Compliance & Regulation

At least 1,000 victims have lost more than $100 million in cases of real estate fraud — including loan modification scams — referred to a special unit of the Orange County District Attorney's office, according to a new report. "The number of referrals has been overwhelming, with more than 346 referrals to date," says a report issued by the DA's office. (The unit that investigates RE fraud was launched last year.) The report's findings were first published by The Orange County Register. The DA says a "vast majority" of referrals have come directly from victims of real estate fraud directly to its office. A "significant number" of cases involve loan modification schemes, it said. Several cases were cited, including one in which three men were charged with 101 counts of fraud in a loan modification scheme.

Theodore Tozer is the new Ginnie Mae president after being sworn in on Wednesday by HUD secretary Shaun Donovan. "I am looking forward to the challenges and I believe my 30 years' experience in the mortgage capital markets has uniquely prepared me to manage Ginnie Mae," Mr. Tozer said. Ginnie Mae mortgage-backed securities issuance totaled $454 billion in calendar year 2009, up from $270 billion the previous year. During his Senate confirmation hearing, Mr. Tozer said Ginnie Mae has become a major player in the MBS market and it has to address counterparty risk with its MBS issuers. The Senate confirmed Mr. Tozer on Feb. 11. He began working on Ginnie securitizations in 1986 at National City Mortgages, which was acquired by PNC Financial Services Group in 2008. "Ted is the right person to guide Ginnie Mae through the turmoil in the housing and secondary mortgage markets," secretary Donovan said.

Freddie Mac could lose up to $700 million because of the failure of Taylor Bean & Whitaker — $200 million more than previously disclosed. The Florida-based nonbank sold mortgages to Freddie and as recently as 2008 accounted for 5% of its total purchase business. In a new filing with the Securities and Exchange Commission, the GSE says the bankrupt TBW owes it money for loan buybacks and on servicing-related charges. In November, Freddie said it might lose $500 million on TBW but has since updated that estimate. The government-controlled mortgage giant said its seller/servicers are not honoring buyback requests in a timely manner with $4 billion of loan repurchase requests unfulfilled at yearend. TBW failed in August of last year.

The 12 Federal Home Loan Banks recorded combined earnings of $552 million for the fourth quarter, compared to a $715 million loss during the same period a year ago. Only two of the FHLBanks took losses for the quarter, Seattle with an $18 million loss and Pittsburgh with a $5 million loss. Despite the improvement, many of the FHLBanks suffered continuing losses on their investments in private-label mortgage-backed securities. Falling demand for advances also hurt earnings. The fourth-quarter credit-related losses on private-label MBS totaled $436 million, compared to a $1.8 billion loss in the same quarter in 2008. Advance borrowing from the FHLBs by member banks and thrifts fell 32% during 2009 to $631 billion, as banks cut back on lending and on relied on deposits for funding. The level of advances is now "comparable to the precredit crisis level of $640 billion at the end of the second quarter of 2007," the FHLB Office of Finance said. For calendar year 2009, the FHLBanks generated combined annual earnings of $1.9 billion, compared to $1.2 billion in the previous year. Four FHLBanks posted losses for the year: Boston ($187), Seattle ($162 million), Chicago ($65 million) and Pittsburgh ($37 million).

Republicans on the House Financial Services Committee are backing a bill that would require the Obama administration to include the costs of propping up Fannie Mae and Freddie Mac in the federal budget. The bill sponsored by Rep. Scott Garrett, R-N.J., would potentially add hundreds of billions of dollars to the federal deficit. Treasury has already provided the two government-sponsored enterprises with $110 billion to ensure they maintain a positive net worth. The administration is "obscuring the cost of the GSEs from the taxpayers by not including it in the budget," said Rep. Spencer Bachus, R-Ala. The ranking committee Republican also criticized the Treasury Department for extending unlimited capital backing for the GSEs over the next three years. "It is time for Obama administration to own up the full cost of the blank check they wrote for Fannie Mae and Freddie Mac," Rep. Bachus said. Separately, Financial Services Committee chairman Barney Frank, D-Mass., postponed a scheduled March 2 hearing on the future of the housing finance system and the GSEs.

The Federal Housing Administration is advising mortgage brokers to hold off on getting their annual financial audits until they see a final rule that will change the net worth requirements for lenders and brokers. "I would strongly encourage you to wait until you see the rule," FHA commissioner David Stevens told a National Association of Mortgage Brokers conference in Washington. On Monday, comments made by a top FHA official were incorrectly interpreted as a signal that brokers should file their audits by March 31. Mr. Stevens told National Mortgage News Online that the final rule is coming out very soon and an audit can cost a small broker $8,000 to $10,000. "Before they spend that money," he said, "they should wait until the rule comes out just to make sure they actually need one." The FHA commissioner told the NAMB meeting he cannot discuss the contents of the final rule. But he was able to get the FHA general counsel to grant permission for him to advise brokers on filing financial audits. The original proposed rule eliminates the need for brokers to meet FHA audit and net worth requirements. Going forward, FHA-approved direct endorsement lenders will be responsible for the brokers they work with and policing the quality of their loans.

New home sales plunged 11.2% in January from the previous month ending a streak of encouraging news on a possible housing recovery. Despite the extension of the homebuyer tax credit in November, sales of newly constructed homes fell to a seasonally adjusted annual rate of 309,000 in January from a 348,000 rate in December. The latest reading on new home sales is below the 329,000 rate in January 2009 and there is no way to sugarcoat these numbers, according to Weiss Research real estate analyst Mike Larson. "They stink," he said. "Fewer new homes were sold in this country than at any time since the Kennedy administration. The inventory of homes for sale increased, and the median price of a new home fell to its lowest level in more than six years," Mr. Larson said.

Mortgage industry groups are urging the Treasury Department to act quickly and extend the Home Affordable Refinance Program so that borrowers with high LTV or underwater mortgages still have an avenue to refinance and lower their payments. HARP is due to expire June 10. But the trade groups are concerned there could be disruptions if the program is not extended soon. "By April 1, lenders will no longer be able to extend even 60-day rate locks," according to a joint letter by five trade groups. Launched last April, HARP has facilitated the refinancing of nearly 190,000 Fannie Mae and Freddie Mac mortgages with loan-to-value ratios of 81% up to 125%. "HARP makes it easier for families to stay in their homes," the Feb. 18 letter says. "HARP also appropriately rewards borrowers who have worked hard to stay current on the mortgage loans" and "prevents unnecessary foreclosures." The American Bankers Association, American Financial Services Association, Consumer Mortgage Coalition, Housing Policy Council and Mortgage Bankers Association signed the letter.

Freddie Mac, which continues to mark down the value of its mortgage assets, lost $6.5 billion in the fourth quarter but will not need fresh capital from the U.S. Treasury. At yearend its loss reserves increased to $33.9 billion, more than double what it had set aside 12 months earlier. In releasing its quarterly and full-year results, the GSE also revealed that it found two errors in how it calculates loss severity rates that would have made its results look better. It said that by fixing its calculations these changes would have been "material" to its earnings. The national mortgage delinquency crisis continued to hammer its bottom line in the 4Q with the GSE reporting total credit losses of $7 billion, a modest improvement over 4Q08 when it had CLs of $8 billion. However, when it comes to operating results that come from management and guarantee fees, Freddie earned $743 million in the fourth quarter, an 8% decline from the third quarter. The government-controlled company also revealed that the delinquency rate on its structured bonds increased to 3.87% at yearend from 3.33% three months earlier. Despite all its problems, the company still has a positive net worth of $4.4 billion, but to date Freddie has received $51 billion in aid from the Treasury. The company lost $21.6 billion for all of 2009, excluding dividends paid to the government. In 2008 it lost $50.1 billion. Fannie Mae is scheduled to report its results on Friday. Late last year, the White House said it would cover unlimited losses on the GSEs over the next three years, removing a previous ceiling of $400 billion.

Major banks "rebooked" $19 billion in seriously delinquent Ginnie Mae loans in the fourth quarter and pushed the percentage of single-family loans held by FDIC-insured institution that are 90 days or more past due up to 9.3%, from 8.1% in the previous quarter. The Federal Deposit Insurance Corp. reported that banks and thrifts held $178.5 billion in single-family loans that are seriously delinquent or "noncurrent" as of Dec. 31, up $23.2 billion or 15% from the third quarter. "Most of this increase — $19.1 billion — consisted of rebooked GNMA loans that have government guarantees," the FDIC says in its fourth-quarter report on bank performance and earnings. FDIC economists have never seen such a jump in rebooked Ginnie Mae loans before. Rebooking is an accounting convention that requires banks to recognize loans that are seriously delinquent even though it is not an indicator of significant losses. Ginnie Mae securities are mostly back by Federal Housing Administration-guaranteed loans. The FDIC also reported that banks and thrifts charged off $10.1 billion in single-family loans in the fourth quarter, up 6.8% from the previous quarter and 48% from the fourth quarter of 2008.