Compliance & Regulation

Reed Kyle Diehl, a former player with the Tennessee Titans from Coto de Caza, Calif., pleaded guilty in U.S. District Court to federal fraud charges related to a scheme in which he collected funds with false promises of high rates of returns on investments in condominium projects in Mexico. According to the U.S. attorney's office for the Central District of California, Diehl fraudulently collected deposits for lines of credit for people who desired financing for construction and development projects in Mexico. Despite paying him sometimes millions of dollars, none of the victims ever obtained a line of credit. Diehl caused losses of more than $5 million. Judge David O. Carter has scheduled sentencing for Sept. 28. Diehl was initially charged and arrested in this case in March 2008. After being freed on bond, Diehl's bond was revoked in January after he attempted to enter into a real estate transaction for a $3.5 million house using a false name and someone else's Social Security number.

Fannie Mae provided $10.1 billion in debt financing for the multifamily rental housing market through its lender and housing partners in the first half of 2009. At a press conference held Monday in Washington, Fannie's vice president of multifamily production Heidi McKibben said that, of the $10.1 billion in debt financing the government sponsored enterprise provided, $9.9 billion of the company's total investment in multifamily housing were delivered. All of the business delivered by this group utilized the company's delegated underwriting and servicing platform, which provides liquidity to multifamily housing projects. "Fannie Mae and its DUS lenders had a very strong first half of the year," said Phil Weber, senior vice president of Fannie's multifamily division, adding that reinvigorating its mortgage-backed securities business and broadening the investor base was Fannie Mae multifamily's top priority in 2009. According to the GSE, 71% of total production in the first half of 2009 was an MBS execution, compared to 17% in the first half of 2008.

House appropriators have instructed the Federal Housing Administration to cut the proceeds seniors receive when taking out a FHA-insured reverse mortgage in fiscal year 2010, which starts Oct. 1. The Obama administration originally asked the appropriators to provide FHA with an $800 million credit subsidiary to cover possible losses coming from declining house prices. However, HUD secretary Shaun Donovan told Congress he was willing to make changes to the FHA Home Equity Conversion Mortgage program to offset some of the losses, but he did not want to increase the mortgage insurance premiums. The House Appropriations Committee approved a Department of Housing and Urban Development appropriations bill on July 17 that instructs HUD to reduce the principal amount a senior can receive on a HECM. The principal limit is based on the borrower's age and the expected interest accrual over the life of the loan. The committee's action "reduces what seniors will get, which is problematic at a time when there is great need," said Peter Bell, president of the National Reverse Mortgage Lenders Association. "We might find that some people that want a reverse mortgage won't be able to get enough money to pay off their existing mortgage. They will be forced to sell the house and move."

The House Appropriations Committee has approved an extension of the $729,750 loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration through September 2010. The committee also increased the lending and guarantee authority of FHA and Ginnie Mae, as requested by the Obama Administration. The Department of Housing and Urban Development appropriations bill authorizes FHA to insure $400 billion in single-family loans during fiscal year 2010, up from $315 billion in the current 2009 fiscal year, which ends Sept. 30. The FY 2010 appropriations bill allows Ginnie Mae to guarantee up to $500 billion in securities backed by single-family and multifamily loans. Congress provided the secondary market agency with $400 billion in MBS guarantee authority in the FY 2009 appropriations bill. The massive stimulus bill that President Barack Obama signed in February raised the maximum loan limit for the GSEs and FHA to $729,750. But the higher limit is due to expire at year-end, if the full House as well as the Senate does not approve this bill.

The House Appropriations Committee has approved an extension of the $729,750 loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration through September 2010. The committee also increased the lending and guarantee authority of FHA and Ginnie Mae, as requested by the Obama Administration. The Department of Housing and Urban Development appropriations bill authorizes FHA to insure $400 billion in single-family loans during fiscal year 2010, up from $315 billion in the current 2009 fiscal year, which ends Sept. 30. The FY 2010 appropriations bill allows Ginnie Mae to guarantee up to $500 billion in securities backed by single-family and multifamily loans. Congress provided the secondary market agency with $400 billion in MBS guarantee authority in the FY 2009 appropriations bill. The massive stimulus bill that President Barack Obama signed in February raised the maximum loan limit for the GSEs and FHA to $729,750. But the higher limit is due to expire at year-end, if the full House as well as the Senate does not approve this bill.

Catherine Cruz Wojtasik, a Democratic lobbyist for the Mortgage Bankers Association, is leaving the trade group to take a job on Capitol Hill. A MBA spokeswoman confirmed her departure noting that it will hire a replacement for Ms. Wojtasik. It's believed that she has accepted a position with the Senate Banking Committee but at press time it could not be confirmed. Meanwhile Cheryl Malloy, who handles multifamily issues for MBA, is retiring soon but will stay on as consultant through September.

The Federal Reserve Board will consider amendments to the Truth in Lending Act placing new restrictions on mortgage broker compensation. "The proposal will include new rules governing mortgage originator compensation," Fed governor Elizabeth Duke said. The proposed rule — which the Fed will take up on July 23 — also includes "re-redesign, consumer tested disclosures and rule changes for closed-end mortgages and home-equity lines of credit," Ms. Duke told a congressional panel. The Fed punted on regulating broker compensation and yield-spread premiums last July when it approved a Home Ownership and Equity Protection Act rule to clamp down on abusive lending practices that led to the subprime meltdown. However, Fed chairman Ben Bernanke directed staff to continue their efforts to address the issue. He noted YSPs that brokers receive from lenders are based on the interest rate, which "on its face seems to be an incentive for steering borrowers into higher price loans."

Federal Reserve policy makers "revised upward" their outlook for economic growth at a June 23 meeting and decided to keep the $1.25 trillion mortgage-backed securities purchase program on track without any changes. The Fed launched the MBS purchase program in December to lower mortgage rates and support the housing market. So far, it has purchased $622 billion in Fannie Mae, Freddie Mac and Ginnie Mae MBS. The purchase program is due to expire at yearend. The minutes of the Federal Open Market Committee meeting indicate the members see the housing market as "vulnerable to further weakness." And they are concerned increases in mortgage rates could "further depress demand for housing and thus impede an economic recovery." Nevertheless, home sales appear to be leveling off and they expect the economy will expand in the second half of this year. However, unemployment could hit 10% this year and remain above 9.5% during 2010, according to the Fed's revised outlook.

The Financial Crimes Enforcement Network (FinCEN) is seeking public comment on a proposal to require mortgage brokers to file suspicious activity reports with the federal agency. FinCEN is in charge of the government's anti-money laundering efforts and it recently turned its attention to detecting loan modification scams and foreclosure rescue scams. "FinCEN believes that new regulations requiring non-bank residential mortgage lenders and originators to adopt anti-money laundering programs and report suspicious transactions could augment FinCEN's initiatives in these areas," the agency's director James Freis said. The agency is issuing an advance notice of proposed rulemaking for a 30-day comment period.

Freddie Mac reopened its 1.75% three-year Reference Notes security that matures on June 15, 2012. The issue was priced at 99.942046 or approximately 24 basis points more than three-year U.S. Treasury Notes. The bid-to-cover ratio was 3.275 to 1. The stop yield was 1.770%. It will settle on July 16. The $1 billion reopening of the security was conducted via an Internet-based auction. The issue, CUSIP 3137EACC1, is listed on the Euro MTF market of the Luxembourg Stock Exchange. After the reopening, the outstanding size of the 1.75% three-year Reference Notes security will be $7 billion. All auction details can be found on Freddie Mac's Debt Securities Web page. Freddie Mac has issued $40 billion of reference notes securities during 2009 and has approximately $257.5 billion in reference notes and reference bonds securities outstanding.