Compliance & Regulation

Ahead of its first hearing this week, the Financial Crisis Inquiry Commission has named Thomas Greene its executive director. Mr. Greene moves to the commission, which is charged with investigating the cause of the financial crisis, after 25 years in the California Attorney General's Office. He was most recently the chief assistant attorney general of the public rights division and has worked on the antitrust case against Microsoft Corp. "Tom has the skills and experience needed to help the commission conduct the full, fair inquiry into the financial meltdown that the American people deserve," Phil Angelides, the commission's chairman, said in a statement.

House Financial Services Committee chairman Barney Frank, D-Mass., said he is working with small banks and credit unions to craft a bill that will create a new consumer protection agency. Many financial services groups and the U.S. Chamber of Commerce have lined up against the creation of a new agency that would write and enforce the rules for mortgage and other forms of consumer lending. But chairman Frank is trying to get small depositories on his side as his committee prepares to mark up a Consumer Financial Protection Agency bill on Sept. 23. "We are working with them on legitimate concerns and I am confident we will get a tough enforcement agency to protect consumers," Rep. Frank said in an interview with Bloomberg News. The Independent Community Bankers of America has been talking with Rep. Frank. "We have offered our ideas. We will have to see how far he goes," said ICBA's top lobbyist Steve Verdier. The Financial Services Roundtable opposes the idea of stripping the federal bank regulators of their consumer protection functions and giving the CFPA enforcement and rulemaking authority over national banks. "The better answer to consumer protection is to amend the charters of the existing prudential regulators, giving consumer protection parity with safety and soundness regulation," Roundtable president and chief executive Steve Bartlett said.

Federal regulators expect banks and thrifts to move certain mortgage securitizations onto their balance sheets due to new accounting rules and are seeking comment on the impact it will have on capital ratios. The new Financial Accounting Standard Board rules go into effect in January. Request for comment was published in Tuesday's Federal Register and is a short 30 days. Institutions have until October 15 to respond and convince regulators that they need capital relief. The request for comments asks whether a phase-in of risk-based capital requirements over four quarters is needed. Federal Reserve Board chief accountant Arthur Lindo told certified public accountants at their annual banking conference that certain private-label mortgage backed securities are "likely to come on board." And securitizations where the servicing bank has residual interests are likely to be consolidated under Financial Accounting Standards 166 and 167.

Rosario Divins, a self-proclaimed foreclosure prevention specialist from San Antonio, was sentenced to 350 months in federal prison, followed by three years of supervised release, for criminal contempt and mail fraud. In addition to the prison term, U.S. District Judge Fred Biery ordered that Divins pay $83,600 restitution to her victims. According to John E. Murphy, acting U.S. attorney for the Western District of Texas, Divins was convicted in June of seven counts each of criminal contempt and mail fraud. The jury found that since January 2000, Divins engaged in a fraudulent foreclosure prevention scheme. Testimony during the three-day trial revealed that Divins collected more than $80,000 in cash from individuals in desperate financial situations who responded to her mail-out offering to stop their residential foreclosures. Divins continued to implement her scheme despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients.

A congressional watchdog agency says loan modification programs Fannie Mae and Freddie Mac are implementing involve "additional risks and costs" for the GSEs and could make it harder for the government to move them out of their conservatorships. "Investors might be unwilling to invest capital in reconstituted enterprises unless the Treasury assumes responsibility for losses incurred during their conservatorship," the General Accountability Office says in a report on the future of the government sponsored enterprises. Under the modification programs, Fannie and Freddie could provide up to $25 billion in incentives for borrowers and servicers. The GSEs also incur additional expenses and studies show 40% of modified loans could become delinquent again. The Federal Housing Finance Agency contends the modifications, refinancings and short sales will help stabilize the housing market and save the GSEs many billions of dollars. "While FFHA's positions are plausible, it is too early to reach any conclusion about the effects that the initiatives will have on the enterprises' financial condition," GAO says.

If the Federal Reserve Board suddenly stops purchasing agency mortgage-backed securities on Jan. 1, mortgage rates could jump by 30 basis points to 50 bps, according to Fannie Mae chief economist Doug Duncan. Conventional mortgages with principal balance up to $417,000 would likely rise by 30 bp and rates on higher balance loans of $650,000 to $729,750 could go up by 50 bps, he told MortgageWire. The Fed's $1.25 trillion MBS purchase program is slated to expire Dec. 31. But Mr. Duncan expects the Fed will extend and slowly wind down its purchases of Fannie, Freddie Mac and Ginnie Mae MBS. "Thus, incremental winding down of the Fed's program may not be too disruptive of rates and spreads," Mr. Duncan said in his August economic forecast. The Fed is expected to decide how it will wind down the MBS purchase program at the Sept. 22-23 Federal Open Market Committee meeting.

The Department of Housing and Urban Development said the Federal Housing Administration is delaying the Oct. 1 effective date of its new condominium policies for one month while it finalizes several modifications. A mortgagee letter issued in June allows FHA direct endorsement lenders for the first time to approve condominium projects so that unit sales can be financed with FHA-insured loans. The industry has welcomed this new streamlined approach to building approvals. However, FHA continues to limit the number of condo units that can be financed in one complex to 30%. And 50% of the units must be occupied before FHA financing can be used. The National Association of Realtors has been pressing HUD to relax those restrictions. "We'll be issuing new guidance soon, with several modifications to the policy described in Mortgagee Letter 09-19," a HUD spokesman said, with a November 2 effective date.

Federal regulators have closed Illinois-based Corus Bank, the lender on several high-profile Tampa Bay area projects. The Federal Deposit Insurance Corp., which was appointed receiver after Corus was seized late Friday, entered a purchase and assumption agreement with MB Financial Bank of Chicago. MB will pay a 0.2% premium to assume all the deposits, the FDIC said in a release. MB also agreed to purchase about $3 billion of assets, mainly cash and marketable securities, the release said. The FDIC said it plans to sell substantially all of the remaining assets of Corus Bank in the next 30 days in a private placement. The failure of Corus will cost the FDIC's deposit insurance fund $1.7 billion, the release said.

The Federal Deposit Insurance Corp. will auction off a $788 million portfolio of performing and nonperforming commercial loan participations that belonged to the failed Silverton Bank of Georgia. The sale is being brokered by DebtX. The collateral — located in 27 states — consists of commercial real estate including commercial and industrial loans. The largest loan in the pool is a $20.7 million participation of residential lots in Las Vegas, one of the hardest hit housing markets in the nation. The bid deadline is October 20. DebtX CEO Kingsley Greenland said the sale is generating "strong investor interest, particularly among community banks, which have traditionally been the most active buyers of loan participations."

The Federal Deposit Insurance Corp. is "encouraging" its loss-sharing partners to temporarily reduce mortgage payments for at least six months when borrowers lose their jobs. "With more Americans suffering through unemployment or cuts in the paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures," FDIC chairman Sheila Bair said. FDIC provides loss-sharing protection to banks and other acquirers of failed depositories so they will acquire and manage the troubled assets. These acquirers also agree to follow a FDIC loan modification program for struggling borrowers. Now FDIC wants homeowners who lose their job to get immediate relief. "This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less," chairman Bair said.