Compliance & Regulation

Federal Housing Administration is moving ahead with the implementation of its appraisal reforms after making accommodations for mortgage brokers to secure a case number. The new FHA rules are designed to shield appraisers from loan officer and mortgage broker pressure by prohibiting these parties from selecting appraisers. Starting Feb. 15, brokers can secure a case number for FHA loans online without inputting appraiser information. Previously, a broker or LO had to input appraiser information to get a case number assignment from the agency's 'FHA Connection' website. FHA delayed the original Jan. 1 effective date to address mortgage broker concerns. Under the new regime, the FHA-approved lender can input the appraiser information when the appraisal is completed. This approach preserves the mortgage broker's ability to get FHA case numbers and shop loans to several wholesalers. The new appraisal rules still require changes for brokers and LOs but "they made it as easy as possible," said mortgage consultant Brian Chapelle of Potomac Partners, Washington.

Fannie Mae has set a timetable and released preliminary figures that show tens of billions of dollars worth of unpaid principal balance are involved in its accounting-driven plan for increased purchases of certain delinquent loans from mortgage-backed securities pools. Fannie said the purchases will begin in March with the first ones reflected in MBS pool factors released on the fourth business day in April. "We expect to purchase a significant portion of the current delinquent population within a few-month period, subject to market, servicer capacity and other constraints," Fannie said. The government-sponsored enterprise said that as of Dec. 31, 2009 the total volume of loans delinquent by four or more months — which single-family MBS trust documents allow Fannie to buy out of pools — was about $127 billion. Of this amount, roughly $82 billion worth is backed by outstanding 30-year amortizing fixed-rate MBS. Other types of MBS comprise the rest. A division of the $82 billion by vintage shows the largest percentage of UPB — almost twice that of any other year or the pre-2004 period — is found in 2007 (approximately $30.70 billion). The UPB from the 2006 vintage is about $16.75 billion, for 2008 it is roughly $13.75 billion, for the pre-2004 period it is approximately $10.35 billion, for 2005 it is about $9.36 billion, and for 2009 it is roughly $1.02 billion. Fannie said it would release additional information on the buyouts "within the next two weeks." The buyouts are due to new accounting standards that result in the cost of purchasing most delinquent loans from MBS and holding them in portfolio to be less than the cost of advancing delinquent payments to security holders, according to Fannie. The accounting rules have been in effect since Jan. 1 and Wall Street researchers have been anticipating related increases in government-sponsored enterprise buyouts.

The debate over the creation of a Consumer Financial Protection Agency may be heating up as small business groups are coming out in favor of the independent agency that is strongly opposed by the banking industry and Senate Republicans. This support comes as Senate Banking Committee chairman Christopher Dodd, D-Conn., is trying to sway several Democrats on the panel to support a financial regulatory reform bill that includes a CFPA. The CFPA would set uniform standards for credit card and mortgage lending and aim to stop abusive and deceptive practices. "The financial crisis has demonstrated the need for a new independent federal agency to promote financial product safety and establish clear, enforceable rules of the road," according to Business for Shared Prosperity. This new agency "will help ensure we do not repeat the reckless practices we are dearly paying for today. Consumers, businesses, and our economy will be better off with the establishment of a strong CFPA," the group says. Separately, the American Sustainable Business Council has organized 200 businesses to sign a letter calling on Congress to put aside the interests of the big banks and pass CFPA legislation. "CFPA would raise consumer protection standards for all types of credit and ensure that small business owners are protected from unfair and deceptive credit options," the ASBC letter says. The small business groups issued their statements the same day (Feb. 9) Harvard Professor Elizabeth Warren, who also chairs the Congressional TARP Oversight Panel, blasted the banking industry in a Wall Street Journal editorial for opposing CFPA. "The latest lie is that the CFPA is 'big government.' The CEOs all know that the current regulatory structure, which they support, is big government at its worst; bureaucratic, unaccountable and ineffective," she says in the editorial. House Financial Services Committee chairman Barney Frank, D-Mass., welcomed Ms. Warren's editorial and commended Sen. Dodd for his continuing support for a CFPA. "I welcome Senator Dodd's intention to fight to preserve an independent consumer agency, as we were able to do against the opposition of the financial industry in the House," Rep. Frank said.

Connecticut attorney general Richard Blumenthal along with three other state AGs urged Congress to pass legislation creating a federal Consumer Financial Protection Agency, claiming it is critical to shield consumers from financial industry abuses that brought the nation to the brink of economic disaster. "The new agency — a consumer financial guardian — promises to be a powerful watchdog and protector, and a partner of state attorneys general in fighting for our citizens," Mr. Blumenthal said during a press conference. Iowa Attorney General Tom Miller, Illinois Attorney General Lisa Madigan and Ohio Attorney General Richard Cordray also participated in the press conference. "If the banks can't kill the CFPA," AG Madigan said, they are proposing to house the consumer protection in one of the existing federal regulators. "I can tell you, that is a recipe for another disaster, because federal banking regulators have a dismal track record when it comes to protecting consumers and quite frankly our economy. They have shown no interest in or ability to protect consumers in the past, so none of them should be entrusted with that crucial mission now," she said.

Banking and mortgage regulators have developed a new file format that will allow for electronic examinations of mortgage originators. The new format, called the Licensee Examination File, is designed for use by mortgage loan originators, software providers and consultants and provides a standardized way to prepare loan portfolio data for online submission to state regulators. Documentation on the new format will be available on the "RCCertify" website which will have a ".org" address and launch on Feb. 22. The LEF was created by the CSBS/AARMR Multistate Mortgage Committee and unveiled at the NMLS User Conference in San Diego. The electronic transmission of data is part of the MMC's enhanced supervision of mortgage entities under the CSBS/AARMR Nationwide Cooperative Protocol and Agreement for Mortgage Supervision. Beginning last year and continuing through 2010 the MMC has been and plans to be conducting pilot examinations using ComplianceAnalyzer software provided by ComplianceEase. Lenders are expected to provide loan portfolio data uploads to state regulators by 2011. John Prendergast, chief risk officer for the Massachusetts Division of Banking and the chair of the MMC said, "Our vision of an improved examination process through the use of new technology has been in the works for several months, but one of our main challenges has been the inability of lender systems to feed data directly to the regulator in a form that is readable by the ComplianceAnalyzer program." This new format rectifies that, he said.

As financial conditions improve, the Federal Reserve will start using agency mortgage-backed securities in reverse repurchase agreements to soak up excess reserves in the banking system and eventually start to sell MBS at a "gradual pace," according to Fed chairman Ben Bernanke. "Any such sales would be at a gradual pace, would be clearly communicated to market participants, and would entail appropriate consideration of economic conditions," the Fed chief says in testimony prepared for a House Financial Services Committee hearing. Wednesday's hearing was canceled because of the snowstorm that has paralyzed Washington. But the Fed issued the highly anticipated testimony to outline its plans for phasing out the liquidity programs the central bank employed to deal with the financial crisis and resulting credit crunch. The Fed is slowing its agency MBS purchases now as it prepares to stop the program on March 31. The Fed is developing the infrastructure necessary to use its MBS holdings as collateral for reverse repo transactions, according to the testimony.

Freddie Mac said it plans to purchase "substantially all" mortgages delinquent by 120 days or more from its fixed- and adjustable-rate participation certificate securities, and detailed the timing for the loan buyouts that Wall Street researchers and investors have been anticipating this year. Freddie said its purchases of these loans are set to be reflected in the PC factor report published after the close of business March 4 and corresponding principal payments are slated to be passed on to fixed-rate and ARM PC holders on March 15 and April 15, respectively. The government-sponsored enterprise also said that it plans to start disclosing in its monthly volume summary the number of loans that are 90 days or more delinquent in related fixed-rate 30-year and 15-year PCs and in ARM PCs. The loan buyouts stem from "the fact that the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in the company's mortgage-related investments portfolio as a result of the required adoption of new accounting standards and changing economics," Freddie said, confirming catalysts that Wall Street analysts had said would likely spur buyouts this year. The GSE added that "the delinquent loan purchases will help Freddie Mac preserve capital and reduce the amount of any additional draws from the U.S. Department of the Treasury" and would not affect its activities under the federal Making Home Affordable program. Since 2007 Freddie has had operational procedures in place that call for it to purchase mortgages that are 120 days or more delinquent from PCs when the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in its portfolio. It said it could change its loan buyout policy in the future.

The Federal Deposit Insurance Corp. is pushing back its plan to securitize troubled mortgage assets into the second quarter, according to officials close to the situation. "It's still very much in process," said one source speaking on background, "but it won't happen in the first quarter." The FDIC recently confirmed that it is working on securitizing certain mortgage assets but has offered little guidance to date. The agency and some of its advisors are exploring ways to issue bonds backed by troubled residential loans that are subject to "loss sharing" agreements. There also has been talk in the market place of FDIC doing a "re-REMIC" of outstanding MBS or ABS. At press time, a telephone call to the FDIC's press office had not been returned. The federal government was officially closed for business Wednesday because of a snowstorm.

A community group says minorities in California are twice as likely as whites to have a home loan application denied to them, raising concerns that large lenders have returned to the practice of redlining. The findings are based on Home Mortgage Disclosure Act figures for the calendar year 2008. In a study titled "From Foreclosure to Re-Redlining," the California Reinvestment Coalition used HMDA figures to analyze lending patterns in five California cities. The 45-page report examined the overall drop in prime lending from 2006 to 2008 and claims that lower-cost prime loans fell dramatically in minority neighborhoods during that period as compared to white neighborhoods. Redlining, the practice of denying, discouraging or increasing the cost of banking services to residents on the basis of race or ethnicity, is forbidden by the Community Reinvestment Act of 1977.

The Department of Housing and Urban Development has created an office of sustainable housing that will work on improving energy-efficient homes and financing for such projects. The new Office of Sustainable Housing and Communities will also work with city, county and rural governments to locate housing near jobs, schools and transportation. To promote sustainability, OSHC will use a $50 million fund to invest in energy-efficient homes and buildings in order to "lay the groundwork for the clean energy economy," HUD said. As part of that effort, the office wants to improve on HUD's energy efficient mortgage products and other energy retro financing options. Shelly Poticha is the director of OSHC.