Compliance & Regulation

A Federal Housing Administration loan modification program that was rolled out in August is gaining traction with larger residential servicers. "We're seeing some surprising activity with that program," FHA commissioner David Stevens told National Mortgage News. The FHA 'Home Affordable Modification Program' (HAMP) allows servicers to reduce the current principal amount of an existing FHA mortgage by up to 30% to make the monthly payments affordable. Servicers can file partial claims for the principal reduction and the borrowers end up carrying a zero-interest lien for the deferred principal. HAMP is a permanent program that also allows servicers to reduce the interest rate, extend the term of the loan and employ all of FHA's loss mitigation tools, said Bob Lyons, a servicing consultant with Lyons and McCloskey in Fairfax Station, Va. "FHA HAMP is all the home retention options rolled into one and supercharged," Mr. Lyons said.

Eric Wayne Moen, a former real estate agent from Park Rapids, Minn., pleaded guilty in federal court to defrauding GreenPoint Mortgage by conspiring to secure a $640,000 mortgage under false pretenses. According to B. Todd Jones, U.S. attorney for the District of Minnesota, Moen conspired with Kevin Ray Winkelmann to falsifying a mortgage loan application in order to secure a loan Winkelmann could use to purchase a house. Moen and Winkelmann generated fraudulent employment verification for Winkelmann for the application when he was not in fact employed. Based on the fraudulent application, GreenPoint wired $642,000 to a title company as part of the real estate closing process. Winkelmann was sentenced in March to six months in prison for his role in the scheme. Sentencing for Moen has not yet been scheduled.

The Department of Housing and Urban Department is going ahead with the implementation of a RESPA disclosure rule despite pleas by some industry groups to delay the effective date, according to a top HUD official. "We are absolutely moving forward on RESPA," HUD assistant secretary David Stevens told MortgageWire. "Jan. 1 is the implementation date." Some industry groups are complaining that the new Real Estate Settlement Procedures Act rule is complex and HUD is still providing guidance on implementation issues. The RESPA rule requires lenders and mortgage brokers to disclose their fees upfront on a standardized good faith estimate. The originator's fees cannot be increased before closing. The layout of the GFE and the revised HUD-1 settlement sheet also provides a clearer disclosure of the closing costs and how much the consumer will pay. "I think the new disclosures are going to have a very positive impact on consumers," Mr. Stevens said.

Servicers participating in the Obama Administration's Home Affordable Modification Program have placed over 500,000 borrowers in trial modifications, according to government officials, meeting a benchmark goal several weeks before the Nov. 1 deadline. Administration officials and HAMP servicers are meeting in Washington and they are expected to agree on new streamlined documentation requirements for the loan modification process. Preliminary numbers show HAMP servicers have picked up the pace of moving troubled borrowers into 90-day trial modifications. In addition, some of the modifications are being finalized. Wells Fargo Home Mortgage said it has done 63,000 trials and completed modifications in September, up from 33,200 trials in August. "We have remained focused on exceeding our share of the government's goal to reach 500,000 Home Affordable Modifications by Nov. 1," WFHM co-president Mike Heid said. Bank of America said it has close to 95,000 borrowers in trials, up from 59,900 in August.

The Federal Housing Administration's single-family mortgage insurance fund could be sitting on a deficit of at least $40 billion, according to a former Fannie Mae executive who now bills himself as an expert on affordable housing. Testifying before a House subcommittee Thursday morning, Ed Pinto, who served as Fannie's chief credit officer two decades ago, said FHA has $30 billion in reserve funds but at the end of September probably had $70 billion in losses on its $725 billion book of business. Mr. Pinto called the current $30 billion cash cushion at the government's mortgage insurance agency a "bookkeeping entry" that has already been spent by the government to reduce the federal deficit. Today, FHA originations account for about 25% of the market — and growing. According to figures compiled by National Mortgage News, FHA had a market share of just 2.5% back in 2006. (Some of that includes VA-backed loans.) FHA commissioner David Stevens has said repeatedly that the insurance fund would not need a taxpayer bail out. Mr. Stevens told NMN recently that, "I have read so many stories attacking FHA without relevant data." He added that, "We are insuring the best quality book of business we have ever seen in history — bringing in a lot of fresh MI premiums." Mr. Pinto worked at Fannie Mae from 1987 to 1989.

Joshua Gervolstad, a former mortgage broker from Redding, Calif., pleaded guilty to mail fraud in connection with a mortgage fraud scheme. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Gervolstad, who was a mortgage broker, submitted inflated appraisals and false lien documents for use in closing purchase transactions involving five different real properties located in Redding and Lodi. The closing statement for each property contained fraudulent papers requiring the payoff of a lien to an entity called TPG Investments. In each case, the lien did not exist. In reality, Gervolstad controlled TPG Investments and used its bank account to divert mortgage loan funds to himself and others. His scheme caused $1.8 million in fraudulent payouts for liens that didn't exist, affecting mortgages with a total value of $5.4 million. At least three properties were foreclosed on. Gervolstad is scheduled for sentencing on Dec. 14.

Fannie Mae and Freddie Mac have been given the green light by their regulator to aid the warehouse lending market by issuing guaranteed purchase agreements on residential loans that are in the process of being funded, according to industry officials familiar with the plan. At deadline, the GSEs and their regulator had not returned telephone calls about the matter. It's believed that if Fannie and Freddie issue a commitment to purchase a loan (a loan that is in the process of being funded) the warehouse lender of record will have to hold little or no capital against it, said one observer. This would make warehouse lending - which is already a profitable niche - even more so. Until now, the capital banks must hold against these credits has been one of the stumbling blocks to new entrants coming into the business. Over the past few months two of the largest players in warehouse lending - Colonial Bank of Alabama and National City of Cleveland - have either exited the sector or announced plans to do so. NatCity's warehouse group may be sold by its current owner, PNC Financial Services. Colonial failed this summer. Some of its clients are still being served by it acquirer, BB&T.

Ricky Dean Unruh of Wichita, Ks., and Steven Ray Spencer of Carl Junction, Mo., pleaded guilty in federal court to their roles in a $1.2 million mortgage fraud scheme. According to Matt J. Whitworth, U.S. attorney for the Western District of Missouri, the mortgage fraud schemes involved a total of 20 houses with home mortgage loans ranging from approximately $200,000 to $500,000. The amount of loan proceeds returned to the borrowers ranged from less than $30,000 to more than $100,000. Some of the home purchasers subsequently defaulted on the loans and the homes have been foreclosed or are in the process of being foreclosed. Unruh and Spencer each admitted that they participated in a conspiracy to obtain mortgage loans via false loan applications. The other members of the conspiracy, who have also pleaded guilty, include Charles M. Davis, Scott Allen Kassebaum and Kassebaum's wife, Cheryl Joan Kassebaum. Sentencing will be scheduled after the U.S. Probation Office completes a pre-sentence investigation.

U.S. District Judge J. Frederick Motz sentenced Osman Sharrieff Al-Bari of Washington, D.C., to 78 months in prison, followed by five years of supervised release, for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia and Virginia. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Al-Bari led a scheme in which he, his sister Jamilah Al-Bari, Terrence White, Timothy Reed and others paid straw purchasers to purchase houses for them. Many of the loan applications for the straw buyers misrepresented their income and assets. Al-Bari, White and Reed also created false invoices to claim that their company, Brotherly Investment Group, performed "renovations" on some of the properties. Using these false invoices, the conspirators were "repaid" at closing for the purported renovations. In total, the conspirators received $3.8 million in fraudulent funds. Many of the purchased properties have been foreclosed upon. Al-Bari is responsible for $2.5 million in losses from the scheme. Jamilah Al-Bari, White and Reed have all pleaded guilty to mail fraud in connection with their participation in this scheme and are scheduled for sentencing in the next two months.

As bankers continue to oppose a bill to create a consumer financial protection agency, lawmakers are turning up the heat by targeting specific reforms in areas like credit cards, interchange fees and overdraft programs. The House Financial Services Committee plans to hold a hearing Thursday on two such bills: one to speed up by two months implementation of recent credit card reform and another to regulate interchange fees. Senate Banking Committee Chairman Chris Dodd, meanwhile, is expected to introduce a bill soon to restrict overdraft fees. Policy analysts said the message from Capitol Hill to the financial services industry is pretty clear: get behind the consumer agency or get run over by individual reforms. "This is an effort to pressure the industry to negotiate on the consumer financial protection agency," said Jaret Seiberg, a policy analyst with Washington Research Group, a division of Concept Capital.