Compliance & Regulation

Lenders originated nearly $300 billion in Federal Housing Administration single-family loans through August with one more month to go in fiscal year 2009. In August, FHA endorsed $31.8 billion in loans bringing the 11-month total up to $298.6 billion, a 94% increase from the same period in FY 2008. As of Aug. 31, FHA's year-to-date portfolio of insured loans totaled $675.6 billion, an amount greater than what was seen during the full fiscal year ending Sept. 30, 2008 when it was $474.4 billion. Meanwhile, FHA defaults are up, too. The federal mortgage insurance agency had an 8.1% serious delinquency rate as of Aug. 31, compared to 6.9% on Sept. 30, 2008. At the end of August, 430,300 FHA loans were 90 days or more past due or in foreclosure. The agency has managed to keep its inventory of foreclosed houses relatively flat. But sales of real estate-owned totaled 61,900 for the first 11 months of FY 2009, up 48% from the same period in FY 2008. FHA currently has 39,000 in REO with an estimated value of $4.7 billion.

Mortgage industry groups are warning Department of Housing and Urban Department officials that they have to postpone the Jan. 1 effective date of a new Real Estate Settlement Procedures Act rule to avoid a compliance train wreck. "Despite the best motivations of HUD and the sincerest efforts of the industry, we are headed for a mortgage market train wreck on the tracks of RESPA compliance," according to six industry groups. The American Bankers Association, American Escrow Association, American Financial Services Association, Consumer Mortgage Coalition, Housing Policy Council and Mortgage Bankers Association contend that there is not enough time left to implement the new RESPA disclosure regime by yearend. "HUD has not provided clear and needed guidance on a timely basis to enable the industry to be fully RESPA-compliant by the first of the year," the Oct. 12 letter says. A spokesman said HUD secretary Shaun Donovan just received the letter and declined to comment at this time.

Kristen Anne Way, a former loan officer from Houston, was found guilty on a variety of charges stemming from her involvement in a mortgage fraud scam. Way was found guilty of conspiracy to commit wire and mail fraud, wire fraud, conspiracy to commit money laundering, engaging in a monetary transaction in criminally derived property and money laundering. According to Tim Johnson, U.S. attorney for the Southern District of Texas, Way was a loan officer at Consumer Direct Mortgage in 2005 and 2006 when she participated in the submission of fraudulent loan applications and packages to residential mortgage lenders across the country. Way and her co-conspirators allegedly misrepresented the credit worthiness of individual borrowers who were recruited to purchase multiple properties to the mortgage lenders. Additional misrepresentations were made regarding the purchase of these properties as primary residences when in fact the borrowers intended to purchase the properties as investments. Fraudulent loans in excess of $24 million were obtained during the entire length of the scheme. Way has been permitted to remain on bond pending her sentencing, which is set for early next year.

The Obama administration is set to announce a new program to help troubled borrowers whose mortgages are deemed ineligible for modification. "Maybe this week but certainly next week," said Laurie Maggiano of the Treasury Department's Office of Homeownership Preservation. Speaking at the Mortgage Bankers Association's annual convention, Ms. Maggiano said Treasury would set out the parameters under which servicers can earn financial incentives if they offer borrowers the option of participating in a short sale and deed in lieu of foreclosure. "There's really no magic. We haven't reinvented the wheel," Ms. Maggiano told industry executives in San Diego. To cut down on the paperwork, the program will provide a standardized set of forms. It will also cap the amount of money that can be paid to subordinate lien holders who agree to waive their interest in a property. The government expects that some second mortgage investors will "walk away" from the program because the compensation being offered will be too little. But Ms. Maggiano, who is director of policy in the preservation office, told a standing room only session that by setting a limit, the White House is hoping to eliminate time consuming back-and-forth negotiations between servicers, borrowers and investors. "We are hoping to set an industry standard so investors will know exactly what they can expect," she said.

The House Financial Services Committee will start a marathon markup session this Wednesday (Oct. 14), voting on two contentious measures that would create the much talked about Consumer Financial Protection Agency and impose a new regulatory regime on derivatives. The committee is expected to take up the derivative bill first. The markup of the CFPA bill (H.R. 3126) could extend into the following week. Committee chairman Barney Frank, D-Mass., has been working with community banks to address their concerns about the new agency. Despite strong opposition from the America Bankers Association, Financial Services Roundtable, American Financial Services Association and Chamber of Commerce, Rep. Frank is expected to have the votes to pass the CFPA bill out of committee. Late last week President Obama said the CFPA will have the power to set "clear rules" for mortgage and credit card lenders and enforce them. The president said the Chamber of Commerce and financial firms are lobbying against the CFPA bill to "maintain the status quo and maximize their profits at the expense of American consumers." He stressed that the new agency will not restrict consumer choice and financial innovation as opponents have claimed.

Residential servicers using the Obama administration's loan modification program are ramping up to modify 25,000 to 30,000 a week, but it will not be enough to keep pace with rising foreclosures, according to the Congressional Oversight Panel, which watches over the Troubled Asset Relief Program. The Treasury Department's "own projections" show that "fewer than half of the projected foreclosures" will be prevented by the Home Affordable Modification Program, a new COP report says. The oversight panel also warns that HAMP is not designed to address defaults associated with negative equity and the coming wave of resets on interest-only and payment-option mortgages. The authors note that negative equity has become a drag on self cure rates. Historically, "nearly half of all prime defaults would cure on their own," but now it is only 6.6%. The COP also cites research showing that 77% of payment option ARMs are underwater and 25% are seriously delinquent or in foreclosure. "It increasingly appears that HAMP is targeted at the housing crisis that existed six months ago, rather than as it exists right now," the report says. The IO and POA resets will last through 2012.

Twelve individuals, including mortgage brokers, loan officers and attorneys, have been charged with engaging in a scheme to defraud various lending institutions by using fictitious identities and documents to obtain more than $9 million in residential mortgages. According to Preet Bharara, U.S. attorney for the Southern District of New York, the defendants and others purchased dozens of residential properties throughout New York City and Long Island with fraudulent mortgages. These mortgages, which amounted to 100% of the purchase price of the residences, were allegedly obtained using names of fictitious individuals or individuals whose identification information was misappropriated or misused. The defendants, who could not be reached for comment, are charged with providing lenders with false IDs, false employment, income and rental information and fraudulent bank statements. Most of the loans are now in default. The New York defendants charged include: Jeffrey Larochelle, a loan processor from Bay Shore; Eric Finger, an attorney from Mineola; Foriduzzaman Sarder (Jackson Heights); Sakat Hossain (Jackson Heights) and others. One defendant is a resident of Mississippi.

Simply extending the $8,000 first-time homebuyer tax credit will not provide much stimulus for the economy, according an IHS Global Insight economist. "The first time buyers who were going to use it would have used it already," said Global Insight economist Patrick Newport. Congress has to "expand it in some way to have any impact," he said. The Obama administration and congressional Democrats are discussing ways to create more jobs and stimulate the economy and a homebuyer tax credit extension is in the mix. The first-time homebuyer tax credit is due to expire November 30 and the National Association of Home Builders and others are pushing for an extension that expands the tax credit to all home buyers. NAHB president and CEO Jerry Howard says it would kick start the move-up market, generate more sales and construction, and create 350,000 jobs. But it would cost the government $30 billion to $35 billion for a full year. "To get the most bang for the buck, it is has to be in effect throughout the spring and summer home buying season," Mr. Howard said.

The Troubled Asset Relief Program has made strides, but transparency and implementation issues remain, according to a new Government Accountability Office report. "While progress has been made in establishing TARP, much remains uncertain about the program, including whether it will pay for itself or prove to be a cost to the taxpayers," the GAO wrote. The Treasury must give updates on the uses of the almost $365 billion in TARP funds that it has disbursed, the report said. The department is winding down some programs, but others in their infancy face implementation hurdles. Without more direction on the money's use, the report said, the Treasury will be limited in planning the program's next steps. The report recommended that the Treasury strengthen Tarp programs' oversight, communication and transparency. It also should establish a framework for deciding whether to extend Tarp, which is to expire at yearend, and document its decision-making processes and reasoning for Congress.

Even though the Federal Reserve plans to wean itself from buying mortgage-backed securities from Fannie Mae and Freddie Mac some time next Spring, the government still accounts for most GSE MBS purchases, according to the Mortgage Bankers Association. Basing its figures on August MBS sales, MBA said the Federal Reserve accounted for 79.5% of all GSE issuances, with the Treasury gobbling up another 9% for a total of 88.5%. MBA chief economist Jay Brinkmann told National Mortgage News that he thinks one explanation for the government buying so much of the product is that they might be overpaying for it, causing other investors to sit on the sidelines and stick to their pricing models. He said private equity money is chasing higher yield returns on such things as distressed assets and commercial properties. "There is no desire to get in at these prices," he said of the GSE MBS market.