Compliance & Regulation

The Federal Reserve said it would continue to support mortgage lending and the housing markets by purchasing agency mortgage-backed securities after concluding a two-day meeting of its Federal Open Market Committee. The FOMC members renewed the Fed's commitment to purchase up to $1.25 trillion in MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae by the end of this year. The Fed has purchased $721.2 billion in agency MBS since last December. "Although economic activity is likely to remain weak for a time, the committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in the context of price stability," according to a FOMC statement. The Federal Reserve also renewed its commitment to purchase $200 billion in Fannie, Freddie and Federal Home Loan Bank debt by yearend. It has already purchased $107.3 billion in agency debt.

Farmer Mac earned $25.4 million ($2.49 per share) in the second quarter, when its profits were driven by gains in the values of financial derivatives and recoveries of previously recorded losses related to loans for ethanol plants. For the same period last year, the company earned $21.4 million ($2.13 per share). Its outstanding portfolio of loans, guarantees and commitments stands at $10.4 billion as of the end of the second quarter. Farmer Mac's capital surplus, just $13 million at the end of last year, now stands at $100 million. Excluding ethanol loans, 90-day delinquencies were at $23.5 million as of June 30, 2009, down from $27.7 million on March 31, 2009.

The Federal Home Loan Bank of Pittsburgh generated $32.1 million in earnings for the second quarter after incurring $211.5 million in losses during the previous two quarters. The FHLB-Pittsburgh turned a profit despite taking an impairment charge of $39.3 million on its investments in private-label mortgage backed securities. In the first quarter, the bank reported a $30.5 million "other than temporary impairment" (OTTI) credit loss. FHLBank president and chief executive John Price attributed the turnaround to higher net interest margins, "largely due to lower borrowing costs in the second quarter." However, the Pittsburgh bank told its shareholders there will not be a second quarter dividend. There are 12 FHLBanks and Pittsburgh was one of six banks that took a loss in the first quarter primarily due to impairment charges on their private-label MBS investments.

A federal jury has convicted Lila Rizk of Trabuco Canyon and Kyle Grasso, formerly of Santa Monica, of conspiracy, bank fraud and loan fraud charges for their roles in a scheme that led to more than $40 million in losses at federally insured depositories. According to a report in The Orange County Register, Grasso, a real estate agent, also was convicted of three counts of money laundering. The duo were part of a scheme that obtained inflated mortgage loans on luxury houses, with Grasso earning commissions and other payments and Rizk, an appraiser, earning fees. Donald Marks, an attorney for Rizk with Marks & Brooklier in Century City, said, "We are very disappointed in the jury verdict. We think our case was very defensible. We think we raised reasonable doubt, and we think she is not guilty. We will continue fighting on her behalf." Mr. Marks said he would appeal the verdict. A lawyer for Grasso was not immediately available for comment. Eight others involved previously pleaded guilty.

A former Florida appeals court judge who pleaded guilty to defrauding a bank that loaned him money to purchase a residence in Hawaii is awaiting assignment of a sentencing date. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Thomas E. Stringer of Tampa pleaded guilty to one count of bank fraud before Magistrate Judge Mark A. Pizzo. Stringer falsified his mortgage application for the residence by claiming that he had borrowed none of the money he was using for the downpayment, when in fact he had borrowed funds from a third party. The U.S. intends to seek forfeiture of $222,362, the amount of the proceeds from the fraud. A sentencing date has not been set.

Top executives from the National Association of Mortgage Brokers are set to meet with the new Federal Housing Administration commissioner on Aug. 19 over a plethora of issues. These include "Kiddie Condos" where a parent's credit is used (according to one trade group memo) for loan qualification purposes. A copy of the meeting's agenda was provided to National Mortgage News by an industry source. NAMB also hopes to discuss with FHA commissioner David Stevens the new RESPA rule and how it will affect the agency's use of origination and discount points. Also possibly on the agenda: implementation of risk based pricing rules, and the possible involvement of the Government National Mortgage Association in warehouse lending. A spokesman for NAMB confirmed that the meeting is set but said the agenda has not been finalized.

Ocwen Loan Servicing LLC has inked a deal to be the interim servicer for Freddie Mac on 24,000 nonperforming single-family loans with a principal balance of $4.4 billion. The deal, effective Aug. 10, was revealed in a recent Securities and Commission filing by Ocwen's parent, the publicly traded Ocwen Financial Corp. of West Palm Beach, Fla. No further details were available at press time. Ocwen is the nation's ninth largest subprime/scratch and dent servicer, according to the Quarterly Data Report. Meanwhile, Ocwen executives are on a road show, promoting an additional common stock offering which could raise up to $250 million. J.P. Morgan Securities, Barclays Capital, and Wells Fargo Securities are the joint book running managers on the deal.

Freddie Mac forced its seller/servicers to buy back $951 million of bad mortgages during the second quarter, a 21% increase from the first quarter. Fannie Mae also saw its outstanding buyback requests continue to increase in the second half of 2009 - but the GSE, unlike Freddie, does not disclose the dollar amount in its securities filings. Lenders that sell loans to Freddie and Fannie are required to make "representations and warranties" that the loans comply with the GSEs' underwriting requirements. If the loans do not perform as expected and underwriting deficiencies are flagged, the lender is obligated to buy back the loans. The GSEs are concerned that their credit losses will grow if lenders cannot muster the financial wherewithal to meet their buyback obligations. Freddie recently noted that it terminated Taylor Bean & Whitaker's status as a seller/servicer on Aug. 4. "We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us. The amount of our losses in such an event could be significant," Freddie said in its second-quarter securities filing. The Federal Housing Administration recently suspended TBW as a lender.

Allied Home Mortgage Capital Corp., Houston, has entered into a consent order with the Georgia Department of Banking and Finance over allegations it transacted business in the state with a person who was unlicensed or unregistered. Back in June, the Department sought to revoke Allied's license and served cease and desist orders on company co-owners Jim Hodge and Kathy Hodge. This consent order settles those charges. The order calls on Allied to provide "an appropriate level of supervision" to its employees, perform background checks on new employees no later than 10 days after hiring and give $1,000 to State Registry LLC, to support the Nationwide Mortgage Licensing System. State Registry LLC is a subsidiary of the Council of State Bank Supervisors, which operates NMLS along with the American Association of Residential Mortgage Regulators. A call to Allied for comment was not returned by press time.

Citigroup, which has not been an active warehouse lender in recent years, said Tuesday it has earmarked $2 billion in funds for warehouse lending commitments to non-bank mortgage lenders. The money is part of $6 billion in new funding initiatives that come from government Troubled Asset Relief Program funds. Citigroup, which owns the nation's fourth largest residential lender, said it will provide mortgage bankers with "collateralized lines of credit that are backed primarily by residential mortgages which are eligible for sale" to Fannie Mae, Freddie Mac, and the Federal Housing Administration. Few other details were available at press time.