Compliance & Regulation

Navy Federal Credit Union has committed to originating $7 billion in mortgages for its members in 2010. In 2009, the Vienna, Va. based FCU had production of over $6.2 billion, the best year for mortgage originations in its history. Due to "opportunities in the current market," it is making available 100% financing up to $650,000 nationwide, according to Cutler Dawson, president and chief executive. "Navy Federal has contributed to the recovery in 2009 by extending more than $31.4 billion in credit, more than any other credit union, and is committed to providing even more credit to members in 2010," Mr. Dawson said." The mortgage business has been steadily growing at Navy FCU, with volume of $4.8 billion in 2006, $5.1 billion in 2007 and $5.7 billion in 2008.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.

The mortgage industry shed 3,500 full-time workers in January, after shedding 1,900 jobs the previous month, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 250,000 from 253,500 in December. Overall, the mortgage industry reduced its workforce by 9% over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating loan demand. BLS reported that 48,000 temporary jobs were created in February. Since September 2009, "temporary help services employment has risen by 284,000," BLS said. The nation's unemployment rate held steady at 9.7% in February and only 36,000 workers lost their jobs despite severe winter weather in parts of the country. It also may be a good sign for servicers that the number of long-term unemployed persons has been holding steady for the past three months, but still remains at a high level. The new jobs report shows the number of persons that have been unemployed for more than 27 weeks was 6.1 million. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

The homebuyer tax credit is stimulating home sales but residential construction is stagnant at best, according to Federal Reserve's Beige Book. The periodic report on regional economic activity noted the adverse weather in February hampered home sales and construction activity in the New York, Philadelphia and Atlanta Federal Reserve bank districts. Most district banks "attributed stronger home sales to the homebuyer tax credit with several contacts apprehensive about future sales once the credit expires on April 30," the Beige Book said. In the Dallas district, sales of lower priced homes were the strongest. "Sales of higher priced homes were weak, reflecting difficulties in obtaining financing for larger loans," the Dallas bank said. The San Francisco bank reported that home sales were largely unchanged since December but home prices "rose a bit further" in some areas of the district. "However, the number of available homes for sale remained elevated, which substantially offset builders' incentives to increase the pace of new home construction," the San Francisco bank said.

Republicans are calling on the House Oversight and Government Reform Committee to hold hearings on ways to reduce the costs of maintaining Fannie Mae and Freddie Mac in conservatorships. The hearing should examine ways to "escape the financial burden of subsidizing" Fannie and Freddie, said Representatives Darrell Issa, R-Calif., and Jim Jordan, R-Ohio. "The administration's ongoing refusal to develop a plan to stanch taxpayers' losses at Fannie and Freddie is unacceptable," the two lawmakers said in a letter. The Obama administration was expected to lay out its plans for restructuring the mortgage giants early this year, but is now saying a blueprint will not come until 2011. In January, the Treasury Department expanded its pledge to back up Fannie's and Freddie's net worth by providing unlimited capital support over the next three years. Treasury Secretary Timothy Geithner is scheduled to testify March 23 before the House Financial Services Committee on the future of the housing finance system.

Industry groups are urging Senate Banking Committee members to consider a proposal that would exempt mortgages with strong underwriting standards from the risk retention requirements of a financial regulatory reform bill. The backers of a "qualified mortgage" exemption are concerned the current language in the bill treats securitizations of risky and non-risky mortgages the same, which will increase costs for creditworthy borrowers using low-risk mortgages. An early version of the Senate bill required securitizers to retain 10% of the credit risk when they sell loans into the secondary market. A new study commissioned by mortgage insurer Genworth Financial shows that nonprime mortgages originated between 2002 and 2008 performed 2.9-times worse than traditionally underwritten mortgages that had full documentation and safe product designs. "This study demonstrates why Congress should not impose an arbitrary risk retention requirement on all loans sold in the secondary market," said Glen Corso, managing director of the Community Mortgage Banking Project. Committee members are still trying to reach a bi-partisan agreement on a reform bill. CMBP, the Mortgage Bankers Association, and the Financial Services Roundtable Housing Policy Council are hoping the committee will totally exempt qualified mortgages from the risk retention requirements.

Senate Banking Committee members are making progress on ways to strengthen consumer protections as they continue to craft a financial regulatory reform bill, according to a committee staff director. "We are making progress on that. I am optimistic we will come up with something that advances consumer protection and allows us to move this bill forward," said Ed Silverman, who serves as the staff director for committee chairman Christopher Dodd, D-Conn. Sen. Dodd is a strong proponent for creating an independent Consumer Finance Protection Agency with rulemaking and enforcement authority. But now the chairman is considering proposals what would house a consumer protection office in the FDIC or at the Federal Reserve. "We are trying to separate issues of structure from what this agency really does. For chairman Dodd, the later is more important," Mr. Silverman told a meeting of the Institute for International Bankers. Work is also continuing on other issues, including risk retention on securitizations of mortgages and other assets, Mr. Silverman told National Mortgage News. Industry lobbyists have been raising concerns about recent changes to bank capital rules that make a legislative 5% to 10% risk retention requirement punitive for MBS issuers. "We are aware of that and we are trying to work through it," the committee staff director said.

The Mortgage Bankers Association says the new good faith estimate disclosures should be given enough time to affect market behavior before the Federal Reserve Board moves ahead with a rule restricting certain forms of lender compensation. The Department of Housing and Urban Development's redesigned GFE went into effect Jan. 1, providing mortgage applicants with new disclosures on lender and originations fees. "We need to give it a chance to work," said MBA regulatory counsel Ken Markison. "The right move is for the Federal Reserve, at this time, to let nature takes its course," he said, speaking at a broker conference. Fed officials are currently reviewing 4,000 comment letters on its Truth in Lending Act proposal to curb abusive yield spread premiums and prevent loan officers and brokers from steering borrowers into more expensive loans. If the Fed decides to move ahead with its TILA rule, prime mortgages should be exempt from the new restrictions on commission-based compensation, Mr. Markison said. In addition, "We don't think the FHA and VA markets need or require" these new TILA regulations, he said.

A second insurer - a Lloyd's of London syndicate - is trying to escape liability in the massive U.S. Mortgage/CU National Mortgage fraud for which almost 30 credit unions are seeking recompense of as much as $125 million. The Lloyd's syndicate has filed suit in federal court in Newark seeking to block any potential insurance claims against it by three CUs: Picatinny Federal Credit Union, Suffolk Federal Credit Union and Sperry Associates Federal Credit Union. The CUs were swindled out of more than $50 million by U.S. Mortgage President Michael McGrath. The syndicate claims the fidelity bond it held for U.S. Mortgage and McGrath should be rescinded because of the fraud McGrath has confessed to. The group is the second insurer seeking to block claims in the case. The first was CUNA Mutual Group, which is seeking a court order declaring that the bond it holds for 23 of the U.S. Mortgage credit union victims does not cover the McGrath fraud. Four of the credit unions are counter-suing CUNA Mutual to secure coverage for their losses. The Lloyd's syndicate holds a Mortgage Bankers and Mortgage Brokers Professional Liability Insurance Policy and a Mortgage Bankers Fidelity Bond on U.S. Mortgage, which filed for bankruptcy a year ago in the face of the fraud probe into McGrath's actions. Since then, McGrath has pleaded guilty to fraudulently selling as much as $140 million of mortgages he held on behalf of credit unions to Fannie Mae and keeping the funds. After almost $15 million in assets to be forfeited by McGrath, credit unions are still out almost $125 million.

The Obama administration's loan modification program is a "failure" that is hurting more homeowners than it is helping, according to a report issued by Republicans on the House Oversight and Government Reform Committee. Representatives Darrell Issa, R-Calif., and Jim Jordan, R-Ohio, claim the administration's Home Affordable Modification Program is "misguided" and hundreds of thousands of borrowers in HAMP payment trials will never qualify for a permanent modification. "Money that could have been spent on affordable rental housing is instead being spent on mortgage payments when many of these homeowners have little hope of permanently keeping their homes," Rep. Jordan said. The congressmen offer few suggestions for improving HAMP but press the Treasury Department to release more information about its net present value test, which is used to evaluate mortgages for a modification. "If the secret NPV test underestimates the re-default rate, servicers will grant too many futile modifications," the report says. Committee Democrats have opened a HAMP investigation and have raised similar concerns about the NPV test. Separately, a public opinion poll commissioned by the National Association of Home Builders shows that 65% of homeowners believe the government needs to do more to keep families from losing their homes.