Compliance & Regulation

The Obama administration's Making Home Affordable loan modification program will not show real results until later this summer, according to a key regulator. Federal Housing Finance Agency director James Lockhart told a Congressional panel the impact of the MHA program will be delayed as the servicers register for the program and contractually agree to the program's terms and conditions. "Second, borrowers are required to submit the required documentation, be approved for a modification, and successfully perform under a three-month trial modification before the loans can be formally modified. Therefore, FHFA expects to see the results of current activities ramp up in late summer," Mr. Lockhart testified. Separately, Herbert Allison, President Obama's nominee to be Treasury assistant secretary and run the Troubled Asset Relief Program, told the Senate Banking Committee that 14 servicers are already active in the MHA program and they have sent modification offers to 100,000 homeowners. TARP is providing funds for incentive payments and to cover some of the modification costs. "There is a great deal of pressure on everyone" to get this program going, Mr. Allison said at his confirmation hearing. But he stressed it going to take time to ramp up. Mr. Allison recently served as president and chief executive of Fannie Mae.

Maria Sanchez, a real estate agent and loan officer from El Monte, Calif., was found guilty of fraud and money laundering charges for scheming with her sister to falsify home loan applications. The evidence presented during Maria's trial showed she submitted loan packages to purchase residential real estate in the names of family members. Those applications contained false statements and forged signatures. When the loans were funded, Maria fraudulently obtained more than $1 million in loan proceeds from financial institutions and mortgage lenders. She financially benefited from this scheme by flipping one of the properties, as well as collecting points, fees and commissions from the loan transactions. In three of the deals, Maria's sister Beatriz Sanchez, Los Angeles, was identified as the buyer of the property. Beatriz also has pleaded guilty, specifically to charges that she filed false documents with the IRS. Beatriz is scheduled for sentencing on Aug. 17. Maria is scheduled for sentencing on September 10.

Thrifts originated $88 billion in 1-4 family loans in the first quarter, up 69% from the previous quarter, as serious delinquencies hit a record level and the Office of Thrift Supervision anticipates a surge of resets on Alt-A and payment-option loans later this year. The 801 OTS-supervised thrifts posted a $47 million loss for the first quarter, the best performance for the thrift industry since third quarter of 2007. OTS acting director John Bowman said thrifts are "not out of the woods yet." But earnings were essentially at the "break even level," he said, and thrifts are well positioned with "solid capital, strong levels of loan loss reserves and improving operating income." However, non-current single-family loans (90 days or more past due or in non-accrual status) hit a record 5.2% as thrifts charged off $916 million in bad mortgages. OTS officials expect defaults and foreclosures will increase as house prices continue to decline and more mortgages lose all their equity. Moody's Economy.com is projecting that the number of underwater mortgages will rise from 15.4 million in first quarter to 17.5 million by the first quarter of 2010. OTS senior economic advisor Sharon Stark also noted that loss severity rates on Alt-A and payment-option ARMs are 55 cents on the dollar.

The spread between the Federal Reserve's low financing costs and the coupon on the GSE mortgage-backed securities it buys will likely cover any losses due to changes in interest rates or other market risks, according to Fed chairman Ben Bernanke. The chairman told a congressional panel that the Fed is purchasing 4% MBS coupons with 0.25% financing. "There is a substantial flow of revenue that comes in that will offset losses that might accrue down the road," Mr. Bernanke testified. "We are pretty comfortable this will be providing revenue to the Treasury." Mr. Bernanke's comments were in response to questions about whether the Fed might see losses on its huge holdings of MBS. At a March monetary policy meeting, Fed officials increased their $500 billion commitment to purchase Fannie Mae, Freddie Mac and Ginnie Mae MBS up to $1.25 trillion by yearend and initiated purchases of up to $300 billion in Treasury securities. Since taking that "aggressive action," the Fed chief said, "we have seen a significant improvement in financial markets and in the economic outlook - and that is the most important thing." In his prepared testimony, Mr. Bernanke said housing market is showing "some signs of "bottoming" and overall economic activity should "bottom out, and then turn up later this year."

The Consumer Mortgage Coalition is urging the government-sponsored enterprises' regulator to suspend the conforming loan limits and allow Fannie Mae and Freddie Mac to purchase single-family loans of up to $1 million. It is difficult and expensive to get jumbo loans and the current GSE loan limits that range from $417,000 to $729,750 are "causing market disruptions," the mortgage industry group says in a letter to the Federal Housing Finance Agency. "We recommend that the conforming loan limit be suspended for loans below $1 million while the FHFA serves as the GSE conservator so that the government-sponsored enterprises can add liquidity throughout the mortgage market and across the country," CMC says in a June 1 letter. Separately, the Mortgage Bankers Association is urging Congress to permanently raise the GSE conforming loan limit to $625,000 and retain the flexibility to provide financing of up to $729,750 in higher cost markets.

Federal banking regulators have issued a proposed rule that sets parameters for federally supervised banks and their subsidiaries to register their loan officers through a national licensing system developed by state regulators. As required by the Secure and Fair Enforcement for Mortgage Licensing Act, mortgage originators working for federally chartered banks and thrifts are required to file background information and fingerprints with the Nationwide Mortgage Licensing System and Registry. Once registered, the loan originator will be assigned a unique identifier that they will carry like a Social Security number for the rest of their careers. The federal agencies are proposing de minimis rules that will exempt institutions that make 25 or fewer single-family mortgages at year from registering their employees. Employees that originate five or fewer loans a year or only engage in loan modifications would be exempt. State licensed originators in 26 states have completed or are in the midst of registering. Once the federal regulators finalize registration requirements, the system will be expanded for federal mortgage originators.

Federal banking regulators have issued a proposed rule that sets the parameters for federally supervised banks and their subsidiaries to register their loan officers on a national licensing system developed by state regulators. As required by the Secure and Fair Enforcement for Mortgage Licensing Act, mortgage originators working for federally chartered banks and thrifts are required to file background information and fingerprints with the Nationwide Mortgage Licensing System and Registry. Once registered, the loan originator will be assigned a unique identifier that they will carry like a Social Security number for the rest of their careers. The federal agencies are proposing de minimis rules that will exempt institutions that make 25 or fewer single-family mortgages at year from registering their employees. Employees that originate five or fewer loans a year or do only loan modifications would be exempt also. State licensed originators in 26 states have completed or are in the midst of registering on the system. Once the federal regulators finalize their registration requirements, the registry system will be expanded for federal mortgage originators. "This proposal provides for a 180-day period within with to complete the initial registrations after the Registry is capable of accepting registrations from employees of agency-regulated institutions," the federal regulators say in the proposed rule that is being issued for a 30-day comment period.

The Federal Trade Commission is seeking public comments on how it should address foreclosure and loan modification scams and whether it needs to engage in further rule making with regard to unfair and deceptive mortgage lending and servicing practices. FTC has taken legal actions to stop several foreclosure rescue scams where consumers have paid fees up-front for bonus services. The consumer protection agency is considering drafting regulations that would ban advance fees for loan modification and foreclosure rescue services. The comment period ends July 15. In a separate "Mortgage Act and Practices Rulemaking," the FTC is soliciting comments on whether it needs to issue regulations to stop deceptive practices dealing with mortgage advertising and marketing, loan underwriting and terms, appraisals and servicing. "The FTC is particularly interested in receiving comments about mortgage servicing," the agency said. The advance notice of proposal rulemaking specially asks if FTC should prohibit or restrict servicers from charging fees that are not authorized under the mortgage contract or servicing agreement, such as late fees. Or charging "estimated" attorney fees or other fees for services not rendered. The comment period ends July 30.

Housing Secretary Shaun Donovan is "open to suggestions" on how his department can establish higher FHA loan limits for high-cost submarkets. Congress gave HUD discretionary authority under the American Recovery & Reinvestment Act to establish separate loan limits for submarkets in places where prices are "significantly higher" than the median for the county or MSA within which they are located. But in response to a question after his talk at the National Association of Home Builders' spring board meeting in Washington, Sec. Donovan said setting a ceiling for more than 3,300 separate jurisdictions is "already complex enough" without introducing submarkets into the equation. "It's a brain twister at this point," he said. At the same time, though, the secretary said he understood the need for more flexibility in setting the limits and welcomed input on how to implement "a very, very complex" challenge. Past NAHB President Mark Tipton, a builder in Raleigh, N.C., said there are numerous places throughout the country where buyers in high-cost communities don't have access to FHA financing because the houses they want to purchase are located within larger jurisdictions where the overall median is much lower or even depressed because of a large concentration of older or foreclosed properties. The NAHB favors the removal of the high-cost designation altogether and bumping the limit higher for the entire country. But Sec. Donovan said that "could be putting the FHA risk."

Thirteen New York state residents have been charged with conducting a subprime mortgage fraud scheme involving loans on residential properties in Long Island and the New York City area, totaling more than $10 million. The defendants are: Micah Meyers, Stephen Caputo, Dawn Hughes, Fnu Lnu, Jakob Gearwar, Brian Urraro, Michael Didio, Daniel Hampton, Jennifer Moschitta, Victor Avendano, Adrian Avendano, Janet McGuinness and Liam Leavey. According to the indictment, from 2005 through 2007, the defendants — many of whom were worked at Bridgewater Funding, an Islip-based brokerage firm — targeted residential properties in Long Island and the New York City area that could be flipped or the homeowners were facing foreclosure. Bridgewater says the defendants are former employees who have not worked with the company for three years. The defendants were unavailable for comment. The defendants allegedly convinced troubled homeowners that selling their properties to the defendants would pay off their debts and "save" their homes. To purchase the properties, the defendants allegedly submitted mortgage loan applications that contained false information. The loans exceeded the actual purchase price of the property, producing a "spread" from which the defendants profited.