Compliance & Regulation

Mortgage brokers are hopeful that the newly elected Senator from Massachusetts — a closing attorney who once worked with loan officers — could come to their aid. State Senator Scott Brown, a Republican, on Tuesday won the open Senate seat created by the death of Sen. Ted Kennedy (D-Mass.) "He understands how things work," said Marc Savitt, president of the National Association of Independent Housing Professionals. A spokeswoman for Mr. Brown confirmed that he has worked as a closing attorney but said it is too early for him to start talking about where he stands on such issues as the Consumer Financial Protection Agency, and tighter regulation for loan officers and loan brokers. Still, some mortgage brokers are optimistic on the possibilities. "It certainly can't hurt that he used to do closings," said Mr. Savitt. Richard Shapiro, principal in Asset Mortgage Group of Natick, Mass., said he has not closed loans with Mr. Brown but said one of his staffers has. "He's a small local guy," he said of Mr. Brown. Mr. Shapiro said he is hopeful that if Mr. Brown becomes a member of the Senate Banking Committee he might be able to help brokers with some of the hefty licensing fees they are now being charged.

The Federal Housing Administration is determined to clamp down on bad lending practices and it is preparing to suspend a lender's operations in a whole metropolitan area for six months if one branch has a default rate three times above the norm. FHA commissioner David Stevens said he is prepared to use FHA Credit Watch termination powers for the first time. And FHA will be issuing a mortgagee letter to implement it with an immediate effective date. After one year, the suspension threshold will be two times the normal default rate. "This is strong medicine, but it will have a positive impact," said mortgage banking consultant Brian Chappelle. At the same time, FHA is increasing its monitoring of lenders and it will publish a "report call" on lender performance that lenders can use as a "benchmark," the commissioner said. The Department of Housing and Urban Development also is pursuing regulatory and legislative changes to impose indemnification requirements on all FHA direct endorsement lenders. "This would essentially require all approved mortgagees to assume liability for loans they originate or underwrite should they violate our polices and underwriting standards," Mr. Stevens told reporters.

The Federal Housing Administration, which is trying to bolster its depleted cash reserves, unveiled tighter underwriting guidelines Wednesday morning, including a hefty downpayment for low FICO score borrowers and an increase in the upfront mortgage insurance premium to 225 basis points. However, in announcing the changes, FHA commissioner David Stevens declined to provide any guidance on how much money the changes will raise for the reserve fund. Most of the new guidelines outlined Wednesday will go into effect this spring. The 10% downpayment is required for borrowers with FICOs of less than 580. The MIP will be increased in a few months from the current charge of 1.75 basis points. FHA will allow borrowers to continue financing the upfront MIP. The agency also will pursue legislative authority to allow flexibility to bring the annual premium, which borrowers pay on a monthly basis, higher. (This premium is currently 55 basis points for low-downpayment loans that are popular with borrowers.) Also, seller concessions will be reduced to 3% from 6%. Scott Stern, who runs the Lenders One cooperative said, "On the whole, mortgage lenders will find the new rules painful but necessary. The problem is that for the past four years, FHA was an 'anything goes' environment." He added that, "What makes this hard is with FHA hovering around 40% of new loan originations, even small rule changes echo through the housing market with a big impact."

The Department of Housing and Urban Development is seeking White House approval to increase the upfront mortgage insurance premium charged by the Federal Housing Administration to borrowers. At a press conference scheduled for Wednesday morning, HUD and FHA officials are expected to announce other changes, including tighter underwriting standards. If approved by the White House, FHA will increase the 1.75% upfront mortgage premium (paid by those who take out a common type of home loan) simply by issuing a "notice" that goes into effect within 30 to 60 days. HUD also may ask Congress for permission to raise the annual premium that is paid monthly. This is 55 basis points paid over the course of the year for relatively low-downpayment loans.

The Treasury Department's push for residential servicers to complete more HAMP loan modifications appears to be working as the number of permanent restructurings soared during December and now stands at 66,000 units. The Obama administration launched the Home Affordable Modification Program last spring but only 31,382 modifications had been completed by the end of November. But In December, another 35,043 HAMP modifications were completed. Treasury assistant secretary Michael Barr acknowledged this acceleration in modifications as well as the status of another 46,000 borrowers who are close to signing the final documents for a HAMP modification. But Mr. Barr said the conversion rate of borrowers going from the three-month payment trials to a permanent modification is still "disappointing." He wants some servicers to "pick up the pace." Last month, Treasury officials began ratcheting up the pressure by monitoring HAMP servicers' modification conversion rates on a daily basis. They also initiated a consumer outreach effort to get borrowers in HAMP trials to submit the documents needed to complete a modification.

Moody's Investors Service says hundreds of billions of dollars of Alternative-A residential mortgage-backed securities from 2005-2007 could face another wave of downgrades in the second half of this year. The ratings on 10,330 tranches of RMBS with a current balance of $330.1 billion and an original balance of $572.7 billion are being reviewed to see if they need to be downgraded due to revised loss projections, Moody's said. The rating agency now projects 2007 securitizations in this category will see cumulative losses of 35%, 2006 bonds of this type will experience losses of 29% and 2005 alt-A RMBS will see losses of 14%. The outlook for these bonds is considered worse due to deterioration seen in their performance to date as well as "macroeconomic conditions that remain under duress," Moody's said. While there have been signs of eventual recovery, the rating agency's Economy.com unit said the drop in home prices and employment is expected to persist and not peak until the second half of this year, after which there could be a slow rebound.

Fitch Ratings has withdrawn the insurer financial strength ratings of Mortgage Guaranty Insurance Corp., and the long-term issuer rating of MGIC Investment Corp., Milwaukee, Wis. These actions were taken at MGIC's request, a company spokeswoman said. She added MGIC had no additional comment. Fitch Ratings also had no comment. MGIC's mortgage insurance subsidiary had a BB- financial strength rating, while the parent company had a long-term issuer rating of B-. Also withdrawn were B- ratings on a pair of senior notes offerings and a C-rating on convertible junior subordinated debentures due in 2063.

The state has closed the loan modification businesses of two Southern California men for allegedly lying to consumers about being supervised by attorneys, according to a report in The Orange County Register. The two operated firms under the trade names Guardian Credit Services, Green Credit Solutions, Green Credit Services, Erickson Law Group, Green Credit Law and PacWest Funding. The state bar, which acted with the Orange County Superior Court in the case, has worked with other state and local officials to crack down on companies promising homeowner aid but not delivering it, the newspaper said. The bar alleges Curtis Melone of Huntington Beach and Christopher Fox of Redondo Beach promised to help homeowners facing foreclosure keep their homes but did nothing. An attorney for the men was not immediately available for comment.

An Anchorage, Alaska-based title agency has settled Real Estate Settlement Procedure Act Section 8 kickback allegations made against it by the Department of Housing and Urban Development and the Alaska Division of Insurance. According to the settlement agreement posted on the HUD website, the regulators had alleged Alyeska Title Guaranty Agency had a sham employment agreement with Kirk Wickersham, the owner of FSBO System Inc., also of Anchorage. Mr. Wickersham was a "title marketer" for Alyeska, marketing the agency's services to FSBO. It is alleged the employment agreement was actually a way to pay referral fees to Mr. Wickersham, who supposedly did not provide any actual services for the payment. The relationship was terminated one year ago, on Jan. 14, 2009, and Alyeska has no other such relationships, the settlement agreement said. In the agreement Alyeska said it denied any RESPA or state law violations, and that entering into the agreement was not an admission of guilt. The agreement required Alyeska to pay $50,000 to both HUD and Alaska DOI ($25,000 each), within 30 days of the effective date; plus an additional $50,000 within one year. The agreement states the payments are not a civil money penalty or fine. There is a third payment totaling $55,000 that is scheduled to be made within two years. This payment will be waived if there are no further RESPA or state law violations and Alyeska remains in compliance with the settlement agreement. Mr. Wickersham is not a party to the agreement. He could not be reached for comment at deadline.

The Obama administration provided state and local housing finance agencies with a total of $23.5 billion of assistance under bond purchase and liquidity programs that have run their course, according to the Treasury Department. The new issue bond purchase program allowed the HFAs to issue $15.3 billion of bonds that were purchased by the Treasury through Fannie Mae and Freddie Mac, and the Temporary Credit and Liquidity Programs provided the HFAs with $8.2 billion in liquidity, according to Treasury. The NIBP and TCLP programs were initiated in October and ran through the end of the year, with the Treasury working alongside the Department of Housing and Urban Development and the Federal Housing Finance Agency to provide much-needed relief to HFAs struggling to sell housing bonds in an ailing market. "Supporting the work of state and local HFAs is critical to the administration's broader initiative to stabilize the housing market, which is helping to keep mortgage rates low and mortgage finance flowing for American households across the country," said Treasury Secretary Tim Geithner in a prepared statement.