Compliance & Regulation

Many Federal Reserve district banks are seeing an increase in home sales, according to the Fed's Beige Book. "A number of districts reported an uptick in home sales, and many said that new home construction appeared to be stabilizing at very low levels," the Beige Book says. The reporting district banks cited seasonal factors, low interest rates and declining house prices as well as the tax credit available for certain first-time homebuyers. They noted that, "much of the sales increase was found in the lower-priced end of the market." The New York and Cleveland Federal Reserve banks said they saw "strong demand" for refinancings. But the Richmond bank indicated there has been "waning" demand due to rising interest rates. Commercial real estate markets continued to "weaken," the Beige Books says, as rising vacancy rates have been putting downward pressure on rents.

After pleading guilty to participating in a complex fraud scheme in which he filed and foreclosed on false mortgages in Florida, Sergej Tews was sentenced to 33 months in prison. He also was sentenced to three years of supervised release following the prison term and ordered to pay $636,000 in restitution. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Tews induced homeowners to transfer their properties to him in exchange for his promise to assume their mortgage payments and caused the homeowners to execute warranty deeds, which gave the appearance that the properties were sold to a third party instead of being transferred to Tews. He then fabricated the amount paid for each property, paid the filing taxes based on the false amount and filed fraudulent mortgages on each property. At the foreclosure sales, third-party purchasers were deceived into believing that there were no pre-existing mortgages on the properties and bid on and bought the properties at auction. After the third-party purchasers paid for the properties, the court issued checks to Tews in the names of his purported foreclosing lenders.

New York attorney general Andrew Cuomo is joining other state crime fighters that are going after what they believe are foreclosure rescue scams targeting vulnerable homeowners. The New York AG this week filed a civil complaint against American Modification Agency Inc. and its owner and president, Salvatore Pane Jr., for allegedly charging illegal up-front fees and engaging in consumer fraud. The Uniondale, N.Y.-based firm markets itself as a foreclosure rescue company. It operates in all 50 states. The AG's office says American Modification targets homeowners facing foreclosure by claiming it can save their homes, but often fails to provide the services promised. In a statement released late Tuesday AMA — also known as "Amerimod" — said it is compliant with state foreclosure assistance laws and regulations. "Amerimod has been and will remain a frontrunner for compliance as well as a reliable source for distressed homeowners and consumer advocacy groups," the company said. Meanwhile, the New York AG's office has subpoenaed 14 other loan modification-related firms. Other large states that are investigating and filing charges against loan mod firms include California, Florida, and Georgia.

Fitch Ratings has downgraded its rating on Colonial Bancgroup — the nation's largest warehouse provider to non-banks — saying a new federal cease and desist order against the Alabama bank may have a negative impact on a $300 million investment in the company. At press time the bank had not commented on the Fitch note. The C&D order from the Federal Deposit Insurance Corp. and state regulators requires it to increase Colonial Bank's Tier I capital ratio to 8% by the end of September. Recently, mortgage banker Taylor, Bean & Whitaker finalized its commitment to pump $300 million of equity into Colonial. Once Colonial receives the equity it will then be eligible for $550 million in Troubled Asset Relief Funds from the Treasury Department. TBW has several investment partners on the deal. Colonial's stock continues to sell for less than $1 and was down 27% in trading to 88 cents Wednesday afternoon. The Alabama-based bank — stung by large commercial real estate loans — reported a net loss of $168 million for the quarter ended March 31.

Sen. Jack Reed, D-R.I., and 14 other Democrats are urging HUD secretary Shaun Donovan to get tough on servicers that are not responsive to troubled homeowners who need assistance. In a letter to the HUD secretary, the senators cite a recent NeighborWorks America study that found homeowners who reach out for help have to wait (on average) 45 to 60 days for a servicer to respond. "What steps are you able to take to address the concerns raised by our constituents who are unable to access answers or adequate help from servicers? Are there further legislative tools that you require to address this problem, or to meet the broader needs of struggling homeowners?" the June 9 letter says. At press time HUD officials had not commented on the Reed letter. However, Treasury deputy assistant secretary Seth Wheeler told a fair housing conference on June 8 that servicers are required to increase their capacity when they sign up to do loan modifications under the Making Home Affordable program. The Treasury will be tracking their results. "We will have a very frank dialogue about what kind of staffing is realistic," Mr. Wheeler said.

Fannie Mae is bringing the servicing of its 'HomeSaver Advance' program in-house — just weeks after it was revealed that re-defaults on HSA loans are nearing 70%. The government-sponsored enterprise has been using Dyck O'Neal Inc., an Arlington, Texas, collection agency, to service the advances, which are unsecured loans of up to $15,000 that cover past-due amounts on a mortgage. But in a notice to lenders last week, Fannie said that beginning June 9, it will take over the certification, billing and collection on these loans. Brian Faith, a spokesman for the GSE, said that it reviewed its "overall approach to implementing the HSA option and has reorganized some functions in-house versus outsourced." Despite the change, Dyck O'Neal will remain "a valued vendor partner" for other programs, Mr. Faith said. Dyck O'Neal did not return a call seeking comment. Fannie launched the advance program in February of last year to help homeowners catch up with mortgage payments and allow the GSE to avoid the expense of purchasing nonperforming loans out of securitized pools.

Servicing company employees involved in foreclosure prevention and loan modifications are "understaffed and overworked," according to a survey of housing counselors by NeighborWorks America, a quasi-governmental entity that trains counselors. The most common complaint by counselors involves lengthy response times by servicers. After formulating a workout proposal for a troubled homeowner, some counselors (17%) said it can take servicers 45-60 days to respond. Mortgage Bankers Association vice president Michael Fratantoni said servicers are hiring for open positions. "We are hearing they are having trouble getting qualified personnel," he said. Counselors also note in the survey that servicers repeatedly lose faxes or mailed documents and they end up talking with different representatives each time they call. The NeighborWorks semi-annual report to Congress points out that only 6% of homeowners who receive counseling lose their home in a foreclosure — 74% are still in their homes and 20% sold their homes in a short sale or negotiated a deed in lieu that transfers the property to the lender. Nearly 60% of homeowners seeking counseling pay more than 50% of their income toward housing costs. Nearly half (49%) of homeowners seeking help have lost their job, up from 41% in the previous six-month period ending October 31. "Only 7% reported they were in default because their loan payment increased," the semi-annual report says.

Comptroller of the Currency John Dugan is urging HUD to require escrow accounts for tax and insurance on FHA-insured reverse mortgages while the banking regulators work on consumer protection guidelines. The Federal Housing Administration-insured home equity conversion mortgage is the predominant reverse mortgage product, Mr. Dugan told an American Bankers Association compliance conference. It is expected to grow substantially in coming years, he said, and "it is a product fraught with consumer concerns." He noted that seniors can receive the loan proceeds in one lump-sum payment and failure to pay taxes and insurance during the life of the loan can lead to foreclosure. "I think it would be a major step forward for HUD to issue guidelines or requirements addressing the escrow issue for HECMs, and I would like to begin dialogue with them on the issue," the Comptroller said.

Servicers participating in the Obama Administration's loan modification program are required to collect "detailed" racial information to make sure the program is reaching minority communities that were targeted by subprime lenders. The 14 servicers participating in the Making Home Affordable program have agreed in their contracts to collect "very detailed information on race and other characteristics," HUD secretary Shaun Donavan told a the National Fair Housing Alliance. The information will allow "us to monitor and ensure that the solution is impacting the communities that were disparately targeted," the secretary said. The Department of Housing and Urban Development secretary noted that 60% of all loans in African-American communities were subprime in 2005.

Mortgage companies are scrambling to implement an over-looked Truth-in-Lending Act rule that goes into effect July 30 requiring timely delivery of the good faith estimate on home purchases, refinancings, and home equity loans. On applications taken after July 29, lenders must deliver the GFE to the borrower within three business days and they cannot collect any fees before delivery — except for the credit report. The TILA rule also requires lenders to "wait seven business days after they provide the early disclosures before closing the loan," according to the Federal Reserve Board. If the financing charges or annual percentage rate changes, the lender must provide a new disclosure with the revised APR "and wait another three business days before closing the loan," the Fed says. Consumers can waive this three-day waiting period in emergency situations such as a foreclosure. The Fed approved the rule on May 8. The FDIC recently reminded lenders about banks about the rule.