Compliance & Regulation

The Department of Housing and Urban Development might use the newly implemented good faith estimate disclosure as a way to cap origination fees on Federal Housing Administration loans. All lender origination fees — including yield spread premiums — are captured in 'Block 1' of the GFE. It's unclear what the cap might be, but HUD deputy assistant secretary Vicki Bott, who is in charge of FHA's single-family program, told attendees of a National Association of Mortgage Brokers conference that the issue is on the table. "We are actually looking at capping total Block 1 fees," Ms. Bott told the group. HUD officials are looking at all origination fees charged on FHA loans. It plans to take into consideration loan size so that lenders making $40,000 loans are not penalized. In setting an origination fee limit, "we are not going to be extra conservative," Ms. Bott told the brokers.

The Obama Administration is providing $1.5 billion to housing finance agencies to develop innovative programs that might prevent foreclosures in some of the most economically hard hit states. HFAs in Nevada, Arizona, Florida, Michigan and California are expected to come up with new programs to help unemployed mortgagors remain in their homes until they find a new job. For borrowers with underwater mortgages, "HFAs may experiment with programs that would assist borrowers to negotiate with lenders to write down mortgages," according to a White House press release. To apply for the funds, HFAs have to submit proposals to the Treasury Department.

The House Financial Services Committee will meet on March 2 to debate the future of the GSEs and the housing market more broadly. The conclusions lawmakers reach about Fannie Mae and Freddie Mac will have major implications for the 12 Federal Home Loan Banks, including how they sell their debt and who regulates them. "So much of what will happen to them depends on what Congress is going to do with Fannie and Freddie," said Bert Ely, an independent consultant in Alexandria, Va. "This gets back to the core problem of what do you do with Fannie and Freddie?" Though Fannie and Freddie have become symbols of the financial crisis, the FHLBs have not gone unscathed. The state of the system will be clearer in the coming weeks when they release their 2009 annual reports. But the Home Loan banks have grappled with big losses related to their investments in private-label mortgage-backed securities.

The Department of Housing and Urban Development is preparing to issue a final rule soon that will give mortgage bankers additional time to adjust to coming higher net worth requirements. The final rule will "ensure there is a chance to ramp up to the new requirements," said Federal Housing Administration assistant secretary Vicki Bott. HUD is seeking to increase its minimum net worth requirement for FHA lenders to $2.5 million from the current $250,000. The phase-in period for the higher amount was originally proposed at three years, but could be lengthened. Ms. Bott made her comments on Monday at a legislative conference sponsored by the National Association of Mortgage Brokers. She cautioned that changes to the final rule are "not substantially" different from what appears in the proposed rule. No other details were available at press time. Ms. Bott is encouraging brokers to send in their FHA audits as early as possible this spring. FHA still plans to move forward with a plan to have actual funders police brokers as opposed to having brokers register and be approved by HUD. But this change will hot happen until early 2011.

A la mode, Oklahoma City, has released "The Appraisal Fee Reference," a monthly guide to what independent appraisers charge nationwide. The software vendor/publisher says the AFR will help lenders/servicers with compliance issues especially in regard to new Federal Housing Administration appraisal guidelines. FHA now requires lenders to ensure that appraisers are paid reasonable and customary fees, independent of what might be added on by an appraisal management company. The AFR provides the median appraisal fees for each of the 3,221 counties in the 50 states, the District of Columbia, Puerto Rico and Guam.

Despite the dimming prospects for the creation of an independent Consumer Financial Protection Agency, TARP watchdog Elizabeth Warren isn't ready to consider alternatives. "Right now there is no Plan B," Ms. Warren, the chairman of the Troubled Asset Relief Program's Congressional Oversight Panel, said in response to a reporter's question on a conference call. "Right now all the chips are on the table with the Consumer Financial Protection Agency." If the CFPA becomes reality it would oversee mortgages, credit cards and other types of consumer debt, taking certain oversight functions away from federal banking regulators. The conference call was organized by the U.S. Public Interest Research Group ahead of a Monday compliance deadline for the Credit Card Accountability, Responsibility and Disclosure Act.

The delivery of certain coupons within the "TBA" mortgage-backed securities market were disrupted (or failed) in the wake of massive loan buyout plans unveiled by Fannie Mae and Freddie Mac last week. These settlements are expected to be resolved soon, according to Credit Suisse researchers. The "fails," which represent situations in which a promised amount of securities cannot be delivered by the settlement date, have been seen in to-be-announced 5% and 5.5% MBS coupons. These higher premium coupons are prioritized in the buyout plans. Credit Suisse researchers said in a report accompanying an investor call that they expect fails should move toward resolution as investors deliver more of the needed pools going forward. They see the buyouts of delinquent loans as ultimately a positive for the agency MBS market as they remove prepayment uncertainty, among other things. That uncertainty is removed almost entirely in Freddie Mac securities due to its "one [month] and done" buyout plan. Fannie's multimonth buyout plan presents opportunities for short-term trades in those securities, said Mahesh Swaminathan, director and head of residential mortgage-backed securities for CS.

The nation's GSE regulator says Fannie Mae and Freddie Mac will not provide their traditional support for the mortgage-backed securities market when the Federal Reserve stops purchasing agency MBS at the end of March. The government-sponsored enterprises are already obligated to purchase up to $200 billion in delinquent loans out of their own MBS, according to GSE regulator Edward DeMarco. "Given the size of the enterprises' current outstanding retained portfolios, and the potential volume of delinquent mortgages to be purchased out of guaranteed mortgage-backed security pools, it is my expectation that any net additions to their retained mortgage portfolios would be related to this activity," Mr. DeMarco said. The acting director of the Federal Housing Finance Agency spoke at a Women in Housing and Finance luncheon on Thursday. He stressed that FHFA is "committed to the principle of reducing" the GSEs' retained portfolios. On Thursday, a Freddie economist said Fannie and Freddie have room in their portfolios to buy MBS if private investors don't return to the market. FHFA declined to comment on the economist's remarks. Mr. DeMarco told the WHF luncheon that the Fed's exit from the MBS market will be smooth. "I expect that other private parties will begin to invest in new enterprise mortgage-backed securities as the Federal Reserve gradually withdraws its purchase activity," he said. Since December 2008, the Federal Reserve has purchased nearly $1.2 trillion in Fannie, Freddie and Ginnie Mae MBS. The Fed has $55.1 billion remaining of its $1.25 trillion commitment to support the MBS market.

The FHA's nearly forgotten Hope for Homeowners program may get a jump-start now that Joel Harrison of Banker's Portfolio has lined up an investor willing to make a multibillion-dollar bet on underwater mortgages. The H4H program turns conforming Fannie Mae and Freddie Mac loans that are "underwater" into new Federal Housing Administration-backed mortgages. Mr. Harrison said the investor — who he refused to identify — is willing to buy Ginnie Mae II H4H mortgage-backed securities. He hopes his Irvine, Calif., firm can deliver $25 billion to $50 billion in H4H loans before the congressionally approved refinancing program sunsets in September 2011. "We are really open to mortgage investors and asset managers contacting us," he said. Mr. Harrison said he has arrangements with several originating servicers to refinance the loans. Under the program, underwater mortgages must be written down to a 96.5% loan-to-value ratio based on a current appraisal with any subordinated liens being extinguished. (The Department of Housing and Urban Development is authorized to pay incentives to second-lien holders for releasing their liens.) Mr. Harrison started his shop two years ago and he believes mortgage holders are ready to accept such writedowns. "A H4H refinancing can be completed in 45 days with a 15% to 20% higher return than going through the foreclosure process, which can take 8-10 months," he said.

Mortgage servicers completed nearly 50,000 permanent HAMP modifications in January, up from 35,000 in the previous month, as the government's Home Affordable Modification Program appears to be finally gaining traction. The Treasury Department reported that HAMP servicers have completed 116,300 permanent modifications since the modification program was launched last spring. The first 5,000 permanent modifications were completed in October. Another 830,500 homeowners are participating in three-month payment trials and their monthly payments have been reduced on average by more than $500. "With nearly 1 million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP is doing the job it was designed to do," said Phyllis Caldwell, chief of Treasury's Home Preservation Office. Treasury also reported that 60,500 borrowers have dropped out the payment trials during the life of program and 1,000 permanent modifications have been cancelled.