Compliance & Regulation

The new Federal Housing Administration commissioner said the suspension of Taylor, Bean & Whitaker should send a clear message to the mortgage industry that FHA will not do business with lenders that don't play by the rules. "If you don't operate within our standards — if you don't act transparently and ethically — we won't do business with you," FHA commissioner David Steven said in a recent speech that was just released by the agency. The Department of Housing and Urban Development suspended TBW from making FHA single-family loans on Aug. 4 after it learned the Ocala, Fla.-based lender failed to provide financial statements and did not disclose that it was the target of two separate investigations. Shortly afterwards, TBW ceased originating loans. On Aug. 14, Mr. Stevens told a Housing Renaissance meeting in San Diego that FHA will improve lender monitoring as well as tighten product guidelines and counterparty requirements to "ensure the strength of the FHA Mutual Mortgage Insurance Fund over the long term."

Federal Housing Administration officials expect to insure over two million single-family loans in fiscal year 2009, which ends September 30, and 2.25 million in FY 2010. During the first three quarters of FY 2009, FHA endorsed approximately 1.39 million loans totaling $255.8 billion. To reach two million, FHA will have to endorse over 600,000 mortgages in the final quarter. The latest "FHA Outlook" report shows the agency insured 197,600 loans, including FHA-insured reverse mortgages, in July, which is a new record for the agency. "Given our expectation that FHA loan volumes will continue to be high until the credit crisis passes, we have just received authorization by Congress for the authority to endorse up to $400 billion for FHA insurance and are asking the same for next year," FHA commissioner David Stevens said in an Aug. 14 speech that was just released by the agency. Based on average loan size, FHA loan volume will hit $367.5 billion if two million loans are endorsed.

Jake David Abegg Whitman of Mesa, Ariz., pleaded guilty to federal fraud charges related to his participation in a cash-back mortgage fraud scheme involving 19 unimproved residential properties in the greater Phoenix area. According to John J. Tuchi, U.S. attorney for the District of Arizona, Whitman played a leadership role in a conspiracy to obtain mortgage loans that were substantially larger than the actual value of the properties. Whitman owned 10 of the properties and served as branch manager of the mortgage broker Academy Mortgage that processed the loans. Whitman worked with an appraiser to obtain inflated appraisals for the properties and recruited buyers to purchase the properties at the inflated prices. To overcome the buyers' inability to provide the down payment, Whitman secretly supplied the down payment to the buyers and also provided cash back to the buyers at closing. The properties eventually went into foreclosure and cost lending institutions nearly $1 million in losses. Whitman is cooperating with authorities in the prosecution of others. U.S. District Judge G. Murray Snow has scheduled sentencing for Oct. 26.

The Mortgage Bankers Association took an $8.6 million loss for the fiscal year ending September 30, 2008 as the mortgage crisis took its toll on MBA members and the trade group's revenues fell by 31% to $39.4 million. In fiscal year 2007, MBA generated a $6.7 million surplus with total revenues of $57.1 million, including $13.9 million in member dues and assessments. In its latest annual filing with the Internal Revenue Service, MBA reported that dues and assessments fell by 20% to $11.1 million. MBA expects to take another loss in FY 2009 and show a positive result in FY 2010, according to MBA spokeswoman Cheryl Crispen. MBA's board of directors has just approved its FY 2010 budget and it shows a "balanced, slightly positive" budget, she said. MBA moved into its newly constructed headquarters in June 2008 that is listed as a $98.6 million asset on the IRS report. MBA planned to lease out 60% of the building but reported no rental income. MBA has leased some of the space and there is "substantial interest" in the remaining office and retail space, Ms. Crispen said.

Robert Andrew Penn and Keven M. Lafavers, both formerly of Indianapolis, were indicted for federal mortgage fraud charges and have a trial date set for this fall. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, Mr. Penn and his numerous business entities, with the assistance of Mr. Lafavers and others, allegedly obtained at least 112 fraudulent loans, totaling $12.6 million. Participants in the schemes allegedly located straw purchasers who invested their good credit, but no money, to be the purchasers of properties at a much higher price than that negotiated with the seller. Seven other individuals were charged earlier this year with allegedly participating with Mr. Penn and Mr. Lafavers in their mortgage fraud crimes. The investigation is continuing. Trial is currently set for both defendants, who were unavailable for comment, before U.S. District Court Judge David F. Hamilton on Sept. 21.

U.S. District Judge Raymond A. Jackson sentenced Kristina Marie Cardwell, a former attorney from Virginia Beach, Va., to 66 months in prison, followed by three years of supervised release for her participation in a mortgage fraud scheme. Cardwell was also ordered to pay $708,339 in restitution. Cardwell also consented to her license to practice law being revoked. According to Dana J. Boente, U.S. attorney for the Eastern District of Virginia, Cardwell worked at law firms associated with co-defendant Troy Aurelius Titus for nearly 10 years. She admitted to purchasing three residential properties in Virginia Beach from entities associated with Mr. Titus. She purchased the properties in her own name and received mortgages on the properties, although she intended for Mr. Titus to retain control over the properties and sell them to third parties at a later time. The funds taken from Cardwell's purchases were allegedly used to cover some of Titus's financial obligations. While applying for the mortgages, Cardwell made false statements about her income, assets and financial liabilities. During the application process, thousands of dollars were moved into Cardwell's bank account to inflate her account balance then moved out of the account. Mr. Titus, who is currently in custody, is scheduled to appear in court on Nov. 10 and could not be reached for comment.

Government-sponsored enterprise regulator James Lockhart is joining Wilbur Ross' firm, which specializes in managing funds that invest in distressed companies such as American Home Mortgage Services and BankUnited. Mr. Ross cited Mr. Lockhart's "unique insights into the U.S. mortgage markets" in the hire, saying this would help the company expand investment opportunities for its institutional and individual clients. Federal Housing Finance Agency director Lockhart — who recently stated his decision to step down — will become the vice chairman of WL Ross & Co. LLC in September. Mr. Lockhart will officially step down as the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks on Friday (Aug. 21) and Edward DeMarco will assume the duties of acting FHFA director on Monday.

Wolters Kluwer Financial Services, Minneapolis, is offering banks, credit unions and mortgage lenders a "tool kit" aimed at helping them prepare for new Real Estate Settlement Procedures Act requirements. The company said its RESPA Tool Kit offers financial institutions an overview of the Department of Housing and Urban Development's changes. These include revisions to the Good Faith Estimate and HUD-1 and HUD-1A documents, as well as Settlement Cost booklets. The new RESPA requirements are slated to take effect on Jan. 1, 2010. Wolters Kluwer Financial Services provides compliance, content, and technology services.

After being indicted in June on multiple fraud charges, Hayung Peter Jin, a loan broker from Centreville, Va., pleaded guilty before U.S. District Judge James C. Cacheris and faces sentencing later this year. According to Dana J. Boente, U.S. attorney for the Eastern District of Virginia, Jin operated Business Capital and Investments, a loan brokerage business that served primarily Korean Americans in the Washington metropolitan area. Jin was involved in two separate fraud schemes. In one scheme, Jin convinced a former client to sell his home to a South Carolina businessman who had never agreed to purchase the home. Jin then used the businessman's name and Social Security number to obtain financing for the bogus purchase, plus additional home equity loans in the businessman's name. Jin fraudulently obtained $620,000 in financing. In the other scheme, Jin convinced a local businesswoman that he had obtained four borrowers who wanted to borrow $360,000 from her, when in fact the alleged borrowers had never agreed to such an arrangement. Jin forged four promissory notes and gave them to the businesswoman to induce her to transfer the $360,000 under the false promise that Jin would transfer the funds to the four "borrowers." Jin then kept the funds for himself. Sentencing has been set for Nov. 13.

The Federal Reserve Board has extended the TALF program into next year to see if the special financing facility can finally provide a boost for the commercial mortgage-backed securities market. The Fed noted that the CMBS market is "still impaired" as it extended the Term Asset-Backed Securities Loan Facility for legacy CMBS until March 31 and new CMBS until June 30. The TALF program was due to expire at yearend. But several members of Congress and commercial real estate groups have been urging the Fed to extend the program because of the limited availability of financing for maturing CRE loans. In addition, the TALF program for CMBS has gotten off to a slow start and it has only financed the purchase of $670 million in legacy CMBS so far. The Fed is expected to approve the first new CMBS deals using TALF financing on Thursday (Aug. 20).