Compliance & Regulation

The Senate confirmed Neal S. Wolin as deputy secretary and the second-highest ranking official at the Treasury Department. Mr. Wolin has worked in the White House as deputy assistant to President Obama since February and previously worked at Treasury during the Clinton administration. The deputy secretary worked at The Hartford Financial Servicers Group from 2001 to 2008 and was chief operating officer for property and casualty. Earlier in his career, he practiced law at Wilmer, Cutler & Pickering in Washington.

Extremely high redefaults are forcing Fannie Mae to scale back its HomeSaver Advance program, which uses small personal loans to enable delinquent homeowners to catch up on their mortgage payments. A Federal Housing Finance Agency report shows 70% of borrowers redefaulted on their first mortgages in the first 3,300 advance transactions Fannie servicers completed in early 2008. "Fannie Mae is deemphasizing HomeSaver Advance and focusing attention on the Making Home Affordable modification program," an FHFA spokesperson said. Fannie Mae launched the advance program in February 2008 as a loss mitigation tool aimed at allowing the government-sponsored enterprise to avoid the cost of purchasing nonperforming mortgages out of securitized pools. The advances of up to $15,000 are supposed to help homeowners that have landed a new job or resolved other problems that got them into financial trouble so they can resume regular payments again. However, the FHFA report to Congress said the redefault rate "calls into question the program's assumption that borrowers have the capacity to make payments going forward." Fannie made 71,000 HomeSaver Advances in 2008 and another 20,400 advances in the first quarter with an average balance of $7,100. Fannie's first quarter financial report shows the mortgage giant had $516 million in HomeSaver Advances on its books as of March 31 after taking a $115 million charge-off. The quarterly report also notes the program's high redefault rate and says that the company is placing more emphasis on loan modifications.

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. 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 loans. 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.

The Senate confirmed Neal S. Wolin as deputy secretary and the second highest ranking official at the Treasury Department. Mr. Wolin has worked in the White House as deputy assistant to President Obama since February and previously worked at Treasury during the Clinton administration. "Neal brings a deep knowledge of the Treasury Department and strong managerial experience in both private and public sectors," said Treasury secretary Timothy Geithner. The deputy secretary worked at The Hartford Financial Servicers Group from 2001 to 2008 and was chief operating officer for property and casualty. Earlier in his career, he practiced law at Wilmer, Cutler & Pickering in Washington.

The House passed by a 367-54 vote a bill that revamps the FHA 'Hope for Homeowners' program and gives the HUD secretary discretion in setting insurance premiums on refinancings of underwater borrowers. The Senate is expected to pass the measure later this week. The bill (S.896) allows the Department of Housing and Urban Development to charge an upfront mortgage insurance premium of up to 3% and an annual premium of up to 1.5%. Previously, Federal Housing Administration had to charge a set premium of 3% and 1.5% respectively. It "requires the HUD secretary to weigh both the financial integrity of the program and the bill's purposes of foreclosure prevention in setting premiums," according to a summary of the legislation Servicers are expected to reduce the principal amount of the existing mortgage to qualify borrowers for the H4H program that Congress enacted last summer. However, the program is so restrictive that FHA had endorsed only one H4H refinancing as of April 30 with 916 applications pending. The Mortgage Bankers Association and other industry groups support Congress' efforts to relax the eligibility requirements and other requirements to make the program user friendly for homeowners, servicers and investors. S.896 also shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. House and Senate leaders agreed to keep a temporary increase in the $100,000 deposit insurance limit at $250,000 through 2013.

Private label MBS — in particular subprime and alt-A loans — continue to be a "significant issue" for all the housing GSEs and have caused $26 billion of losses and impairments at these firms, according to a new report issued by the Federal Housing Finance Agency. In its first ever annual report to Congress, FHFA blames the previous managements of Fannie Mae and Freddie Mac for not requiring originators "to fully assess borrower capacity." It adds that, "Certain decisions, including the underestimation of risk associated with these products, coupled with changes in the economy, led to escalating increases in delinquencies, foreclosures, credit-related expenses and losses." FHFA's assessment also includes the Federal Home Loan Bank system. The government placed Fannie and Freddie into separate conservatorships in September and replaced their CEOs. The regulator says all housing GSEs face significant challenges including buying and guaranteeing mortgages with LTVs north of 80% due to declining home values and "constraints on the availability of private mortgage insurance."

The president and majority owner of US Mortgage Corp. and its CU National unit is preparing to plead guilty to fraud and conspiracy charges relating to the transfer of as much as $160 million of credit union mortgages being serviced by the company for Fannie Mae, according to a report in Credit Union Journal. A hearing in the case had been scheduled for May 6 when Michael McGrath was expected to plead guilty to the charges, several sources involved in the case told CUJ, a sister publication to National Mortgage News. The hearing was adjourned and is expected to be rescheduled over the next few weeks. McGrath, whose family controlled the Pine Brook, N.J., mortgage company, allegedly posed as an officer of dozens of credit unions and sold the mortgages to Fannie Mae without their knowledge and without passing on the funds. Several other US Mortgage executives are reportedly in plea negotiations with federal prosecutors. Lawyers for McGrath did not return phone calls seeking comment. The scheme started to unravel when credit union executives inquired about their mortgages, forcing the company to file for bankruptcy in February. Separately, Fannie Mae, which is being sued by the credit unions, has refused to return the mortgages, claiming they have no proof that McGrath was not acting on their behalf when he signed documents transferring the mortgages to Fannie Mae.

The House approved final passage of the Fraud Enforcement and Recovery Act, which will increase the resources of the Federal Bureau of Investigation and other law enforcement agencies to pursue mortgage fraud cases and other white collar crimes. The bill (S. 386) also expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. Senate Judiciary Committee chairman Patrick Leahy, D-Vt., said the bill will "rebuild" the nation's fraud enforcement capacity and authorizes $245 million over the next two years to hire more than 300 federal agents, 200 prosecutors and 200 forensic experts and support staff. He noted the FBI currently has fewer than 250 special agents assigned to financial fraud cases, which is only a quarter of the agents the FBI had at the time of the savings and loan crisis. "We need to restore our capacity to fight fraud in these hard economics times and this bill will do that," Sen. Leahy said. The fraud enforcement bill, which President Obama is expected to sign, also creates an independent commission appointed by Congress to investigate the causes of the current financial crisis.

Private label MBS — in particular subprime and alt-A loans — continue to be a "significant issue" for all the housing GSEs and have caused $26 billion of losses and impairments at these firms, according to a new report issued by the Federal Housing Finance Agency. In its first ever annual report to Congress, FHFA blames the previous managements of Fannie Mae and Freddie Mac for not requiring originators "to fully assess borrower capacity." It adds that, "Certain decisions, including the underestimation of risk associated with these products, coupled with changes in the economy, led to escalating increases in delinquencies, foreclosures, credit-related expenses and losses." FHFA's assessment also includes the Federal Home Loan Bank system. The government placed Fannie and Freddie into separate conservatorships in September and replaced their CEOs. The regulator says all housing GSEs face significant challenges including buying and guaranteeing mortgages with LTVs north of 80% due to declining home values and "constraints on the availability of private mortgage insurance."

The Federal Home Loan Bank of Cincinnati reported $83 million in earnings for the first quarter, up from $49 million a year ago, and noted a pickup in member participation in its mortgage purchase program and strong refinancing activity. The FHLBank's MPP portfolio jumped 13% during the first quarter to $9.7 billion as more members joined the program and began selling their conventional and Federal Housing Administration single-family loans to the bank. "We approved 11 members in the first quarter," the bank said, after approving 21 members in 2008. The Cincinnati bank has seen a sharp drop in member borrowing over the past four quarters, however, and advances have dropped by 24% to $46.1 billion as of March 31. "The ability of the Mortgage Purchase Program to be countercyclical helped offset a portion of the business lost from the advance portfolio," the bank said in its securities filing. The FHLBank has only $280 million in private-label MBS and "no credit-risk related or impairment charges were required," the bank said.