Compliance & Regulation

The American Bankers Association has selected MetLife Bank N.A. as its exclusive provider of reverse mortgage programs to its member banks and thrifts. Under the program, MetLife Home Loans will provide ABA firms with a correspondent or broker channel for FHA-insured reverse mortgages, which are known as Home Equity Conversion Mortgages. "This product is a very good fit for community banks," said Deborah Whiteside, senior vice president at ABA Total Business Solutions. "Community bankers know their customers very well," she said, and they have the time to serve as a "trusted financial adviser" and work with seniors and family members. ABA had a similar affinity relationship with another reverse mortgage lender, Financial Freedom, but the relationship was terminated six months ago, said Ms. Whiteside. MetLife Bank securitized about $2 billion in HECMs through Ginnie Mae last year. MetLife vice president Craig Corn said many banks do not have Federal Housing Administration approval to underwrite and close HECMs. But they can take advantage of the broker channel to provide their customers with a reverse mortgage option. "I think we will see more and more banks who get into this program through the ABA will likely become correspondents so that they have full control over the customer's experience," Mr. Corn said.

The residential mortgage industry added 200 full-time employees to their payrolls in November, the first uptick in industry employment since July. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 255,700, compared to 255,500 in October. The BLS data shows the increase is entirely due to more mortgage brokers having jobs. Employment at mortgage banking firms was flat in November. Overall, the mortgage industry experienced a 10% drop in its workforce over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating demand. Meanwhile, the nation's unemployment rate held steady at 10% in December, but 85,000 workers were laid off, according to the new jobs report. This disappointed analysts who were looking for a sign that the job market had finally turned the corner. It is also the second disappointing economic report this week. On Tuesday, the National Association of Realtors reported that its index of pending sales plunged 16% in November. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

A U.S. district court judge has ruled in favor of Wells Fargo Bank NA and dismissed a lawsuit by the City of Baltimore seeking reimbursement for expenses and loss of revenues due to foreclosures and vacant homes. The city alleged that Wells Fargo targeted minority neighborhoods with subprime loans, which lead to foreclosures and deterioration of inner city neighborhoods. Judge Frederick Motz noted in his opinion that the bank is responsible for only a "negligible portion" the city's vacant properties and other factors such as high unemployment, drug use and violence also are factors. The city's allegations of a "casual connection between Wells Fargo's alleged misconduct and the damages the city claims is not plausible," the judge ruled. The opinion says the number of vacant homes in Baltimore range from 16,000 to 33,000 and the city has identified only 401 vacant properties involving Wells Fargo loans. "From the beginning, we have consistently maintained that Baltimore's economic problems could not be attributed to the small number of foreclosures Wells Fargo has done in Baltimore," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We are pleased the court's decision rejects the city's claim and reflects this point of view." Judge Motz has opened the door for the city to file an amended complaint that seeks damages for "specific houses that became vacant allegedly because of Wells Fargo's lending activities." No comment from the city was available at press time.

Suffolk Federal Credit Union of Long Island, one of the biggest victims in the U.S. Mortgage/CU National Mortgage fraud case, has filed suit against The CUMIS Group Ltd. in federal court, the latest effort by a CU to prevent the credit union insurer from voiding coverage in the $140 million scandal. The $840 million credit union says it lost $42 million when CU National's president Michael McGrath fraudulently sold 189 of the real estate loans it was servicing to Fannie Mae without the credit union's authorization, and CUMIS, a unit of CUNA Mutual Group, has denied its bond claim. "They have directly told us they are not going to pay the claim," said Patrick Boyle, a New York attorney representing Suffolk FCU. The latest suit comes as CUMIS has asked the federal court in Wisconsin for a declaratory judgment voiding bond claims by 26 credit unions in the case. Two other credit union victims of the fraud, Educational Systems FCU, in Greenbelt, Md., and TCT FCU, in Ballston Spa, N.Y., have also filed suit challenging the CUMIS denial of the bond claims. At least two other credit union victims, Picatinny FCU and Sperry Associates FCU, are suing Fannie Mae. In its suit, Suffolk FCU said under its bond CUMIS agreed to indemnify the credit union for "all losses arising from the dishonest acts of employees, officers and directors" and "its servicing contractor, CU National." The credit unions are continuing to negotiate with Fannie Mae over return of the mortgages and of the funds, a source told The Credit Union Journal. Several have petitioned Congress to intervene because Fannie Mae is currently being run under conservatorship by the federal government. CUMIS officials did not immediately respond to a request for comment.

The Federal Reserve is on track to end its $1.25 trillion MBS purchase program by the end of this quarter, but a minority of Fed officials would be in favor of resuming buying if market conditions warrant. It "might become desirable" in the future to expand the residential mortgage-backed securities purchase program "if mortgage market functioning were to deteriorate," according to the minutes of the December Federal Open Market Committee meeting. The consensus view of the 10 FOMC members is that the improvement in home sales and stabilization in house prices will continue. But some members view the improvement as "quite tentative." And they are concerned "mortgage markets could come under pressure as the Federal Reserve's agency MBS purchases wind down," the FOMC minutes say. The Fed started the MBS purchase program last January and it is due to end March 31. The New York Federal Reserve Bank is gradually slowing the pace of MBS purchases to "promote a smooth transition in markets." The FOMC minutes also show a "few members" would like to extend the Term Asset-Backed Securities Lending Facility (TALF) past June 30 to help the CMBS market get back on its feet.

Senate Banking Committee chairman Christopher Dodd, D-Conn. said he is not running for re-election in November and wants to spend his last year in office working toward passage of health care reform and financial services regulatory reform. "A year from this week our state will have a new United States Senator. In the meantime we have important work to do," Sen. Dodd said at a press conference. His decision to give up re-election makes its easier for the Connecticut senator to move to the center on regulatory reform issues. It also makes it easier for Republicans to compromise, since passage of a bill to regulate Wall Street and restructure the federal banking agencies will not be viewed as a victory for Sen. Dodd that could boost his re-election chances. One of Dodd's priorities is creating a new federal agency that is charged with protecting consumers from predatory lending and abusive financial products. Senate Banking Committee members are working on a bipartisan proposal that they want to unveil later this month. Sources indicated members are close to an agreement on a consumer protection agency that would have rulemaking authority, but leave enforcement powers with the banking regulators.

The Federal Housing Administration is temporarily delaying the effective date of its new policy to shield appraisers from loan officer and mortgage broker pressure until Feb. 15. The new policy would put FHA in synch with Fannie Mae and Freddie Mac and prohibit commission-based staff and brokers from selecting appraisers. FHA officials initially set a Jan. 1 effective date. But they concluded FHA lenders need more time to change to their systems and decided to give them 45 more days, according to sources. Back in September, FHA officials outlined a number of risk management initiatives, including the new appraisal policy. "FHA does not require the use of appraisal management companies or other third party providers, but it does require lenders take responsibility to assure appraiser independence," FHA officials said.

The president of LGE Community CU was barred from working for any financial institution for five years under a consent order he agreed to with Florida regulators related to alleged misconduct related to a real estate transaction at his previous job heading Florida-based First Coast Community CU. Chris Leggett told The Credit Union Journal the Georgia credit union was aware of the controversy before it hired him on as CEO. Under the agreement, Leggett has also been compelled to resign his position on the board of Tallahassee, Fla.-based ATM network Credit Union 24. The order stated the Florida regulator issued an administrative complaint to remove Leggett on April 30 for allegedly being "improperly and illegally engaged in an insider real estate transaction at the credit union that ultimately resulted in a financial loss to the credit union." Leggett was the president and CEO of First Coast Community CU, based in Palatka, Fla., from November 2003 to Oct. 1, 2007.

A Department of Housing and Urban Development proposal goes "too far" in transferring all supervision of mortgage brokers and other loan correspondents to Federal Housing Administration-approved lenders, according to the National Association of Mortgage Brokers. NAMB wants the Department of Housing and Urban Development to continue setting standards for loan correspondents and start sharing oversight responsibilities with FHA-approved lenders that chose to sponsor brokers. "NAMB respectfully recommends that HUD revise the proposed rule and provide for a more balanced, dual oversight of loan correspondents," NAMB president Jim Pair said in a comment letter on the FHA proposal. To conserve resources, HUD wants to stop dealing directly with brokers and focus its attention on FHA lenders that buy loans from brokers. Under the HUD proposal, FHA-approved lenders would be totally responsible for the quality and performance of broker loans. Meanwhile, the brokers want to remain connected to FHA in some way — along with their authority to obtain case numbers for FHA loans. "The inability to communicate with FHA or access FHA websites will pose serious issues for loan correspondents attempting to determine whether a borrower is eligible for FHA financing," NAMB said.

The Federal Reserve Board will be able to influence interest rates through sales of the mortgage-backed securities it has accumulated over the past year, according to a Fed official. Fed governor Donald Kohn said the central bank has no "shortage of tools" to tighten monetary policy and raise interest rates. "And we can sell portions of our holdings of MBS, agency debt and the Treasury securities if we determine that doing so is an appropriate approach to tightening financial conditions when the time comes," Mr. Kohn said at the American Economic Association annual meeting in Atlanta. Previously, Fed officials said their "oversized" balance sheet would shrink over time as MBS mature or prepay. As of mid-December, the Federal Reserve had purchased $1.1 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS and $157.7 billion in Fannie, Freddie and Federal Home Loan Bank agency debt. The Fed is planning to end its purchases of MBS by March 31.