Compliance & Regulation

The homeownership rate appears to have stabilized at 67.4% after falling for three consecutive quarters and the number of vacant homes for sale has dropped by 14% since the start of this year, according to a government report. The Census Bureau reported that the number of vacant homes on the market fell to 1.92 million in the second quarter, down from 2.23 million at yearend 2008. The homebuilders have been waiting for this inventory to drop back to its historical norm of 1.25 million to 1.5 million, because the overhang puts downward pressure on new home prices. The Census Bureau also reported that the U.S. homeownership rate edged up to 67.4% in the second quarter from 67.3% in the first quarter. In the second quarter of 2008, the homeownership rate was 68.1%. Meanwhile, the homeownership rate for blacks was 46.5% in the second quarter, down from 47.8% a year ago, while the homeownership rate for Hispanics was 48.1%, down from 49.6% a year ago.

Freddie Mae has retained Stewart Lender Services to help several hard-pressed servicers keep up with the demand for loan modifications on Freddie-owned mortgages. A Stewart subsidiary, Home Retention Services, will assess the eligibility of delinquent borrowers for Home Affordable Modifications or other possible workouts and process borrowers' information for the servicers' review and approval. "By using Home Retention Services' staff and resources, we can ease some of the pressure on our servicers' staff while helping more borrowers pursue a mortgage workout," Freddie senior vice president Ingrid Beckles said. Servicers are under pressure from the Obama administration to increase their capacity and pick up the pace of loan modifications. Home Retention Services will work with the borrower, assess their eligibility for a modification, complete the documentation and income gathering processes, and advise the borrower of their proposed modified payment, according to Freddie.

Freddie Mac's issuance of mortgage-backed securities jumped 40% in June, compared to the previous month, and purchases of refinanced loans jumped 25%. The government-sponsored enterprise attributed the surge in business activity due to heavy seasonal deliveries from some of its largest customers. Deliveries of refinancings totaled $50.9 billion in June, up 26% from the previous month, according to the GSE's monthly activity report. In March, refinance loan purchases totaled $52 billion — Freddie's largest refinance month since 2003. MBS issuance came in at $61.1 billion in June — the highest since September 2005 when Freddie issued $62.5 billion in MBS. Meanwhile, delinquencies continue to creep up at the GSE. The delinquency rate on single-family loans (90 days or more or in foreclosure) rose 16 basis points to 2.78% in June, up from 0.93% a year ago.

The Department of Housing and Urban Development is concerned the Federal Housing Administration may have to suspend its single-family loan program later this summer if Congress does not provide the agency with additional loan commitment authority. HUD has submitted a request to Congress for an additional $85 billion in commitment authority to keep the FHA mortgage insurance program running through September 30, a HUD spokesman said. Earlier this year, Congress authorized FHA to insure up to $315 billion in loans in fiscal year 2009, which ends Sept. 30. On June 16, HUD notified Congress that FHA had used up 75% or $236 billion of its commitment authority. As of June 30, FHA had endorsed 1.39 million single-family mortgages - up 83% compared to the first three quarters of FY 2008. The Obama administration is seeking $400 billion in loan commitment authority for FHA in FY 2010.

Senate Banking Committee chairman Christopher Dodd, D-Conn., wants HUD and the Treasury Department to investigate allegations by a consumer attorney that servicers are demanding upfront payments for loan modifications and violating other provisions of the Obama administration's Home Affordable Modification Program. In a letter to Treasury secretary Timothy Geithner and HUD secretary Shaun Donovan, Sen. Dodd highlighted allegations made by National Consumer Law Center attorney Diane Thompson in testimony before the banking committee. Ms. Thompson testified that some servicers are requiring homeowners to waive all claims and defenses in order to apply for a modification review. Servicers also are denying reviews to borrowers who are not yet in default, she said. "If true and widespread, abuses of this kind threaten to undermine the effectiveness of the HAMP program and deny the relief on which so many Americans are depending for their financial stability," Sen. Dodd says in a July 23 letter.

After running a scheme that enticed victims to participate in a bogus real estate investment opportunity in order to get rid of their personal mortgages, Rodney McGill, a radio talk show host and pastor of New Hope Outreach Center in Jensen Beach, Fla., and his wife, Shalonda McGill, a mortgage broker, have been convicted by a jury in Martin County, Fla. According to the Florida attorney general's office, Rodney McGill used his radio program to advertise a contest to become the "Fabulous Five," five "winners" who would receive advice from the pastor on making millions through real estate investments. At least three victims called the radio station and provided their Social Security numbers and other financial information. The McGills showed their victims the properties that had been "selected" especially for them, but the scheme carefully concealed the fact that the McGills owned each of the properties offered up as potential investments. The McGills also encouraged their victims to lie about their income to obtain the mortgages. The defendants stole more than $1 million from banks, paid down their debts and left their straw buyers with ruined credit. Rodney and Shalonda McGill were arrested in September 2008. They will be sentenced in September 2009.

The regulator of the government-sponsored enterprises has moved to clear up some "misinformation" about the Home Valuation Code of Conduct that Fannie Mae and Freddie Mac adopted three months ago and counter criticism that the new appraisal code is causing problems in the real estate market. "Market participants should appreciate the difficulty facing appraisers when valuing properties in a declining market, especially when sharply dropping home prices and foreclosures are prevalent. The challenges of appraising properties exist with or without the Code," the Federal Housing Finance Agency says. The code was designed to shield appraisers from inappropriate pressure from lenders, borrowers and brokers. But critics are complaining that the code has slowed the appraisal process, led to lower appraisals and the use of unqualified appraisers. The HVCC notice issued by FHFA stresses that professionals should report appraisers that are unqualified or unfamiliar with local markets to state licensing agencies. The GSE regulator also notes that lenders are requiring additional comparables and even second appraisals, which slowed processing. "FHFA believes that the Code is serving the intended purpose and will continue its oversight role both as to the implementation of the Code by the enterprises and its market impact," the agency said.

Federal Reserve Board chairman Ben Bernanke wants the Fed to have a larger consumer protection role and he is now at odds with the Obama administration and key congressional Democrats who want to create a new Consumer Financial Protection Agency. At a press conference, House Financial Services Committee chairman Barney Frank, D-Mass., criticized the Fed for doing nothing to prevent predatory lending practices until the Democrats won control of the House in the 2006 elections. "The Federal Reserve will be the biggest institutional loser," Rep. Frank said, when Congress sets up the CFPA, which will have primary rulemaking and enforcement authority over mortgage and consumer financial products. "More existing powers will be transferred away for the Fed than any other agency," Rep. Frank said. Mr. Bernanke said that he believes the Fed has done a "good job" in terms of consumer protection over the past few years and he wants Congress to make consumer protection one the Fed's major policy goals.

The Federal Reserve Board is expanding its consumer protection role by performing targeted exams of mortgage banking subsidiaries of bank holding companies, according to Fed chairman Ben Bernanke. The Fed traditionally has taken a hands-off approach to the non-bank subsidiaries of BHCs, but last year it engaged in targeted exams with state banking regulators. "In looking at our responsibility to enforce consumer protection laws, we believe a somewhat more pro-active stance is justified," Mr. Bernanke told a congressional panel Tuesday. He acknowledged that the Fed's authority over the non-bank subsidiaries of BHCs is a "bit vague" and said it would be helpful if Congress clarified the Federal Reserve Board's authority. The Fed chief also made it clear that he does not like the Obama administration's regulatory reform proposal to create a Consumer Financial Protection Agency, which would strip the Fed and the other federal banking regulators of their consumer protection role. He stressed that the Fed is committed to consumer protection and the board has done a "good job" in the past few years. "If you allow us to continue to work in this area we will be interested in doing so," he told the House Financial Services Committee.

House Financial Services Committee Chairman Barney Frank said Tuesday that he will postpone next week's planned vote on legislation to create a consumer protection agency until after the August recess.The delay was due in part to the panel's busy schedule, but committee officials also said they wanted to give consumer groups more time to respond to lobbying by the banking industry, which is opposed to the bill. Industry lobbyists said this week that their arguments to curb the powers of a new agency were gaining traction. Steve Adamske, a spokesman for Frank, said consumer groups needed time to respond to industry arguments against the new agency and efforts to limit its authority. "Consumer groups and advocates have planned a ground campaign in August and we want to give them time to preserve this agency," said Adamske. The goal is to allow lawmakers more time to "hear from their constituents," he said.