Compliance & Regulation

The National Association of Home Builders has approved a new policy stating its position for improving the nation's housing finance system, a stance that calls for continued government backing of a secondary mortgage market. At its annual convention in Las Vegas, the politically potent group adopted a posture that it believes will ensure a reliable flow of credit at the lowest possible cost "in all geographic areas and under all circumstances." The 175,000-member organization outlined a framework that fails to specifically mention Fannie Mae and Freddie Mac, suggesting instead that "a number of entities" should be encouraged to compete in a secondary market "in a manner that creates greater innovation and efficiency." But it still wants Uncle Sam to be involved, saying the federal government should establish a fund to guarantee the timely payment of principal and interest to investors in mortgage-backed securities. In addition, it backs a requirement that secondary marketing entities benefiting from federal guarantees should pay a fee to capitalize the fund. The federal government would incur exposure only for "catastrophic risk" beyond that covered by the fund, the statement says. "We can't have the federal government on the hook every time some missteps occur," David Ledford, the NAHB's senior vice president for housing economics and land development, said during the NAHB's internal debate. The new statement went through a four-day vetting process that required clearance by five different committees before it was approved unanimously by the NAHB's board of directors. During the discussion in the housing finance and federal government affairs committees, members slaved over words and phrases to write a carefully crafted document. "We're trying to decide how to carry a dozen eggs without a carton," said Kerville, Texas-based affordable housing developer Granger MacDonald, the group's outgoing finance committee chair.

Fannie Mae and Freddie Mac could be history after the House Financial Services Committee completes its review of the housing finance system, and makes its recommendations, according to committee chairman Barney Frank, D-Mass., once a huge supporter of the two. "I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their present form," Rep. Frank said during a committee hearing. Earlier this month, Chairman Frank said he plans to hold hearings on restructuring the U.S. housing finance system and he has no desire to see Fannie and Freddie return to their former "hybrid" status as private companies with a public mission. The White House is expected to lay out its blueprint for the two in the next month or so but has offered little guidance on the issue. Rep. Frank's remarks sent the share price of the two tumbling Friday afternoon. The government-sponsored enterprises have been wards of the government for 17 months. Since their takeover, Treasury has pumped $110.6 billion into them to keep their net worth positions above zero, allaying investor fears about their debt and MBS. Presently, the two provide liquidity for roughly 70% of all originations in the U.S. mortgage market with FHA accounting for most of the balance.

Consumers now have access to the National Mortgage Licensing System and Registry to check the credentials and background of state-licensed mortgage lenders or brokers. The online NMLS system allows consumers to see the 10-year employment history of the loan officer or broker, the name of their current employer and the states they are licensed in. Starting in 2011, any adjudicated enforcement actions taken against a loan officer or broker will be listed on the system and accessible by consumers. State regulators initiated the mortgage licensing system to enhance the supervision of the residential mortgage industry, according to Neil Milner, president and CEO of the Conference of State Bank Supervisors. "NMLS Consumer Access is one more initiative undertaken by the states to empower consumers with information while they take on what is usually the most significant purchase of their lifetime: their home," he said. To date, 45 states and territories are participating in the NMLS system. All states and U.S. territories are expected to be on the system by the end of this year. Loan officers employed by federally insured banks and thrifts will start registering on the NMLS system during the second half of 2010.

The Department of Housing and Urban Development wants Mortgage Counseling Services of Georgia to indemnify it against potential losses on FHA loans it originated, citing the lender for quality control violations. In a newly released audit, HUD's Office of Inspector General said MCS "did not follow HUD requirements when underwriting eight of 16 FHA loans. HUD insured the eight loans that unnecessarily placed the FHA insurance fund at risk for more than $433,000." HUD said it is recommending that FHA take "appropriate action" against the company "for its noncompliance in closing two loans." A woman working at MCS said she could not comment and referred calls to company CEO Mary Ann White. Ms. White had not returned a telephone call as National Mortgage News went to press. HUD presented the lender with its final audit results in late November, noting that company officials generally disagreed with its findings.

Federal Housing Administration is giving its mortgage servicers more latitude to assist borrowers who are running into financial problems but have not yet missed a payment. Under a new policy, servicers can offer these borrowers forbearance or even a reduction in principal under the FHA-HAMP program. Previously, the servicers could not consider these options until homeowners with a FHA-insured loan had missed several monthly payments. "Now servicers will have additional options for those borrowers who seek help before they go delinquent, which increases the likelihood that the borrower will be able to retain their home," FHA commissioner David Stevens said. The FHA-HAMP program allows servicers to reduce the principal amount of a FHA-insured mortgage by up to 30%.

Federal regulators have finalized a transition rule to cushion banks from the capital impact of consolidating mortgage securitizations on their balance sheets. The final rule provides a one-year transition period for the adoption of Financial Accounting Standards 166 and 167 which went into effect Jan. 1. "It provides an optional phase-in for four quarters," federal banking regulators said. Banks can exclude consolidated assets from risk-based capital calculations during the first two quarters of 2010. Over the third and fourth quarters, banks only have to count 50% of the consolidated assets for RBC purposes. Institutions that participated in the issuance of private-label residential and commercial mortgage-backed securities will be most affected by the FAS 166 and 167. On Jan. 1, Wells Fargo consolidated $10 billion in securitized assets on its balance sheet, including $5 billion in nonconforming residential mortgages. The company said it resulted in a 4 basis point decline in its total capital ratio.

The reporting of suspected mortgage fraud by financial institutions appears to be leveling off, according to new figures released by the Financial Crimes Enforcement Network, a division of the Treasury Department. During the first six months of 2009, firms reported 32,926 suspected cases of mortgage fraud, a slight 1% increase from the same period a year earlier. Still, FinCEN notes that mortgage fraud cases "remain at a historically high level" after six straight years of double-digit growth. The department also says the reporting of mortgage fraud by depositories (as opposed to nonbanks) is continuing to rise. "FinCEN remains focused on its proactive efforts to assist state, local and federal investigators in efforts to use SARs to crack down on mortgage fraud and foreclosure rescue scams, and to identify other emerging trends and patterns," said FinCEN director James H. Freis. "Fraudulent and criminal activity is seldom static and predictable."

All banks and thrifts are having problems with commercial real estate loans, not just small community banks, according to FDIC chairman Sheila Bair. "Despite what you may be hearing, CRE credit problems are affecting big and small banks alike," the Federal Deposit Insurance Corp. chairman said in a prepared speech delivered at a Commercial Mortgage Securities Association conference in Washington, D.C. As of Sept. 30, FDIC-insured institutions held $1.3 trillion CRE and multifamily mortgages — nearly 18% of total loans. And $44.8 billion are classified as noncurrent (90-days or more past due or considered uncollectible). Banks and thrifts hold another $500 million in construction and development loans and 15% of these are noncurrent. "The annualized net charge-off rate of 6% on C&D loans in the third quarter significantly exceeds the highest rate of the last crisis, which was about 4%," Ms. Bair said. FDIC expects delinquencies and charge-offs will move higher in the coming quarters.

President Obama on Thursday proposed two new ways to restrict the size and activities of large commercial banks. To reduce the risk posed by banks, the President said he would ask Congress to bar them from proprietary trading or from owning, investing in or sponsoring hedge funds or private equity funds. "You can do proprietary trading or you can own a bank, but you can't do both," said a senior administration official that briefed reporters. The administration also wants to limit future growth by capping an individual bank's share of the total market for nondeposit liabilities. The official made clear these changes would not be applied retroactively. "It's designed to restrain future growth," he said. "It's not about reducing liabilities within the share the existing structure." He likened the new cap to one that currently prevents any bank from doing acquisitions once it controls more than 10% of the nation's deposits. The official said the cap on nondeposit liabilities would not necessarily be set at 10%. He said the administration would work with Congress and regulators to determine the proper cut-off.

Ginnie Mae has experienced tremendous growth in the last few years, therefore it faces operational challenges, according to Theodore Tozer, President Obama's nominee to be the agency's new president. Mr. Tozer told the Senate Banking Committee at his confirmation hearing that Ginnie Mae has become a major player in the mortgage-backed securities market and it has to address counter-party risk with its MBS issuers. "Ginnie has a good foundation and dedicated staff and I look forward to working with them, if confirmed, to move the agency to the next level and make it a very solid operation that can support the housing market," he told the senators. It appears that the full Senate, according to lobbyists, will confirm Mr. Tozer. The nominee has worked at National City and now at PNC Financial Services Group as a capital markets executive. Mr. Tozer has been involved in issuing Ginnie Mae MBS since 1986. Ginnie Mae issued $414 billion in MBS last year, up from $97 billion in 2007.