Compliance & Regulation

The Government National Mortgage Association is contemplating selling the $1.3 billion residential servicing portfolio that it recently seized from Lend America of Melville, N.Y. An agency spokeswoman confirmed that GNMA recently took control of the receivables and placed it with a subservicer — Loan Care Servicing Center of Norfolk, Va. "We just completed the transfer and are performing our due diligence," she said, adding that "We cannot make a determination on the sale of servicing rights until that process is completed. Of course any final decision will be made based on what is in the best interest of taxpayers." Investment banking sources say the portfolio is suffering from higher than average delinquencies. GNMA and FHA suspended Lend America last month. The company laid off most of its work force and is no longer funding new loans.

The advocacy arm of the Small Business Administration is taking the Federal Reserve Board to task for failing to estimate the economic impact a proposed mortgage lending rule would have on community bankers and mortgage brokers. The Fed has an "obligation" under the Regulatory Flexibility Act (RFA) to estimate the costs of changing the timing of Truth in Lending Act disclosures and imposing restrictions on loan officer and broker compensation, according to the SBA Office of Advocacy. "Failure to do so not only compromises and usurps the purpose of the RFA; it also impinges on the board's ability to consider less burdensome alternatives as required by the RFA," advocacy office acting chief counsel Susan Walthall says in a comment letter to the Federal Reserve Board. Under the Fed's TILA proposal, loan officer and broker compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The National Association of Mortgage Brokers has proposed an alternative to prohibiting yield spread premiums, Ms. Whitehall says. It would ensure consumers know the "lowest interest rate the creditor will accept" so they can tell if the originator has increased the rate. "Advocacy encourages the board to consider this less costly alternative," the acting chief counsel says.

The Federal Housing Administration should give lenders five years, instead to three years, to meet a higher $2.5 million net worth requirement, according to the Mortgage Bankers Association. The current net worth requirement for FHA-approved lenders is $250,000. "MBA supports limiting the approval process to qualified mortgagees and increasing the net worth requirement," MBA president and chief executive John Courson says in a comment letter to the Department of Housing and Urban Development. "However, we strongly believe market conditions merit an increased phased-in period," MBA says, "with lenders meeting a minimum net worth of $1 million by the end of year one." HUD wants to raise the minimum to ensure the financial strength of lenders that endorse FHA-insured mortgages. "Based on MBA analysis, it will take companies with a current net worth of approximately $1 million five years to retain enough earnings to reach the $2.5 million threshold," the trade group says.

Columbia, S.C.-based origination vendor Avista Solutions said it has updated its Avista Agile suite of products such that it is compliant with the changes to the Real Estate Settlement Procedures Act that go into effect on Jan. 1, 2010. The updates are available for retail, wholesale or correspondent lending channels. At the heart of the RESPA change is the consumer concern that the initial transaction outlined in the Good Faith Estimate can change by the time the loan is closed, with unexpected fees showing up on the HUD-1 Settlement Statement. The new rules require that the documents be consistent, and if there are changes, they be supported by specific documented changes in the circumstances of the loan. Avista Solutions provides side-by-side comparison screens for users to check for variances between the GFE and HUD-1. All changes of circumstance can be tracked and are available for review.

Federal Housing Administration lenders are expected to charge reasonable origination fees but in most cases they will no longer be bound to a 1% limit, according to the Department of Housing and Urban Development. As a result of a new Real Estate Settlement Procedures Act rule, "FHA no longer limits the origination fee to 1% of the mortgage amount for its standard mortgage insurance programs," HUD says in mortgagee letter 2009-53. However, the 1% limit will continue to apply to FHA-insured reverse mortgages and FHA 203(k) purchase/renovation loans. The new RESPA rule that goes into effect Friday (Jan. 1, 2010) mandates the use of a standardized Good Faith Estimate disclosure that bundles all origination charges into a single fee. The GFE does not disclose the lender's origination fee as a single line item. "FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged," FHA commissioner David Stevens says in the mortgagee letter.

To expedite sales of foreclosed properties, Fannie Mae says it will accept a buyer's purchase offer without notifying the servicer and before it determines whether the lender has to reimburse the secondary market agency for any losses. According to a December 24 servicing guide, Fannie Mae will accept a purchase offer "whether or not" the mortgage quality assurance review has been completed. "If, after completion of the review, Fannie Mae determines that the mortgage loan did not meet its eligibility or underwriting requirements and Fannie Mae has incurred a loss by selling the property, the lender will be required to fully reimburse Fannie Mae for its loss," according to Fannie Announcement 09-38. During the first three quarters of 2009, Fannie has taken control of 98,400 single-family or real estate owned properties and sold 89,700 REOs.

GMAC is in line to get an additional $3.5 billion in assistance from the Treasury Department to cover mortgage losses from its troubled Residential Capital unit, according to published reports. Losses due to ResCap's mortgage operations totaled $3.9 billion for the first three quarters of 2009, including a $747 million loss in the third quarter. Treasury is expected to announce the $3.5 billion capital infusion soon, according to the Wall Street Journal, and GMAC is expected to announce a large writedown of its mortgage assets, as well. "GMAC has been conducting a strategic review of its business and evaluating options to address the challenges at ResCap and the mortgage operations," a GMAC spokeswoman said Wednesday. "We have no specific actions to announce at this time," she added. Treasury officials could not be reached for comment.

The Federal Reserve Board should permit compensation of loan officers and mortgage brokers based on a percentage of the loan amount with a minimum and maximum limit, according to the Consumer Mortgage Coalition. "It should also be permissible to use percentages that decrease as the loan amount increases," CMC says in a comment letter on a proposed Truth in Lending Act rule. Under the Fed's TILA proposal, LO and broker compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The Fed invited comment on allowing compensation based on the loan amount. The industry trade group recommends that lenders should be permitted to reduce compensation for loans with high loan-to-value ratios. This approach would address the Fed's concerns about originators financing closing costs and packing other fees into the loan amount. CMC also wants the Fed to allow compensation based on the overall loan volume -- in terms of number of loans and loan amount. "We request clarification that compensation may be based upon pull-through rates, file quality, customer satisfaction and communication quality. Lenders need these common sense management tools," CMC says.

Mortgage brokers are urging the Federal Reserve Board to withdraw a proposed rule that would regulate broker compensation and delay any action until Congress finalizes pending consumer protection legislation. The National Association of Mortgage Brokers said the Fed has not met the standard for determining that the payment of yield-spread premiums to brokers is an "unfair and deceptive" practice. "Such a determination should be made, if it is to be made, by Congress, not the board," NAMB says in a comment letter on the Fed's Truth in Lending Act proposal. Under the proposed TILA rule, compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The Fed suggests that loan officers and mortgage brokers could be compensated based on a set percentage of the loan amount. As an alternative, NAMB suggests a mortgage brokerage business could receive secondary market fees and compensate the brokerage's LOs based on a percentage of the loan amount. "NAMB strongly urges the board to explore this proposed alternative ... prior to finalizing any rule," the trade group says.

The Treasury Department will stop purchasing Fannie Mae and Freddie Mac mortgage-backed securities on Dec. 31, but the department is increasing its capital support for the two financially strapped government-sponsored enterprises. As of Nov. 30, Treasury had purchased $211.5 billion in Fannie and Freddie MBS. "By the conclusion of its MBS purchase program, Treasury anticipates that it will purchase approximately $220 billion of the securities," according to a Treasury statement. Treasury has provided each GSE with a funding commitment of $200 billion to ensure each secondary market agency maintains a positive net worth while the GSEs deal with severe loan losses. Fannie has already received $51 billion in capital infusions and Freddie $60 billion. Now Treasury is lifting the $200 billion cap to accommodate any capital needs over the next three years. "The agreements announced today should leave no uncertainty about Treasury's commitment to support these firms as they continue to play a vital role in the housing market," Treasury said Thursday afternoon. Fannie and Freddie were placed in conservatorships in September 2008.