Compliance & Regulation

The White House late Tuesday unveiled its plan to overhaul the nation's financial regulatory system, a blueprint that would create a new government body — the Consumer Financial Protection Agency — with sweeping oversight and enforcement powers over all aspects of the origination process, including several bedrock laws that govern how lenders interface with consumers. "This a sweeping change to how things are done now," said Howard Glaser of the Glaser Group. He noted that the CFPA would be empowered to enforce the Real Estate Settlement Procedures Act, the Home Ownership and Equity Protection Act, the Home Mortgage Disclosure Act, and even certain aspects of the Community Reinvestment Act. The plan states that, "Consumers should have clear disclosure regarding the consequences of their financial decisions." The plan notes that the White House wants to require lenders to offer 30-year fixed-rate "vanilla" loans to consumers with streamlined pricing. Mr. Glaser said the creation of the CFPA might level the playing field for independent non-bank lenders who are getting "short shrift" from the Federal Reserve. He encouraged the mortgage industry to embrace the plan "to bring certainty and clarity back" to the home lending market.

Non-bank mortgage lenders and depositories would be assessed millions of dollars in fees to fund the creation and maintenance of the Consumer Financial Protection Agency, a new government body that would have massive enforcement powers over all players in residential finance, according to a White House draft proposal. Funding of the new agency also would come from transaction fees, the White House says. The Obama Administration notes that mortgage lenders not owned by banks fall into a regulatory "no man's land" where no government body "exercises leadership and state [attorneys general] are left to fill in the gap." The administration feels the Federal Trade Commission lacks the jurisdiction over the banking sector and has limited tools to "promote compliance of nonbank institutions." The White House believes the core of the CFPA can be "assembled reasonably quickly from discrete operations of other agencies." (For the full plan see Editor's Choice below or visit: http://www.nationalmortgagenews.com/documents/reg_reform_paper.pdf.

Ten people have been indicted in an alleged $3 million mortgage fraud scheme to scam lenders by recruiting straw buyers to purchase homes in Kansas and Missouri. According to Lanny Welch, U.S. attorney for the District of Kansas, Eric M. Rabicoff, Jason L. Rabicoff, Lucas R. Collier, Anthony E. Carollo, Deborah Saulmon, Bora Ly, Anthony "Gabe" Painton Jr., Kong Bun Ly, Rebecca Gelwix and Richard Ngek have been indicted for their alleged roles in the scheme. According to the indictment, in 2006 Eric Rabicoff allegedly devised a scam to defraud lenders by recruiting straw buyers to purchase homes that were for sale by owners. It was part of the alleged scheme to submit false information to lenders so that borrowers received loans for which they were not qualified. The conspirators allegedly submitted false information to lenders about borrowers' employment history, income and rent history and obtained more than $3 million in loans for borrowers who did not in fact qualify for the loans. The defendants were unavailable for comment.

A California law prohibiting home foreclosures for 90 days went into effect this week, but some residential servicers can earn an exemption if they can prove they are modifying loans. According to a report in The Orange County Register, several companies have already filed for an exemption. The state has 30 days to grant an exemption but during this time the servicer does not have to comply with the moratorium. Only mortgages originated between 2003 and 2007 are eligible. According to the California Foreclosure Prevention Bill, the law does not require a servicer to provide a modification to a borrower who is not willing or able to pay under the modification. According to the Register, it's unclear what "able to pay" means. California represents about 20% of all residential debt outstanding in the U.S.

The Treasury Department is circulating a proposal that would require originators to retain 5% of a loan's credit risk when selling it into the secondary market. An early snippet from the Obama administration's regulatory restructuring plan, which is expected to be unveiled Wednesday, indicates the proposal also would ban loan originators from hedging or even indirectly transferring the risk they are required to retain. Loan broker and loan officer compensation would be disbursed over time and reduced if a loan is not repaid because of poor underwriting. Some of these concepts — or similar ones — have already been introduced in the House by House Financial Services Committee chairman Barney Frank, D-Mass.

All homebuyers — not just new ones — would be entitled to a $15,000 federal tax credit and no qualification caps would be placed on their income, under recently introduced legislation. The language was introduced by Sen. Johnny Isakson, R-Ga., who says that a $8,000 first-time homebuyer (FTHB) tax credit that become law last year "has made a difference" but wants to expand it. Sen. Isakson says he has bipartisan support from at least nine senators, including Banking Committee chairman Chris Dodd, D-Conn. The $8,000 FTHB tax credit is set to expire Dec. 1 and has income caps of $75,000 for an individual and $150,000 for a couple. The Mortgage Bankers Association and National Association of Realtors have already voiced their support for the bill (S. 1230, "The Homebuyer Tax Credit of 2009.") Before he was elected, Sen. Isakson was a Realtor and worked in real estate for three decades, according to his office.

The Federal Reserve Bank of New York has chosen commercial real estate information and technology provider Trepp LLC as collateral monitor for commercial mortgage-backed securities as part of the Term Asset-Backed Securities Lending Facility. TALF's monthly subscription window for new issue CMBS was set to open for the first time Tuesday afternoon. At press time midday Tuesday Trepp senior vice president Andy Liebman and Tom Sink said to their knowledge there was nothing pending for it, but they were already at work on aspects of the program that are being finalized, and said next month they anticipate the program will be underway for both new issue and legacy CMBS. Trepp said in its role as monitor it would assist the New York Fed in providing valuation, modeling, analytics and reporting as well as advise on matters involving newly issued and "legacy" CMBS in the program. The New York-based company said it would not establish policies or make decisions for the New York Fed, including decisions on whether to reject a CMBS as collateral for a TALF loan or exclude loans from mortgage pools. Trepp said it would use the analytics and forecasting services of its subcontractor and sister company, the Boston-based Property and Portfolio Research, in conjunction with its work as a TALF CMBS collateral monitor.

Freddie Mac plans to purchase any and all of a targeted group of about 8.1 billion euros ($11.2 billion) of its euro Reference Notes securities the week of June 15. The government-sponsored enterprise is planning to buy from investors for cash the securities through Goldman Sachs International, the designated lead dealer for the offers. Barclays Bank PLC and Deutsche Bank AG, London branch, are the designated deal managers for the offers. Each series of target securities will be purchased at a fixed spread over the applicable reference swap rate for the series.

Massachusetts attorney general Martha Coakley's office has entered into a judgment with Valerie Hanserd, an attorney from Brockton, Mass., resolving allegations of her role as a closing attorney in two companion lawsuits that both allege unfair practices with respect to mortgage brokering services. The first lawsuit involved Ms. Hanserd's closing of a loan allegedly obtained by using false and forged documents and the second lawsuit involved allegations relating to her participation in an unfair and deceptive foreclosure rescue scheme. Under the terms of the consent judgment, filed in Suffolk Superior Court, Hanserd must refrain from acting as a real estate closing attorney or title agent for seven years retroactive to April 27, 2007. In addition, Hanserd must pay $80,000 in restitution to victims of foreclosure rescue schemes as well as $35,000 in fees and penalties to the state. The settlement against Valerie Hanserd resolves allegations against her as the closing attorney in both cases.

Bankrupt subprime lender Fremont General Corp. of California agreed to pay $10 million to settle a lawsuit alleging that it engaged in unfair loan practices in Massachusetts. Fremont, once one of the largest B&C wholesalers in the U.S., also agreed not to foreclose on what the Massachusetts attorney general called "unfair loans." In total about 2,200 foreclosures may be prevented, for now. The payment includes $8 million in consumer relief, $1 million in civil penalties, and $1 million in attorneys' fees. In 2007 the state accused Fremont of engaging in predatory and unfair lending practices by funding mortgages to consumers who could not afford them. Fremont denied wrongdoing. Even though Fremont's depository is no longer in business, the holding company continues to trade on the "pink sheets."