Compliance & Regulation

The mortgage industry is helping 250,000 struggling borrowers a month to stay in the homes, but that is "woefully inadequate," according to an association executive who represents some of the mortgage lenders and servicers. Financial Services Roundtable president and chief executive Steve Bartlett told a House panel that the industry is doing everything it can to double that number to 500,000 a month. "It has to be done for the economy to recover," Mr. Bartlett testified. The Hope Now alliance recently reported that servicers modified 101,000 mortgages in May and completed 148,000 repayment plans. These workouts totaled 249,000, down slightly from 260,500 in April. Separately, the GSE regulator reported the loan modifications completed by Fannie Mae and Freddie Mac fell by 12% from March to April. The Federal Housing Finance Agency noted that the government sponsored enterprises ended their streamlined modification program and began implementing the Obama administration's new Home Affordable Modification program in April. The government sponsored enterprises completed nearly 13,800 loan modifications in April, down from 15,700 in March.

After pleading guilty to mortgage fraud, U.S. District Judge Sarah E. Barker sentenced Marvin G. Hampton of Noblesville, Ind., to 12 months' home confinement, followed by one year supervised release. Judge Barker also ordered Hampton to pay $262,424 in restitution. According to Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, between 2003 and 2005, Hampton operated a real estate company, Glen Mar Land & Home Corp., which purchased distressed homes in for $5,000-$30,000. Hampton then performed minimal repairs and sold the properties for $60,000-$70,000. He recruited investors to purchase the properties, promising to pay the down payments and giving them $1,500 incentive fees. Hampton set the prices instead of the prices being arm's length transactions. None of these facts were disclosed to the lenders. As additional enticements to the investors, Hampton also promised that he'd find renters and make up missed payments for the first six months. Nearly all the properties are now in foreclosure. Hampton walked away with an average of $20,000 profit on each property.

Clayton Holdings of Connecticut has been hired by the National Credit Union Administration to evaluate the mortgage holdings of two large corporate CUs that are under conservatorship. The CUs are U.S. Central Federal Credit Union, and Western Corporate Federal Credit Union. Clayton will evaluate for the NCUA the two's future loss projections on their respective commercial MBS, and non-prime MBS holdings. The evaluation information will be released publicly but some of it will be redacted.

The proposed Consumer Financial Protection Agency would draw personnel and assessment fees from the existing federal banking agencies to staff and pay for its operations, according to Treasury assistant secretary Michael Barr. Under the legislative proposal, the CFPA would have broad authority to assess fees on consumer lenders, Mr. Barr told a Congressional panel on Tuesday. But he noted that community banks may not see an increase in fees because they already pay assessments to the federal banking agencies for consumer compliance exams and regulation. "We don't anticipate it will result in an increase in fees," he predicted. "It will likely result in a reduction in fees," as the consumer protection functions of the agencies are consolidated into one agency. Senate Banking Committee chairman Christopher Dodd, D-Conn., said he strongly supports the concept of a consumer protection agency that will level the playing field for banks and non-banks when it comes to regulation and enforcement. The chairman stressed that he does not want to see community banks "saddled" with additional costs and fees.

The Obama administration is planning to release a proposal for restructuring Fannie Mae and Freddie Mac in February when the President sends his budget to Congress. "Between now and then, we will be holding a series of public meetings as well as engaging in our own internal deliberations," Treasury assistant secretary Michael Barr told a Senate panel. The Bush administration forced Fannie and Freddie into conservatorships in September 2008 when it became clear the two would not able to finance their operations without government support. Mr. Barr urged the Senate Banking Committee to move ahead and pass the administration's proposals to create Consumer Financial Protection Agency and other financial regulatory reforms before addressing the GSEs. "We could move forward expeditiously on financial reform measures and then turn to government sponsored enterprises in February," he testified. The Treasury assistant secretary also noted that the administration will soon send up a legislative draft of its proposal to create a systemic regulator for the largest financial institutions. The capital and liquidity requirements will take away "any incentive to be large," he said.

U.S. District Judge Roger W. Titus sentenced Kurt Fordham of Ft. Washington, Md., to 10 years in prison, followed by five years of supervised release, for his involvement in the Metropolitan Money Store mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. Judge Titus also ordered Fordham to pay $13.13 million in restitution and forfeit three residential properties and three vehicles. Fordham aided his wife, Joy Jackson and others with MMS to fraudulently promise to help homeowners avoid foreclosure by convincing them to put title to their homes in the names of straw buyers for a year, during which time MMS promised to improve the homeowners' credit ratings and help them obtain more favorable mortgages. Using the properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and submitted fraudulent loan applications to lenders to obtain inflated loans on the properties. Fordham also served as straw buyer on at least six properties. Nine other defendants have pleaded guilty in this case, including Jackson and McCall.

The Treasury Department has earmarked another $486 million in American Recovery and Reinvestment Act funding for the construction and renovation of affordable housing in 12 states. Treasury deputy secretary Neal Wolin said the $3 billion total stimulus program is designed to contribute to economic stability, "one community at a time" through the development of affordable housing and creation of much needed jobs. The department has granted $36 million to Alabama; $29 million to Arkansas; $34 million to Connecticut; $76 million to Georgia; $114 million to Louisiana; $44 million to Maryland; $51 million to Massachusetts and $16 to Montana, $38 million to New Mexico; $20 million to the Virgin Islands; $10 million to Vermont and $17 million for New Hampshire, which had already received $11 million under the program. Treasury is expected to award another round of grants in the coming weeks.

Treasury secretary Timothy Geithner is pressing mortgage servicers to expand their capacity and improve their loan modification efforts so the President's efforts to help struggling homeowners and stabilize the housing market will be successful. In a letter to 25 servicers, the secretary notes that the industry has made a good start in extending loan modification offers to borrowers and in the number of trial modifications underway. "However, much more progress is needed," he says. "There appears to be substantial variation among servicers in performance and borrower experience, as well as inconsistent results in converting trial modification offers into actual trial modifications." The secretary also put servicers on notice that Treasury is planning to issue monthly reports starting August 4th that will show each servicer's performance, including the number of completed modifications and the long-term success of those modifications. In addition, Freddie Mac's role as auditor will be expanded to take a "second look" at borrowers that have been denied modifications to make sure they have not been overlooked or "inadvertently denied a modification," the letter says. Treasury secretary Geithner and HUD secretary Shaun Donovan plan to meet with servicers on July 28 to go over implementation issues and solicit suggestions for improving the President's Home Affordable Modification Program.

Banks are holding up loan modifications by refusing to subordinate or extinguish second liens that are "virtually worthless," according to two powerful banking committee chairmen who want federal regulators to intervene. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., contend that the banks don't want to recognize their losses on second liens and they are preventing borrowers with underwater first mortgages from refinancing under the FHA Hope for Homeowners program. "Carrying these loans at potentially inflated prices may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus stand in the way of increasing participation in the H4H program," the chairmen say in a letter to the banking and thrift regulators. "We urge you and your staff to look into this issue as expeditiously as possible to ensure that we can achieve the vital goal of the H4H to help American families build equity and keep their homes," the July 10 letter says.

Freddie Mac has slashed its origination forecast for the third quarter by $265 billion mainly due to a drop off in refinancings. Freddie's latest housing market forecast shows that loan production in the third quarter coming in at $625 billion, down from its $890 billion estimate a month ago. All of the reduction in loan production comes from conventional loans that Freddie and Fannie Mae purchase. The new forecast shows a slight pickup in originations of Federal Housing Administration and Department of Veterans Affairs-guaranteed loans. The government sponsored enterprise now is forecasting that lenders will originate $2.3 trillion in single-family loans in 2009, down $400 billion from its previous forecast. The Mortgage Bankers Association recently cut its 2009 origination forecast by $700 billion to $2.03 trillion.