Compliance & Regulation

Ginnie Mae issuance of single-family and multifamily mortgage-backed securities hit a record $414 billion in 2009, up 53% from the previous calendar year. The secondary market agency ended the year on a strong note, as MBS issuance jumped to $42.5 billion in December, up from $35.5 billion in November. The Ginnie MBS issuance topped $46 billion in July, which is a single-month record for the agency. Most of Ginnie MBS is backed by Federal Housing Administration single-family loans — only $6.8 billion of the Ginnie MBS issued in 2009 involved multifamily loans guaranteed by FHA, as well as single family loans originated through the Department of Veterans Affairs and U.S. Department of Agriculture Rural Housing Service programs. Outstanding Ginnie Mae MBS has a 3.25% default rate as of Nov. 30, 2009. The percentage of FHA-insured single-family loans that are 90-days or more past due hit 8.94% in November.

The Federal Deposit Insurance Corp. has chosen Milestone Merchant Partners to sell the $20 billion mortgage servicing portfolio that once belonged to AmTrust Bank of Cleveland, according to investment banking officials. At press time, both Milestone and FDIC had not returned telephone calls about the matter. It is unclear what will happen to AmTrust's servicing platform. "It's possible a buyer may just take the servicing rights but we don't know yet," said one source. AmTrust, a thrift, was taken over by the FDIC in early December with most of its assets sold to New York Community Bancorp. NYCB, however, did not want AmTrust's servicing division.

Despite strong opposition from the banking industry, Federal Deposit Insurance Corp. chairman Sheila Bair continues to support the creation of a Consumer Finance Protection Agency that has rule making authority over banks and non-bank lenders. She told the Financial Crisis Inquiry Commission that banking regulators failed to rein in risky underwriting practices because business was so profitable. Many of the current problems facing the financial system "were caused by a lack of strong, comprehensive rules against abusive lending practices applying to both banks and non-banks, and lack of a meaningful examination and enforcement presence in the non-bank sector," she testified. The CFPA should have sole rule-making authority for consumer protection statutes along with supervisory and enforcement authority over non-banks involved in consumer finance, Ms. Bair said. Federal banking regulators would retain their enforcement authority over federally insured depositories. This approach would eliminate regulatory gaps between banks and non-banks, Ms. Bair said, and eliminate the "potential for regulatory arbitrage" caused by federal preemption of state consumer protection laws.

First Catholic Federal Credit Union, Taylor, Mich., has filed suit in federal court to terminate a mortgage servicing contract it has with CUSO Mortgage, claiming CUSO violated its agreement with the credit union by, among other things, failing to file Form 1098s with the Internal Revenue Service for its borrowers. "That's only one of the allegations," said Charles Holzman, a Southfield, Mich., attorney for Holzman Ritter & Corkery, which is representing the credit union in the case. He said the CU hopes to resolve the dispute with a minimum of public attention. In its lawsuit, the $146 million First Catholic claims it should not have to pay a 2% (of outstanding principal balance) termination fee for the servicing contract because the company (a subsidiary of Wescom Central CU of Pasadena, Calif.) failed to live up to the contract. The 2% termination fee is currently being held in an escrow account. Among other things, the suit claims that CUSO Mortgage, which provides servicing for as many as 100 credit unions, has failed to pay delinquent taxes for previous tax years. First Catholic claims its employees have had to perform many of the servicing chores that CUSO was supposed to handle. It is asking the court to release the 2% payment, and to order the transfer of the mortgages to a new servicer hired by the credit union. Representatives from CUSO Mortgage declined to comment.

The Mortgage Bankers Association wants the White House to tone down expectations for the Home Affordable Modification Program and create a forbearance option for borrowers who become unemployed or suffer a loss of income. Delinquent borrowers are facing a tough economic situation and have a difficult time making it through the HAMP payment trials to qualify for a permanent modification, said MBA chairman Robert Story. If they become unemployed and cannot make their mortgage payments, they "can't qualify for HAMP," Mr. Story said. He noted that forbearance or deferred payments should be considered. Once the borrower gets a job, the servicer can "move them" into a HAMP modification, MBA president John Courson said in a press briefing Tuesday. MBA also wants the Obama administration to amend HAMP so servicers can offer borrowers an option to pay only interest on the mortgage and defer principal payments. Offering an interest-only option would help get the "payments down to a level the borrower can afford," said Mr. Courson.

Large banks increasingly are opening up the warehouse spigot for independent mortgage banking firms and it looks as though government assistance may not be needed, according to the Mortgage Bankers Association. "We are encouraged by the information we are receiving from our members that lines have opened up a little bit," said MBA chairman Robert Story at a press briefing. However, the trade group would like to see more liquidity for nonbanks in need of financing. One of the nation's largest warehouse providers is National City, which is controlled by PNC Financial Services. PNC has made little effort to sell the division and plans to close it by midyear unless a committed buyer steps forward. Warehouse lending began to dry up in the fall of 2008 when Lehman Brothers filed for bankruptcy and other Wall Street firms left the sector. Over the past year MBA and other industry groups have been urging the Treasury Department to provide some type of government support for warehouse lending but little has been accomplished. MBA believes the private sector (mostly banks) is finally coming back to the sector, albeit at reduced levels. MBA noted that mid-sized banks are returning to profitability, which could spur more entrants to the sector.

The House Financial Services Committee this year will hold hearings on not only restructuring the nation's financial system, but what to do with Fannie Mae and Freddie Mac which together guarantee half of all outstanding home loans in the U.S. Committee chairman Barney Frank (D-Mass.) noted that the GSEs currently operate as public utilities and he has no desire to see them returned to their former "hybrid" status as private companies with a public mission. Talking to reporters, he said he does not know, at this time, what form the two eventually will take. (Fannie and Freddie were taken over by the federal government in September 2008 and continue to draw billions in taxpayer aid to maintain a net worth above zero.) The chairman stressed that the housing finance system, as a whole, must be analyzed, including the Federal Home Loan Bank System, the Government National Mortgage Association and the Federal Housing Administration. In terms of specific legislation, the chairman wants to address mortgage servicing and the decision-making process among investors, trustees, and servicers in regard to modifying loans. He said it seems unclear at this time which entities have the decision-making power on loan mods. "That is something we want to solve," he said.

The HUD Inspector General has subpoenaed 15 Federal Housing Administration direct-endorsement lenders as part of an investigation into why these firms have the highest default and claim rates in the nation. "We are not making any accusations at this time." said Department of Housing and Urban Development IG Kenneth Donohue. "We have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud." Despite the subpoenas, the targeted lenders will continue to originate FHA-insured mortgages. This investigation is "focusing on many of the worst performers in the FHA portfolio," said FHA commissioner David Stevens at a Washington press conference. The FHA chief said he supports the IG's effort to determine why these lenders have such a high claim rate on mortgages that are only 30 months old. "I will be interested to see what comes out of the audit work," said Mr. Stevens. The lenders issued subpoenas include: First Tennessee Bank N.A., Memphis; Alethes LLC, Lakeway, Texas; Security Atlantic Mortgage, Edison, N.J.; Pine State Mortgage of Georgia; Birmingham Bancorp Mortgage, West Bloomfield, Mich.; Alacrity Financial Services, Southlake, Texas; Assurity Financial Services, Englewood, Colo.; D and R Mortgage Corp. Farmington, Mich.; Webster Bank, Cheshire, Conn.; Mac-Clair Mortgage Corp., Flint, Mich.; Americare Investment Group, Inc., Arlington, Texas; 1st Advantage Mortgage, Lombard, Ill.; American Sterling Bank, Independence, Mo.; Sterling National Mortgage, Great Neck, N.Y.; and Dell Franklin Financial, Columbia, Md. These lenders have originated at least 1,000 FHA loans and their claim rates exceed their peers by 200%, HUD said. FHA streamlined refinancings or loans approved by automated underwriting systems are excluded from the claims rate.

Fannie Mae beat Freddie Mac by a country mile in the loan modification race by moving borrowers who do not qualify for the government's Home Affordable Modification Program into alternative restructuring plans. Not counting HAMP modifications, Fannie completed 27,700 loan modifications in the third quarter, up 66% from the second quarter. Freddie completed only 9,000 alternative modifications, a 42% decline from the previous quarter. "Freddie has instructed its servicers to fully support HAMP as the primary modification program," said the Federal Housing Finance Agency in its quarterly Foreclosure Prevention and Refinance Report. "While Fannie Mae's primary modification solution is HAMP, it has also focused on putting borrowers who do not qualify for HAMP modifications into other modifications leading to most of this increase in the quarter," said FHFA. The agency's quarterly report does show that Freddie, relative to its size, is more efficient at completing HAMP modifications than its larger competitor. Fannie has completed 11,700 HAMP modifications as of Nov. 30, compared to 10,300 for Freddie.

Fannie Mae beat Freddie Mac by a country mile in the loan modification race by moving borrowers who do not qualify for the government's Home Affordable Modification Program into alternative restructuring plans. Not counting HAMP modifications, Fannie completed 27,700 loan modifications in the third quarter, up 66% from the second quarter. Freddie completed only 9,000 alternative modifications, a 42% decline from the previous quarter. "Freddie has instructed its servicers to fully support HAMP as the primary modification program," said the Federal Housing Finance Agency in its quarterly Foreclosure Prevention and Refinance Report. "While Fannie Mae's primary modification solution is HAMP, it has also focused on putting borrowers who do not qualify for HAMP modifications into other modifications leading to most of this increase in the quarter," said FHFA. The agency's quarterly report does show that Freddie, relative to its size, is more efficient at completing HAMP modifications than its larger competitor. Fannie has completed 11,700 HAMP modifications as of November 30, compared to 10,300 for Freddie.