Compliance & Regulation

The Treasury Inspector General has concluded that the backdating of capital infusions into six federally chartered thrifts was "inappropriate" and allowed misleading financial reporting by the thrifts. The Office of Inspector General's investigation of the backdating incidents has already resulted in the Office of Thrift Supervision placing on two high ranking officials on administrative leave. "We consider these matters very serious and find it alarming that such high level OTS officials were not only aware of the backdating at two thrifts, but either directed or authorized the thrifts to backdate these contributions," said OIG auditor Susan Barron in a report. One case involved the failed IndyMac Bank in Pasadena, Calif. Its holding company made an $18 million capital contribution on May 9, 2008 that was included in the thrift's first quarter financial report. IndyMac was closed in July after a run in the bank. OTS spokesman William Ruberry said all six transactions would have been acceptable under the accounting rules if a "valid note receivable" had been recorded. He noted that OTS has taken the "necessary actions" to address the IG's concerns.

The Federal Reserve is currently on track to purchase $600 billion in government-sponsored enterprise mortgage-backed securities by the end of this quarter, according to the minutes of its Monetary Policy Committee meeting on April 29. But the committee has directed its traders to purchase "at least $500 billion" by June 30. Credit Suisse mortgage strategist Mahesh Swaminathan does not see this as a directive for the New York Federal Reserve Bank to reduce its purchases of Fannie Mae, Freddie Mac and Ginnie Mae MBS. "It does not put a limit on their purchases. Besides they have a $1.25 trillion total commitment. So they have ample room to keep buying," he said. "If they did slow down purchases, it would encourage private investor participation," the mortgage strategist added. The Fed has committed to purchase up to $1.25 trillion in agency mortgage-backed securities by the end of this year. As of May 13, Fed purchases of agency MBS totaled $457.3 billion, according to the Mortgage Bankers Association.

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

President Barack Obama has signed two housing bills that will provide relief for troubled homeowners that need to refinance, and will crack down on mortgage fraud. The Helping Families Save Their Homes Act addresses the "administrative and technical hurdles" that make it difficult for families with underwater mortgages to use the Hope for Homeowners program and refinance into Federal Housing Administration loans, according to the President. "This bill removes those hurdles, getting folks into sustainable and affordable mortgages, and more importantly, keeping them in their homes," he said at a White House signing ceremony. The bill (S. 896) also shields mortgage servicers that modify loans from investor lawsuits. The President also praised the mortgage fraud bill (S. 386), which doubles the resources of the FBI to pursue mortgage fraud and other financial crimes. He noted the bill expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. "It expands the Department of Justice's authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes - institutions where more than half of all subprime mortgages came from as recently as four years ago," Pres. Obama said.

The Treasury Department is prepared to lend roughly $7 billion to GMAC Financial Services, the parent company of the nation's sixth largest residential servicer, according to published reports. At press time both Treasury and GMAC officials were not commenting on the matter. Wire reports say such a loan would be a step toward making GMAC a quasi-federal company. GMAC has already received $5 billion in TARP funds and needs to raise an additional $11.5 billion in equity within six months. GMAC is a bank holding company. It recently changed the name of its depository to Ally Bank from GMAC Bank. Ally makes warehouse lines of credit to non-depository mortgage firms. Over the past year GMAC has closed the retail branch arm of its Residential Capital Corp. affiliate and exited the wholesale channel. Over the past year ResCap's owned servicing portfolio has fallen by 20% to $365 billion in housing receivables, according to the Quarterly Data Report. The government now owns 5 million shares of GMAC and recently told the lender that it must extend financing to bankrupt Chrysler Corp.

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

The Senate has approved a housing bill that revamps the FHA Hope for Homeowners program and strengthens federal deposit insurance, clearing the measure for the President's signature. As MortgageWire went to press, President Obama was scheduled to sign the housing/FDIC bill at a White House ceremony along with a separate bill (S. 386) that clamps down on mortgage fraud and other financial crimes. The House passed the bill (S. 896) Tuesday afternoon and the Senate followed very quickly to approve the measure, which does not include a controversial bankruptcy cramdown provision. Senate leaders stressed during discussions to reconcile the House and Senate versions of the bill that they can't get a cramdown provision through the Senate. The new Department of Housing and Urban Development secretary has been waiting for Congress to act so the Federal Housing Administration can make the H4H program a viable option for underwater homeowners to refinance into a FHA loan. However, HUD secretary Shaun Donovan has warned that the H4H program is dependent on the willingness of investors to write down the principal amount of the mortgages. "I do believe, frankly — given the drop in values, given what we have seen terms in foreclosures — we are starting to see some willingness of the investors" to take writedowns, he said recently. The housing bill also gives HUD new powers to police the FHA mortgage insurance program and penalize and debar lenders. It shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. "S 896 will increase the FDIC's borrowing authority to $100 billion, enabling the agency to reduce the proposed special premium assessment on all banks," said Floyd Stoner, the American Bankers Association's chief lobbyist.

Three South Florida residents and a real estate brokerage firm have been charged with participating in a mortgage fraud scheme designed to launder drug money. Garry Souffrant, his wife, Yvonne Souffrant, his brother, Gamaliel Souffrant and Progressive Real Estate of Broward Inc., have been charged in a 59 count indictment, according to the U.S. attorney's office for the Southern District of Florida. The indictment alleges that from 2002 to 2008, Garry Souffrant, Yvonne Souffrant and Gamaliel Souffrant used Progressive Real Estate of Broward to launder millions of dollars in drug proceeds through an extensive mortgage fraud scheme by allegedly assisting drug traffickers in purchasing homes and luxury automobiles, including a 2004 Rolls Royce Phantom. The defendants allegedly arranged for and/or acted as straw buyers on behalf of the drug traffickers, which allowed the traffickers to use their drug proceeds to purchase homes and lease automobiles while concealing the source of the income. The defendants also allegedly diverted several million dollars of mortgage loan proceeds to continue to fund the scheme and for their personal use. The defendants made their initial appearances in federal court on May 18 before Federal Magistrate Judge Ted E. Bandstra in Miami. Defendant Garry Souffrant was ordered detained pending trial. The court set bond for defendants Yvonne Souffrant and Gamaliel Souffrant. All three individuals could not be reached for comment and all phone numbers listed for Progressive Real Estate of Broward have been disconnected.

Issues that arose from the North Carolina Office of the Commissioner of Banks' examination of 2007 originations by a mortgage unit that Beazer Homes shuttered last year have been settled. Under the settlement agreement, Beazer Mortgage consented, without admitting the alleged violations, to the entry of a consent order which provides approximately $2.5 million in restitution to certain borrowers in respect of the alleged violations. This amount was included in the approximately $13 million of expense Beazer previously disclosed it had recognized in the quarter ended March 31 for estimated payments related to governmental investigations, including those involving the unit. Beazer Mortgage voluntarily ceased operations in February 2008. Beazer also has had several related discussions with the U.S. Attorney for the Western District of North Carolina to negotiate a resolution of its separate investigation into Beazer Mortgage issues. The negotiations with the U.S. Attorney are continuing and Beazer said the two parties have not reached an agreement yet. "There can be no assurance that the company can conclude an agreement with the U.S. Attorney on financial or non-financial terms that are mutually acceptable," said the homebuilder in a press release.

The Federal Reserve on Wednesday cleared the way for "legacy" commercial mortgage-backed securities to be included as collateral under the government's Term Asset-Backed Securities Loan Facility (TALF) program, come July 1. The Fed issued a statement noting that the move to include CMBS as "eligible TALF collateral ... is intended to promote price discovery and liquidity for legacy CMBS." According to the central bank, the CMBS market finances 20% of outstanding commercial mortgages. It said the market came to a standstill in mid-2008. The TALF program allows investors to use government money to buy certain asset-backed bonds. (To date, the effort has focused mostly on credit cards.) In regard to CMBS, the Fed said that only "senior" (in payment priority) CMBS are eligible for TALF. The Federal Reserve Bank of New York said it "will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk."