Compliance & Regulation

Former Ginnie Mae president Joseph Murin and former FHA commissioner Brian Montgomery are launching a Washington consulting firm to provide advisory services for mortgage company executives. Mr. Murin said the firm aims to help clients operate strategically in a business environment where markets and the regulatory landscape are shifting. The Collingwood Group already has an office on Pennsylvania Ave. and it has merged with Capital Financial Solutions, which was founded by two former Fannie Mae executives. Mr. Montgomery said the merger will give Collingwood clients access to expertise in fraud prevention, risk management analytics, mortgage fulfillment services, REO and loan modification management. The former Ginnie Mae and Federal Housing Administration officials recently left their government posts and they cannot directly contact those agencies on behalf of clients for one year.

Freddie Mac has appointed Bruce M. Witherell, a former managing director at Morgan Stanley, to be its new chief operating officer as it seeks to improve its operations. Freddie chief executive officer Charles Haldeman cited a need for operational efficiency and excellence at Freddie Mac in conjunction with the appointment. The new Freddie COO was co-head of Morgan Stanley's residential mortgage business. He previous worked at Lehman Brothers and was CEO of Aurora Loan Services.

Single-family housing starts rose 1.7% in July following a 17% surge in home construction during the previous month. The U.S. Census Bureau reported that single-family housing starts increased at a seasonally adjusted annual rate of 490,000 in July, up from 482,000 in June, as construction activity rose for the fifth consecutive month. The June rate was revised upward from 470,000, which means starts jumped by 17.3% from May to June, higher than the 14.4% the Census Bureau reported last month. The Census Bureau also reported that multifamily starts fell to an all-time low of 80,000 units in July, down 72% from a year ago. "The credit market and overbuilding are hammering multifamily housing construction," IHS Global Insight economist Patrick Newport said. He noted that the securitization market collapsed in 2008 and the banks have tightened credit on commercial real estate mortgages. "Going forward, multifamily starts are nearing a bottom, and should start growing later this year," Mr. Newport said.

After being found guilty of fraud and money laundering charges in connection to participating in a commercial mortgage fraud scheme, Larry P. Nardelli of Tampa, Fla., has been sentenced to 48 months in federal prison and ordered to pay $26.3 million in restitution. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Nardelli and his co-conspirators agreed to purchase and immediately "flip" vacant land for double the money by falsely obtaining loans for the land. Nardelli entered into sham contracts that falsely represented to victim banks that the contract proceeds gave him the equity necessary to purchase the vacant land. The banks unwittingly loaned money for approximately 140% of the value of the land. The conspirators then purchased the land and distributed the excess funds among themselves in various amounts. The loans went unpaid. Two co-conspirators, Michael Tringali and closing attorney John Yanchek previously pleaded guilty and have been sentenced. One conspirator, Neil Mohamed Husani is in Jordan, and efforts are underway to extradite him back to Florida for prosecution.

The first of four participants in a foreclosure fraud scheme that targeted mortgage lenders and homeowners has been sentenced to nearly five years in prison. U.S. District judge Deborah K. Chasanow has sentenced Earnest Lewis of Takoma Park, Md., to 54 months in prison, followed by three years of supervised release. The defendant also agreed to forfeit $2.2 million gained from the scheme. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Earnest Lewis' brother, Michael Lewis, aired TV ads claiming he could save financially vulnerable individuals' homes from foreclosure. The Lewis brothers and mortgage loan officer Winston Thomas fraudulently promised to help homeowners keep their homes by temporarily using the "good credit" of Earnest Lewis to refinance their homes after they signed their homes over to Earnest Lewis for roughly one year. In the meantime, they could remain in their homes by paying "rent." The victims' bank accounts were directly debited by an account belonging to co-conspirator Cheryl Brooke's company, In the House Technologies. Michael K. Lewis, Brooke and Thomas have all pleaded guilty and are scheduled for sentencing in September.

The Department of Housing and Urban Development has issued guidance to give settlement service providers a better understanding of a RESPA rule that goes into effect January 1, but it doesn't get into the more complicated issues that some lenders and title companies are "grappling with," one expert said. RESPA attorney Phillip Schulman noted that the written responses HUD has provided to frequently asked questions will be "informative and instructive" for those who are not familiar with the Real Estate Settlement Procedures Act rule. However, the new RESPA rule completely revises the HUD-1 settlement sheet and requires lenders to provide a standardized good faith estimate disclosure to mortgage applicants. "For lenders and title guys who have been struggling to put the software together — to be able to complete the revised HUD-1 and GFE — the instructions were lacking," Mr. Schulman said. The K&L Gates Washington partner is hoping HUD will do a second round of frequently asked questions to address some of the more difficult issues.

A real estate company owner who obtained over $4 million in mortgage loans through fraudulent means has pleaded guilty to his role in the scam. Michael I. Striker of Minnetonka, Minn., was the president and sole owner of U.S. Equities of Minnesota, a real estate company that entered into 21 real estate loans with Associated Bank from March 2003 to September 2003, according to Frank J. Magill, U.S. attorney for the District of Minnesota. A co-defendant was a construction loan officer at the bank who processed and approved the loans, which totaled more than $4 million. Striker admitted those loans were approved based on false and misleading information he submitted. In total, Striker obtained more than $724,000 in cash back at the closings on the loans. Although the loans were purported to be for construction rehab projects, Striker admitted he used some of the loan funds for unrelated expenses and debts. Furthermore, Striker paid more than $100,000 in brokerage fees to a mortgage brokerage company even though it did not broker any of the loans. U.S. District Court Judge Joan Ericksen will determine his sentence at a future date.

ComplianceEase has awarded four technology partners its highest certification level in recognition of their ability to help their customers prepare loan data for transmission electronically to state regulators through RegulatorConnect.org, the ComplianceEase automated compliance system selected by the American Association of Residential Mortgage Regulators to help improve oversight of the mortgage business. Lender Processing Services, Lender Support Systems, Mortgage Banking Systems and ProLender Solutions received the Platinum Partner Certifications at AARMR's annual conference in Savannah, Ga. Compliance Ease, a provider of compliance and risk management tools, introduced the certification program earlier this year to help lenders adapt to the new automated residential mortgage examination initiatives introduced by AARMR and the Conference of State Bank Supervisors. The certification requires recipients to provide its users with secure, one-click export of 100% of the loan information necessary for the examinations while also offering up-to-date, seamless loan-level compliance audits through Compliance Analyzer, another ComplianceEase platform.

In what is being hailed as practically warp speed for legislation, all but two states have now acted to implement provisions of the federal Secure and Fair Enforcement for Mortgage Licensing Act. Signed by President Bush on July 30, 2008, the SAFE Act gave states one year to pass laws requiring the licensing of loan originators according to national standards and start participating in the National Mortgage Licensing System. As of Aug. 8, 48 states and the District of Columbia have done so. California is expected to comply this month or next, leaving Minnesota as the lone holdout. The states have been aggressive, Bill Matthews, president of the Conference of State Bank Supervisors' subsidiary which runs the NMLS, said at the American Association of Residential Mortgage Regulators' annual conference in Savannah, Ga. "You tell me anytime in history that all states have acted so quickly? This is a huge lift," he said. AARMR Secretary Rod Carnes of North Carolina's Department of Banking and Finance, agreed: "I think this speaks volumes for the states." Mr. Matthews said CSBS is now in the process of adding "functionality" to meet the SAFE Act's other requirements, including a streamlined renewal component and consumer access.

The troubled Federal Home Loan Bank of Seattle reported a $34.3 million loss for the second quarter, up 50% from the first quarter, and it plans to submit a recapitalization plan to the GSE regulator before Aug. 24. The Federal Housing Finance Agency has classified FHLB-Seattle as "undercapitalized" due to continuing losses on its investments in private-label mortgage-backed securities. FHLB-Seattle said it held $3 billion of regulatory capital as of June 30. "Although the bank did not comply with its risk-based capital requirements as of June 30, 2009, the bank was in compliance with all of its regulatory capital requirements as of July 31, 2009," the bank said in releasing its second quarter results. It took $61.8 million in credit-related impairment charges in the second quarter, compared to a $71.1 million other than temporary impairment credit-related charge in the previous quarter. "We have seen some recent improvement in the market values of some of the mortgage-backed securities we own," FHLB-Seattle president and chief executive Richard Riccobono said. The $50 billion-asset bank has $5.3 billion invested in private label MBS, mostly backed by Alt-A and subprime loans.