Compliance & Regulation

The Senate has confirmed David Stevens to be the new Federal Housing Administration commissioner and he is expected to begin work at the mortgage insurance agency on Monday. Mr. Stevens' nomination has been help up for several months due to alleged Real Estate Settlement Procedures Act violations by his former employer Long & Foster — a mid-Atlantic real estate brokerage firm. The RESPA complaints did not name Mr. Stevens and HUD secretary Shaun Donovan continued to support Mr. Stevens, claiming his executive experience at Freddie Mac and Wells Fargo Home Loan is needed at FHA. Meanwhile, FHA commissioner Brian Montgomery finally stepped down on July 3 after it was clear the Mr. Stevens would be confirmed. Mr. Montgomery was appointed to the FHA post by former President Bush and he was asked to stay by the Obama administrations until his successor is confirmed. "I was pleased to be able to serve the Obama Administration as a holdover, which is exactly what Secretary Donovan did back in 2001 in the early months of the Bush Administration," Mr. Montgomery said in a farewell note. "Having worked for Secretary Donovan for the past 5 ½ months, I want to tell you that he is a man of great vision and commitment to the causes that HUD champions," Mr. Montgomery said.

Raising the loan-to-value ratio on refinances of underwater mortgages to 125% could help 2.25 million Fannie Mae and Freddie Mac borrowers lower their monthly payments, according to analysts at Amherst Securities Group. The special refinancing program that Obama administration officials unveiled in February originally limited the refinancing option to loans with LTV ratios of 80% to 105%. On July 1, the Federal Housing Finance Agency raised the LTV limit on the GSE Home Affordable Refinance Program (HARP). "We think expanding the HARP's limit to 125 makes the program accessible by an additional 8% of the current outstanding agency mortgage universe," an Amherst Mortgage Insight report says. At today's mortgage rates, "the bulk of borrowers in HARP's expanded LTV range are currently in-the-money," the analysts point out. But any rise in mortgage rates will "immediately begin to reduce the number of borrowers able to take advantage of the program," the July 8 report says. Fannie will start accepting delivery of the higher LTV refinancings on September 1. Freddie says some borrowers can apply now. "The expanded LTV ratios are available now when borrowers apply for Relief Refinance Mortgages through their current servicers and will be become available October 1 when borrowers apply through any lender affiliated with Freddie Mac."

Fannie Mae has priced a $4 billion issue of 1.750% new issue three-year Benchmark Notes at 99.926 to yield 1.775% at a spread of 32 basis points over U.S. Treasury notes. Bank of America Securities, Barclays Capital Inc. and JP Morgan & Co. were the lead managers for the transaction (CUSIP 31398AYM8). Co-managers include Goldman Sachs & Co., MFR Securities Inc., Morgan Stanley & Co. and UBS Securities LLC. U.S. investors (70.4%) were the main buyers. Asian investors bought 17.0%, Europeans bought 4.0% and investors from other non-U.S. regions bought the remaining 8.6%. Investor types were as follows: fund managers (41.2%), central banks (26.4%), commercial banks (23.4%), state and local governments (5.3%), corporate/pension funds (2.2%), insurance companies (1.2%) and retail investors (0.3%).

The Federal Reserve Bank of New York has expanded its securities lending program to include agency debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, which might help address some liquidity concerns. Barclays Capital researchers said in a recent report that in the short-term they do not believe the Fed's move will have much effect on the agency debt market. But longer term, it might improve liquidity that some investors and dealers fear has diminished due to the Fed's significant purchases of these securities. The researchers said the move is helpful in terms of liquidity because it allows more of agency securities to circulate.

Two congressmen have introduced a bill to provide the Federal Housing Administration with greater resources to increase its staffing and upgrade its technology systems. The bill (H.R. 3145) also gives FHA additional tools to oversee lender performance and implement new programs to reduce foreclosures. Two members of the House Financial Services Committee — Reps. John Adler, D-N.J., and Christopher Lee, R-N.Y., — introduced the FHA bill. The National Association of Realtors endorsed the bill. "FHA continues to be a stable, affordable, safe option for American families seeking to purchase a home," NAR says in a letter to the congressmen. "Your legislation will provide FHA with the means necessary to play this important role," the Realtors said.

The Federal Housing Administration endorsed 94,069 single-family mortgages in June, the highest number in nine years, according to the agency. Refinance transactions totaled 48,200 and purchase transactions 41,600. The endorsements also included 4,600 FHA-insured reverse mortgages. The Mortgage Bankers Associations reported that demand for FHA-insured and Department of Veterans Affairs-guaranteed loans is increasing and nearly 36% of mortgage applications submitted in June were for government loans. The FHA and VA share of mortgage applications is the highest in 19 years. FHA and VA offer homebuyers low-downpayment loans that conventional lenders can't match because of the capital constraints on the private mortgage insurers. FHA and VA benefited from rising mortgage rates in June, which reduced refinancings and strengthened their hold on the purchase mortgage market. "FHA's share goes up or down with the refinance business," said mortgage banking consultant Brian Chappelle of Potomac Partners in Washington.

In what is believed to be one of the largest government auctions of mortgage servicing rights in quite some time, the Federal Deposit Insurance Corp. is offering a $1 billion package of residential receivables that belonged to the now defunct Franklin Bank S.S.B. of Houston. The agency has hired Interactive Mortgage Advisors, LLC, Denver, to broker the sale. Franklin — whose largest single shareholder was MBS co-inventor Lewis Ranieri, was closed by the government in November. A source familiar with the deal said it has taken the FDIC all year to finally approve the transaction. Bidders are likely to include some of the nation's largest banks as well as several hedge funds that are acting as "vulture funds" in the distressed whole loan market. The bid deadline is August 14.

Prosecutors in New York City have indicted 13 individuals and a mortgage origination company for allegedly perpetrating more than $100 million in mortgage fraud over four years in the metropolitan area. According to Manhattan district attorney Robert M. Morgenthau, AFG Financial Group, Aaron Hand, Eugene Culbreath, Eric Shields, Matthew McDermott, Marc Zirogiannis, Kenneth Law, Kathleen Scanlon, Jeffrey Phelan, Jerry Strklja, Marilyn Mateo, Darlita Bostic, Allyson Hinds and Rajmohan Autar have been charged. In addition, 12 individuals have already waived indictment and pleaded guilty to felonies relating to their participation in the mortgage fraud scheme. According to the indictment, AFG Financial Group, along with a network of co-conspirators and accomplices, allegedly located distressed residential real estate properties in New York City and surrounding counties and then schemed to steal millions of dollars from lending banks in Manhattan and elsewhere using sham sales of those properties. The conspirators, who were unavailable for comment, are alleged to have caused the banks to front millions of dollars to finance purchases of the properties. They then allegedly walked away with most of the cash, leaving behind over-valued properties and worthless mortgage papers.

A group of 20 Democratic senators want servicers to be prepared for a coming wave of resets on payment-option adjustable-rate mortgages and start contacting borrowers that may not be able to afford the increase in their monthly payments. In a joint letter to Treasury secretary Timothy Geithner, the Democratic senators, including Jack Reed, D.-R.I., note that one million option ARMs could reset over the next four years. "Without servicers taking pro-active steps to reach these homeowners and careful vigilance by the Department of Treasury and others to ensure that outreach translates into relief, efforts to stabilize the housing market could be undermined," the letter says. Senate Banking Committee chairman Christopher Dodd, D.-Conn., is one of the signers. The senators also expressed concerns that servicers don't have enough capacity to deal with the demand for loan modifications. And homeowners that want help before they go into default are being put on hold. "It is also our understanding that as servicers take a triage approach to responding to inquiries, homeowners who are still current on their payments but at risk of foreclosure are being told to wait for assistance — even as their economic conditions worsen," the letter says.

The Treasury Department has decided to put up only $30 billion in capital and debt to fund the first public-private ventures that will invest in pools of non-agency residential and commercial mortgage-backed securities. Originally, Treasury proposed a much larger program to purchase $500 billion in bad assets that were originally triple-A rated from financial institutions but the banks shunned this concept. So the investment funds will purchase legacy securities in the open market to increase liquidity for the toxic MBS. Treasury also picked nine fund managers to raise capital and run the private-public investment funds. These managers, which include BlackRock and Invesco, now have 12 weeks to raise at least $500 million in equity to launch the first funds. Treasury will match the funds' capital and provide financing for the purchase of assets. A senior Treasury official said the Trouble Asset Relief Program would provide $10 billion in equity, $20 billion in debt and the managers are expected to raise $10 billion in equity. So the total amount of equity and debt for this program would be $40 billion. Separately, the Federal Deposit Insurance Corp. has developed a Legacy Loan Program and it is planning a sale of receivership assets in this summer.