Compliance & Regulation

A top executive at the embattled Lend America says the government is taking action against his firm because an employee in the Inspector General's office at the Department of Housing and Urban Development has a "vendetta" against him. Lend America executive vice president and chief business strategist Michael Ashley made his comments to Newsday, a Long Island newspaper on Thursday night. Mr. Ashley, a defendant in a civil injunction case against the company, declined to name the employee. The injunction was denied on Wednesday, though HUD still has a notice of charges against Lend America, which the firm must respond to within 30 days. Lend America is a nonbank that depends on warehouse lines of credit. It ranks 18th nationwide in terms of GNMA issuance.

In passing a Consumer Financial Protection Agency bill, the House Financial Services Committee decided to shield mortgage and title insurers from the reach of the proposed consumer regulatory agency. The committee adopted an amendment by Reps. Gwen Moore, D-Wisc., and Erik Paulsen, R-Minn., that excludes insurance products from the CFPA's authority. The Mortgage Insurance Companies of America and the American Land Title Association welcomed this change and thanked the amendment sponsors for recognizing that insurers are already well regulated at the state level. "We are hopeful the Senate will concur with the House action," said MICA spokesman Jeff Lubar. ALTA chief executive Kurt Pfotenhauer noted the authority to regulate title insurance under the Real Estate Settlement Procedures Act will be transferred from HUD to the CFPA. "Excluding title insurance from the CFPA definition of 'financial activities' means that the title industry will not be subject to the new regulatory regimes intended for banks and other financial institutions," Mr. Pfotenhauer said.

For the first time in decades, Ginnie Mae is outpacing Freddie Mac in the issuance of mortgage-backed securities. For the year ending September 30, Ginnie Mae guaranteed $418.1 billion in residential MBS. During the same 12-month period Freddie issued $382 billion. Freddie's MBS issuance rose 22% over the past 12 months, while Ginnie Mae issuance jumped 55% — due mostly to a dramatic increase in the origination of Federal Housing Administration and Department of Veterans Affairs guaranteed loans. (VA loans backed nearly 20% of Ginnie Mae securities.) According to newly released figures, Freddie issued $31.8 billion in MBS during September. The GSE said it purchased $21.4 billion in refinanced loans during the month, down from $35.6 billion in August. The government sponsored enterprise also reported a 20 basis point monthly increase in its single-family delinquency rate. The percentage of Freddie loans 90 days or more past due and in foreclosure rose to 3.33% in September.

After being convicted on charges related to an elaborate mortgage fraud scheme, Richard Garries of Newport News, Va., was sentenced by U.S. District Judge Robert G. Doumar to 240 months in prison, followed by three years of supervised release and ordered to pay $900,000 in restitution. The new sentence is being added on to one already in place for a parole violation. According to Neil H. MacBride, U.S. attorney for the Eastern District of Virginia, Garries conspired with others to make money through reselling residential properties to buyers he brought in through false promises that the properties had been renovated, renters had been arranged for the properties, buyers would not have to spend their own funds and that buyers would be provided with cash back at closing. To secure loans for buyers, Garries inflated their income levels and bank account balances on applications and also provided them with money. Garries then arranged for buyers to use lenders he selected to obtain financing, for which he received a commission. At the time he committed these crimes, Garries was on probation from a previous federal conviction for wire fraud. While on probation, he concealed his income and assets from his probation officer. Garries was ordered in June to serve 24 months for violating his probation. Judge Doumar ordered Garries to serve his 240-month sentence consecutive to the previously imposed 24-month sentence.

In one of the first concrete steps the government has taken to unwind itself from the banking industry, the Federal Deposit Insurance Corp. said it would let its debt guarantee program expire at the end of the month while leaving a six-month window to deal with near-term emergencies. The agency's final rule would let banks that have participated in the Temporary Liquidity Guarantee Program issue new guaranteed debt after Oct. 31 under certain conditions, but face significantly higher fees if they do so. "It should be clear that this is not a continuation of the program, but an ending of the program with just a short-term emergency facility that is only available for clearly unforeseen and unexpected events," FDIC chairman Sheila Bair said at a board meeting. "It would carry very high fees, so I think we are almost completely out and I think it is a good sign that the markets are normalizing and the system is repairing itself." The agency's revealed its plan late Tuesday.

The House Financial Services Committee has approved a bill that would create a new Consumer Financial Protection Agency and revise the appraisal standards across the entire mortgage lending industry. By a 39-29 vote, the committee passed a bill which would give the newly-created CFPA director the authority to set and enforce the rules for mortgage and credit card lending. The new agency would take over the consumer lending rulemaking authority from the federal banking agencies. During the markup, the committee agreed to an amendment that would call on the CFPA director to work with the industry to establish one set of appraisal independence standards that would replace the Home Evaluation Code of Conduct adopted by Fannie Mae and Freddie Mac.

The Federal Housing Administration has delayed for a second time the effective date of new rules to tighten its condominium lending policies. The effective date is now Dec. 7, the agency said in a new notice. Until the new guidance takes effect, FHA said, "lenders may continue to use the Spot Loan Approval guidance issued on Mortgagee Letter 2009-19." The new FHA condo rules that were originally slated to go into effect Oct. 1 would have eliminated "Spot Loan Approval" that allows lenders to finance one condominium sale in a building that is not FHA approved. FHA subsequently delayed the effective date of the condo rules until Nov. 2 to make several modifications.

U.S. Housing and Urban Development Secretary Shaun Donovan has proposed an initiative designed to ensure its "core housing programs are open to all, regardless of sexual orientation or gender identity." The proposed rule will be open to public comment. In addition, HUD said it would commission the first-ever national study of discrimination against members of the lesbian, gay, bisexual and transgender community in the rental and sale of housing. Mr. Donovan said evidence shows "some are denied the opportunity to make housing choices in our nation based on who they are and that must end." Few state and local studies exist, HUD said, but for example, a study by Michigan's Fair Housing Centers found that nearly 30% of same-sex couples were treated differently when attempting to buy or rent a home. The goal, HUD said, is to clarify that the term "family" as used to describe eligible beneficiaries of its public housing and Housing Choice Voucher programs to include otherwise eligible LGBT individuals and couples. Plus, it will require HUD programs' participants to comply with local and state non-discrimination laws; and require that any FHA-insured mortgage loan must be based on the credit-worthiness of a borrower, not their sexual identity.

A federal court late Wednesday denied an injunction filed by the U.S. Attorneys' office in Brooklyn against Lend America, a development that will allow the nonbank — for now — to continue originating FHA loans. "The burden is high to get a judge to shut down a business instantly," said a spokesman for the Department of Housing and Urban Development. Spokesman Brian Sullivan noted that HUD still has a "notice of violations" against the Melville, N.Y.-based company which the company has less than a month to answer. He said HUD will continue to pursue action against the company. Almost all of the firm's production is FHA-backed. In a statement the lender said, "We are obviously pleased with the court's decision. We look forward to continuing our partnership with HUD and our mission of providing affordable financing for those borrowers in need." Earlier this week DOJ and HUD sought a court injunction to ban Lend America from originating FHA loans, accusing the nonbank lender with fraud in regard to $14 million in production. (The company also does business as Ideal Mortgage Bankers Ltd.) The government also sought injunctive relief against company executive Michael Ashley who holds the title "chief business strategist." According to figures compiled by National Mortgage News, Lend America ranks 18th nationwide in terms of GNMA MBS issuance. It services about $850 million in GNMA-backed product. Lend America recently stepped up plans for expansion into correspondent mortgage banking and wholesale that included FHA production. According to Newsday, back in 1993 Mr. Ashley pleaded guilty to three counts of conspiracy to commit wire fraud while employed by Liberty Mortgage Banking of Long Island. Asked about the guilty plea, a spokesman for the company said, "In Michael's eyes all that is in the past."

Barry C. Westergom, a former real estate appraiser from Jacksonville, Florida, pleaded guilty to fraud and conspiracy charges connected to a mortgage scheme. Sentencing for Westergom has not yet been scheduled. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Westergom was involved in a scheme in which a co-conspirator, Juan Carlos Gonzalez, negotiated the purchase of higher-end houses and entered into contracts with the sellers of the properties. Westergom was a licensed real estate appraiser and Gonzalez retained him to appraise the properties. Westergom used inappropriate comparable properties and other fraudulent means to appraise the properties. The appraised values were significantly higher than the agreed purchase price and the true market values of the properties. The inflated appraisals were submitted to lenders. Westergom knew that Gonzalez intended to submit the appraisal reports to lenders in support of mortgage loan applications. Gonzalez has pleaded guilty and is sentencing for scheduled on Nov. 9.