Compliance & Regulation

The Federal Home Loan Bank of San Francisco reported a $123 million profit in the first quarter after adopting new accounting guidance that slashed its impairment charge on $25 billion in private-label MBS to $88 million. The FHLBank had a $103 million loss in the fourth quarter after taking a $569 million "other than temporary impairment" charge on $25 billion in private-label mortgage securities. Nearly $17 billion of the MBS is backed by Alt-A mortgages and the rest are prime loans. Adoption of the Financial Accounting Standards Board's new OTTI guidance allowed the San Francisco bank to take a $1.1 billion write down on the MBS and record it in "other comprehensive income," which reduces the bank's capital but not earnings. The $88 million impairment charge is for actual credit losses, which are reflected in earnings. "To continue building retained earnings and preserve the Bank's capital, the Bank did not pay a dividend for the first quarter and did not repurchase excess capital stock in April 2009," the FHLBank said.

Five Federal Home Loan Banks have delayed reporting their first-quarter financials while they grapple with new accounting rules to help minimize losses. But several of the banks continue to report big losses anyway. The Boston Bank is preparing to report an $83.4 million loss as it struggles with large holdings of private-label mortgage-backed securities. The Seattle Bank, also holding underwater private-label MBS, said Friday it expects to report a $16.2 million loss for the quarter. The FHLB Indianapolis reported a $5.9 million loss for the quarter. And the Atlanta Bank reported a $1.5 million first quarter loss on Friday. The troubles at the 12 FHLBs are similar to those being experienced at many depositories, which are struggling with distressed MBS. Last week, the Federal Housing Finance Agency, which regulates the FHLBs, issued guidance for the banks to adopt new processes for determining 'other than temporary impairment' (OTTI) and the early adoption of recently revised Financial Accounting Standards Board rules aimed at accounting for hard-to-price MBS.

The Federal Housing Administration has endorsed $143.9 billion in single-family loans in the first six months of fiscal year 2009, up 169% from the same period in FY 2008. The Department of Housing and Urban Development expects FHA endorsements will total $290 billion when the 2009 fiscal year ends on September 30. In March, FHA insured $25.4 billion in single-family loans, including $15.3 billion in refinancings, according to an FHA monthly report. The report shows that FHA has a 7.08% serious default rate as of March 31 with 347,500 loans that are 90 days or more past due. FHA had a 6.91% serious default rate back in September. Meanwhile, FHA has a 63% share of the mortgage insurance market, compared to 23% for private mortgage insurers and 13% for the Department of Veterans Affairs' loan guarantee program. This is a complete reversal from first half of FY 2008, when private insurers had a 69% market share and FHA a 24% share.

The Federal Housing Administration has endorsed $143.9 billion in single-family loans in the first six months of fiscal year 2009, up 169% from the same period in FY 2008. The Department of Housing and Urban Development expects FHA endorsements will total $290 billion when the 2009 fiscal year ends on September 30. In March, FHA insured $25.4 billion in single-family loans, including $15.3 billion in refinancings, according to an FHA monthly report. The report shows that FHA has a 7.08% serious default rate as of March 31 with 347,500 loans that are 90 days or more past due. FHA had a 6.91% serious default rate back in September. Meanwhile, FHA has a 63% share of the mortgage insurance market, compared to 23% for private mortgage insurers and 13% for Department of Veterans Affairs' loan guarantee program. This is a complete reversal from first half of FY 2008, when private insurers had a 69% market share and FHA a 24% share.

Wilbur Ballesteros, a licensed real estate agent from Lanham, Md., pleaded guilty to his role in the Metropolitan Money Store mortgage fraud scheme that targeted D.C. area homeowners facing foreclosure. Ballesteros, the ninth defendant to plead guilty in this case, conspired with others at the Lanham-based MMS to fraudulently promise homeowners help with avoiding foreclosure and repairing their credit, according to prosecutors. The homeowners were directed to allow title to their homes to be put in straw buyers' names for a year, during which time MMS promised to improve the homeowners' credit ratings, help them obtain more favorable mortgages, and eventually return title to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgages and expenses on their homes — and to repair their credit. Using the homeowners' properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and submitted fraudulent loan applications to lenders to obtain inflated loans on the properties in the straw buyers' names. At settlements, the conspirators imposed numerous fees for services that weren't performed, disclosed or explained to the homeowners. The conspirators also transferred the sale proceeds out of the escrow accounts into their own bank accounts for personal use. Ballesteros served as a closing agent on more than 60 straw buyer properties, securing title insurance, facilitating the real estate settlements and submitting fraudulent closing documentation to the lenders. He allegedly often altered or created multiple settlement statements for some properties to disburse the homeowners' proceeds to himself and MMS employees and was paid more than $100,000 in kickbacks. The total loss attributable to Ballesteros is said to be $16.9 million. Sentencing is scheduled for December.

The Federal Reserve is seeing a pickup in activity in the asset-backed securities market and more demand for its Term Asset-Back Securities Loan Facility, according to chairman Ben Bernanke. In a letter to Rep. Keith Ellison, D-Minn., the Fed chief notes that investor demand for TALF loans fell to $1.4 billion in April from $4.7 billion the previous month due to certain issues involving primary dealer banks, which now have been resolved. "In the past few weeks, investors appear to be more willing to participate in the program, and $10.9 billion in TALF loans were requested at the subscription for the May funding. Early indications are that demand for TALF loans in June will be even higher," Mr. Bernanke said. The Fed recently expanded the TALF program to include commercial mortgage-backed securities. Rep. Ellison and 10 other lawmakers inquired about the Fed's efforts to make sure the loans underlying the ABS are not predatory or fraudulent. Each issuer has to hire an external auditor to provide an opinion on the quality of the assets being rated by the credit rating agencies. But the "eligibility of consumer ABS accepted as collateral in TALF does not depend on the terms of the loans backing the ABS," the May 12 letter says.

A few days after the HUD secretary said he will implement a RESPA rule next year, industry groups headed straight to Capitol Hill in an attempt to block it. Seven financial services and settlement services providers groups are backing an amendment that would require HUD to withdraw the Real Estate Settlement Procedures Act regulation. These groups hope Sen. David Vitter, R-La., will offer the amendment to a credit card or a housing bill soon. If adopted, the Vitter amendment would block the RESPA rule and direct the Department of Housing and Urban Development to work with the Federal Reserve Board in developing compatible RESPA and Truth in Lending Act mortgage disclosures. The Vitter amendment is based on an amendment co-sponsored by Rep. Judy Biggert, R-Ill., that the House passed recently as part of a mortgage reform bill (H.R. 1728). HUD is "ignoring" congressional intent in moving ahead with the "flawed" RESPA rule, Rep. Biggert said. "HUD must suspend this rule and work with the Federal Reserve to create disclosures that work for consumers and provide the clearest and most concise information possible," she said. Meanwhile, 12 industry groups have appealed directly to HUD secretary Shaun Donovan to reverse his decision and suspend the RESPA reform, which is set to go into effect January 1, 2010.

The Federal Deposit Insurance Corp. has extended to Tuesday the bid deadline for all offers on BankUnited Financial Corp., Coral Gables, Fla., a thrift that has roughly $5 billion in payment option ARMs on its books, according to an investment banking source familiar with the transaction. Final bids were originally set for Thursday, May 14 but the deadline was extended. At least three different consortiums are vying for the publicly traded BankUnited (stock symbol: BKUNA) whose shares trade for 80 cents. (Recently, Green Tree Servicing, St. Paul, Minn., bought some of BKUNA's conventional residential servicing rights.) One of the consortiums includes well regarded bottom fisher Wilbur Ross whose American Home Mortgage unit is already a large servicer of POAs. According to documents filed with the Securities and Exchange Commission, Ross' American Holdings recently bought 500,000 shares of BKUNA for 31 cents and then want out and bought 43,818 shares for 30 cents. (American Holdings is headquartered in Tortola.) The "Ross Group" includes the Blackstone Group, Centerbridge Capital, and the Carlyle Group. J.C. Flowers and Toronto Dominion Bank are bidding separately, said one source. The FDIC declined to comment as did BKUNA officials.

Now that the Treasury Department has agreed to bail out certain life insurance companies with TARP money, speculation is that mortgage insurance companies could be next. One MI executive, requesting anonymity, told National Mortgage News that "there are more conversations going on with Treasury that are real and tangible. "He added that, "They know how important we are to Fannie and Freddie." Fannie Mae and Freddie Mac are wards of the government and the nation's seven MI firms have written billions of dollars of coverage that affect loans held in portfolio or guaranteed by the two. If the MI industry collapses, the firms might not be able to make their claim payments which in turn would hurt the GSEs — and the taxpayers which now essentially own the two. (For the full story see the Monday edition of NMN.)

A federal judge has found Clarence Lewis III guilty of defrauding residential mortgage lenders following a trial in Houston. Lewis held a mortgage broker license and operated Motown Mortgage Group in addition to holding a real estate broker license and operating Lewis & Associates Realtors. U.S. District Judge Lynn Hughes found Lewis guilty following a non-jury trial. Lewis and his co-conspirators used both companies to defraud residential mortgage lenders by recruiting individuals with good credit to apply for mortgage loans, many of whom were promised money for signing loan documents and attending the real estate closing at the title company where the mortgage notes were signed. Lewis further induced them to act as borrowers by stating he would ensure the notes were paid and that the property was managed until it could be resold. From January 2002 to January 2008, Lewis is alleged to have obtained more than $12 million in fraudulently obtained loans. Sentencing is scheduled for Aug. 17.