development, its former president said. Joseph Murin, who ran Ginnie Mae for two years and is now a private sector consultant, called on Congress to cut the agency loose from HUD, during a speech he made at the recent Midwinter Housing Conference. Thanks to the collapse of the nonprime mortgage market, GNMA's issuance volume is booming. Along with Fannie Mae and Freddie Mac, GNMA-backed product dominates today's mortgage market. Mr. Murin left GNMA this past summer. The agency guarantees almost $1 trillion in product compared to $350 billion two years ago. Mr. Murin believes that because GNMA is now so large and plays such an integral part in the secondary market, "it requires a structure that provides for its independence and the ability to respond to the always changing secondary market." (For the full story see the weekly edition of National Mortgage News.)

The Federal Deposit Insurance Corp., in an effort to liquidate residential and construction loans from failed banks, has priced two note offerings totaling $1.8 billion to "robust market demand," according to a source familiar with the transaction. Existence of the deals was revealed earlier in the week but the transactions had not yet closed. This is the first in a series of three deals - all private placements - totaling roughly $4 billion. The notes carry a 100% FDIC guarantee. Barclays Capital was the sole book runner on the $1.8 billion offering. It was divided into a $1.33 billion floating-rate transaction and a $480 million fixed-rate deal. Asset Securitization Report, a sister publication to National Mortgage News, said the floating-rate portion priced at 55 basis points over one-month LIBOR, which is 10 points tighter than the initial price guidance of 65 basis points over one-month LIBOR. Meanwhile, the fixed-rate portion priced at 85 basis points over i-swaps, or 5 to 10 points tighter than the initial price guidance of 90 to 95 basis points over i-swaps. The fixed-rate portion priced at a slight discount at 99.61019 with a coupon of 3.25% and a yield of 3.367%. One source said the FDIC went the private route because it saved time. If these deals were not privately placed it "could take too long to get the public disclosure together, and on a greater level, to get Securities and Exchange Commission approval. But then again, does the FDIC need SEC approval to do a public offering?" asked the source.

Restructuring Fannie Mae and Freddie Mac-and the political compromises that must occur to make it happen-could render the passage of such legislation next to impossible, according to a new report from Keefe, Bruyette & Woods. Commenting on remarks made late last week by Rep. Barney Frank that investors in Fannie/Freddie securities should not assume that their holdings are guaranteed by the Treasury Department, KBW noted that the chairman of the House Financial Services Committee "had a busy day." Treasury quickly issued a statement, reiterating its financial commitment to the two. But in its report, KBW predicts that Democrats will lose more seats in the fall election, forcing Rep. Frank to compromise on GSE legislation next year. Several weeks ago the committee chairman said he wants to start from scratch on revamping the nation's housing finance system. KBW analyst Bruce Gardner notes that the undertaking is "monumental when one considers that such an effort would affect Fannie and Freddie, the capital markets, the banking system, mortgage bankers, mortgage insurers, Realtors, homebuilders and others."

The creation of an independent Consumer Financial Protection Agency would not impair safety and soundness regulation of banks, according to a majority of business economists. A survey by the National Association of Business Economists found 54% of economists are dismissive of claims by the banking industry and their supporters in Congress that a CFPA would undermine S&S regulation. A quarter (25%) of the 203 economists believes passage of CFPA legislation would be detrimental to S&S. The House has passed a bill that would create a stand-alone agency with rulemaking and enforcement powers to stop abusive mortgage lending and credit card practices. Such a strong consumer protection agency has run into fierce opposition in the Senate where banking committee members are trying to wrap up negotiations on a massive financial regulatory reform bill. House Financial Services Committee chairman Barney Frank told a meeting of minority real estate professionals that CFPA opponents seem to be arguing that consumer protection will hurt banks. "There are people who believe if the banks aren't able to treat consumers unfairly they can't survive," Rep. Frank said.

Mortgage servicing employees who help troubled borrowers with loan modifications should be exempt from the licensing and registration requirements of the SAFE Act, according to a comment letter by three industry groups. The trade groups note that the Department of Housing and Urban Development is considering bringing certain servicing personnel under the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE), which is intended to ensure uniform licensing and registration of loan officers and mortgage brokers. The American Financial Services Association, American Bankers Association, and Mortgage Bankers Association argue that there is no basis to impose SAFE requirements on mortgage servicing employees. Such an "undue expansion" of SAFE, the trade groups warn, could hamper the process of serving troubled borrowers.

The Federal Housing Administration is extending the March 31 deadline for mortgage brokers to submit their audited financial statements by 30 days. FHA-approved brokers "must continue to comply with existing requirements for the submission of their annual certifications and renewal fees, but will be given until April 30 to submit audited financial statements," the Department of Housing and Urban Development said. HUD soon will issue a final rule requiring FHA-approved lenders to select the brokers they want to buy loans from and assume liability for their production. Brokers will no longer be required to go through an FHA approval process which entails the submission of annual financial statements. Meanwhile, the March 31 deadline is steadily approaching and HUD officials do not want brokers paying $8,000 to $15,000 for an unnecessary audit.

The Federal Housing Administration commissioner wants the nation's largest originators to loosen their underwriting standards, allowing more minorities to qualify for government-backed single-family loans. Many top ranked lenders voluntarily imposed a minimum 620 credit score in 2008 as subprime borrowers rushed to refinance into FHA loans. Commissioner David Stevens told minority real estate professionals that the lenders' action has improved the performance of FHA loans and reduced defaults. However, the commissioner is now urging lenders to consider borrowers with lower FICO scores. "The one thing I will tell you, the difference in approval rates for African-Americans and Latino borrowers between 580 and 620 is significant," Mr. Stevens said. The commissioner noted that FHA is taking several steps to reduce default risk. But the agency does not want to raise the FHA 3.5% downpayment requirement to 5%, despite congressional pressure. "If we had increased the downpayment to 5% we would severely impact the ability of a good family" to buy a home, he said. The FHA commissioner made his comments at a recent conference on minority home ownership.

Two subsidiaries of the government-owned AIG have agreed to pay at least $6.1 million to resolve charges that they discriminated against African American borrowers by failing to monitor loan brokers that charged excessive fees. The loans in question were funded through the wholesale channel by AIG Federal Savings Bank, and an affiliate, Wilmington Finance Inc. Neither is still active in wholesale lending. According to the Department of Justice, AIG FSB and WFI "failed to supervise or monitor brokers in setting broker fees. This practice had a disparate impact on African American borrowers, who were charged higher broker fees than white, non-Hispanic borrowers on thousands of such loans from July 2003 until May 2006." American International Group - whose empire includes mortgage firms and a mortgage insurance company - was placed under government control in the fall of 2008. It has received upwards of $150 billion in financial aid and guarantees. The settlement, brought under the Fair Housing and Equal Credit Opportunity Acts, was filed Thursday in conjunction with a complaint made by DOJ in U.S. District Court in Delaware. The settlement, which is subject to court approval, stipulates that the AIG affiliates will pay up to $6.1 million to African American customers who were charged higher broker fees than similarly-situated, non-Hispanic white customers. The two also will invest at least $1 million in consumer financial education efforts. AIG is in the process of liquidating its $20 billion nonprime whole loan portfolio.

Hudson City Bancorp, a top ranked residential lender in the New York metro area, wants to convert its thrift subsidiary to a national bank charter. However, company CEO Ronald Hermance Jr. is vowing that the institution will not change its current business model of "originating and purchasing first mortgage loans on residential properties." He said the strategy will continue if it becomes a national bank. He said the thrift may become a national bank because its regulator, the Office of Thrift Supervision, may be eliminated by legislation being promoted by the Obama Administration. "At a time when trust and confidence in the banking industry is being challenged like never before, we believe it is important to stay ahead of any legal and regulatory changes implemented with regard to federal financial oversight," he said. In 2009, Hudson City originated $6 billion and purchased $3 billion in residential mortgage loans.

The Federal Deposit Insurance Corp. is planning to extend its "safe harbor" policy past March 31 while its board continues to work on new securitization standards. The safe harbor provides comfort to investors that FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. FDIC chairman Sheila Bair said the current safe harbor will be extended while the agency works with industry and other regulators on securitization standards. One of the standards involves risk retention where banks are required to retain 5% of the credit risk when they securitize mortgages and other assets. "These reforms would prevent the conflicts of interest we've seen in the past and give investors confidence that they can understand and manage the risks associated with asset-backed securities," Ms. Bair told a joint meeting of minority real estate groups. The comment period on permanently extending the safe harbor and establishing new securitization standards ended Feb. 22. Industry groups, including the American Securitization Forum, are urging FDIC to extend the current safe harbor until the end of this year. ASF noted that Congress is currently working on financial regulatory reform that includes risk retention requirements. "We are concerned about the potential impact of multiple layers of securitization legislation and regulation without coordination among legislators and regulators," ASF says in its comment letter.