Compliance & Regulation

The Minnesota Department of Commerce has revoked Michael Prieskorn's mortgage originator license and fined him $2.2 million for his involvement in the allegedly fraudulent sale of homes in high-growth areas including Eagan, Buffalo, Rochester and St. Cloud. The department charges that Mr. Prieskorn participated in a "builder bailout" scheme where he persuaded investors to purchase 220 homes at substantially inflated prices, allowing the sellers to make profits and Mr. Prieskorn to collect "management fees" ranging from $22,000 to $105,000. Instead of keeping up on the mortgage and utility payments, the department charges that Mr. Prieskorn spent the money himself. In April 2007, Mr. Prieskorn allegedly emptied his bank accounts, stopped making payments and failed to purchase any of the investors' homes as promised. Most of the homes have fallen into foreclosure. Mr. Prieskorn has been at large since he failed to appear at an administrative hearing on the matter in December 2008 and could not be reached for comment. Bill Walsh, a spokesman for the department, said this "looks like criminal activity" and the department has often seen cases like this result in criminal investigations. But he said he was not aware of any criminal investigation into the activity and referred questions as to whether there was one to the U.S. attorney's office. A spokesman for the U.S. attorney's office said he could neither confirm nor deny the existence of a criminal investigation into the matter.

Former Federal Deposit Insurance Corp. chairman L. William Seidman, who also headed the thrift bailout agency during that industry's darkest days, passed away on May 13. He was 88. During his years of public service he worked in the Ford White House as the president's assistant for economic affairs. From 1985 to 1991, Mr. Seidman served as the 14th chairman of the FDIC. Under President George H.W. Bush, Mr. Seidman was tapped to head up the newly created Resolution Trust Corp., and eventually sued the president's son, Neil Bush, for his alleged role in the collapse of Silverado Savings of Colorado. (The younger Mr. Bush eventually settled the case out of court.) According to The American Banker, Mr. Seidman was lionized for the key role he played in cleaning up the S&L industry. The newspaper noted that he was "a constant voice on regulatory matters long after his retirement."

The Treasury Department is reopening its Capital Purchase Program for six months so small banks can get another shot of capital and increase their lending capacity. Current CPP recipients and other small banks with less than $500 million in assets can apply for capital assistance that will be funded through the Troubled Asset Relief Program. "In addition, we will extend the deadline for small banks to form a holding company," which is a prerequisite for applying for the capital assistance, Treasury secretary Timothy Geithner said. "Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months," he added. The Treasury secretary also told the Independent Community Bankers of America that the Obama administration is working on regulatory reform that will simplify and consolidate the oversight of financial institutions and provide better supervision in the consumer area. The new rules will be sensible, conservative and apply to all lenders so there is a level playing field. The administration also wants "greater simplicity" in core financial products. "We want a standardized, simple product that consumers can choose to opt out of to meet their individual needs," Mr. Geithner said.

The Treasury Department has expanded its loan modification program by providing incentives for short sales and insurance to "partially offset" price declines on modified loans during the first two years. The "Home Price Declines Protection incentives are designed to address investor concerns that recent home price declines may persist," according to a Treasury fact sheet. And it provides cash payments based on average local price declines. The incentives accumulate each month the modified loan is current and payments are made at the end of the first and second year. "It's just an additional incentive to participate in the program," Treasury secretary Timothy Geithner told reporters. For homeowners that are eligible for a Home Affordable Modification but can't keep up with the payments, Treasury is providing incentives for servicers, investors and homeowners to try a short sale or deed-in-lieu if the property is not sold in 90 days. Secretary Geithner noted 14 servicers have signed up for the modification program and they have made modification offers to 55,000 borrowers so far. "This is just the beginning," the secretary said. Treasury is prepared to expand and improve the program to "reach as many Americans as we can," he added. Treasury also reported that Fannie Mae has purchased 2,150 Home Affordable Refinance loans so far. The mortgage giant has received over 51,000 eligible refinance applications where the loan-to-value ratios are between 80% and 105%. Freddie Mac has purchased 1,500 of these refinanced loans that do not require new mortgage insurance.

The attorney for Countrywide Financial Corp. founder and former CEO Angelo Mozilo acknowledged that civil SEC charges could be brought against his client but said there is no "fair basis" for them. As reported by The Wall Street Journal late Wednesday, staff at the Securities and Exchange Commission has recommend filing civil fraud charges against Mr. Mozilo, but it is unclear what those charges might entail. The SEC has been investigating his insider stock sales which totaled more than $300 million during his last three years as head of the company. In the past Mr. Mozilo has stated that his sales were disclosed publicly and made in accordance with SEC rules. Mr. Mozilo's attorney David Siegel issued a statement that said, "We do not believe there is any fair basis for allegations to be made against Mr. Mozilo. All of Mr. Mozilo's stock sales were made in compliance with properly prepared and approved trading plans and reflected recommendations by his financial advisor over a long period of time. The persistent innuendo in the media and political circles that Mr. Mozilo was selling Countrywide stock because he was aware of some supposedly 'secret' adverse information about the Company is scandalous and inconsistent with even a cursory examination of the facts surrounding the history of his stock holdings." Mr. Mozilo retired from the company on July 1 when it was sold to Bank of America for about $4 billion. Its shares once traded as high as $45 but by the time BoA bought the company it was only selling for a few dollars a share. Mr. Mozilo co-founded the lender in the 1960s with then partner David Loeb. CFC was once the nation's largest overall residential lender/servicer and the largest funder and servicer in the subprime sector.

Former Federal Deposit Insurance Corp. chairman L. William Seidman, who also headed the thrift bailout agency during that industry's darkest days, died Wednesday. He was 88. During his years of public service he worked in the Ford White House as the president's assistant for economic affairs. From 1985 to 1991, Mr. Seidman served as the 14th chairman of the FDIC. Under President George H.W. Bush, Mr. Seidman was tapped to head up the newly created Resolution Trust Corp., and eventually sued the president's son, Neil Bush, for his alleged role in the collapse of Silverado Savings of Colorado. (The younger Mr. Bush eventually settled the case out of court.) According to The American Banker, Mr. Seidman was lionized for the key role he played in cleaning up the S&L industry. The newspaper noted that he was "a constant voice on regulatory matters long after his retirement."

Staff at the Securities and Exchange Commission have recommended filing civil fraud charges against Angelo Mozilo, the co-founder of Countrywide Financial Corp., The Wall Street Journal reported Wednesday afternoon. The newspaper quoted sources "familiar with the investigation." Mr. Mozilo, who lives in Granada Hills, Calif., not too far from the old Countywide headquarters, could not be reached for comment. His telephone number is not listed. It was widely known that the agency was investigating his insider stock sales over a three-year period. He retired from the company on July 1 when it was sold to Bank of America for about $4 billion. Its shares once traded as high as $45 but by the time BoA bought the company it was only selling for a few dollars a share. Mr. Mozilo co-founded the lender in the 1960s with then-partner David Loeb. His stock sales, which were publicly disclosed, totaled more than $300 million. CFC was once the nation's largest overall residential lender/servicer and the largest funder and servicer in the subprime sector.

House leaders are preparing to vote on a housing bill next week that will fix a Federal Housing Administration refinancing program for underwater borrowers and likely make the $250,000 deposit insurance coverage permanent. However, the bill is not expected to include a controversial cramdown provision that would hold up final passage by the Senate. House majority leader Steny Hoyer, D-Md., told a bankers meeting that House and Senate bank committee chairmen "have pretty much reached agreement that the $250,000 is going to be made permanent." Congress temporarily raised the deposit insurance limit from $100,000 to $250,000 last fall. "There are a lot of good things in this bill," Rep Hoyer told MortgageWire after speaking at an Independent Community Bankers of America event. But Rep. Hoyer said Senate Democratic leaders stressed that they can't get a cramdown provision through the Senate. The House passed a cramdown provision that would allow bankruptcy judges to modify mortgages. But the Senate decisively rejected cramdowns in approving its version of the housing bill.

Freddie Mac — whose customer base traditionally has been more aligned with depositories — posted a $9.8 billion loss in the first quarter, a far better performance in the period than its sister company, Fannie Mae. Freddie's conservator, the Federal Housing Finance Agency, is asking the Treasury for a $6.1 billion infusion to maintain Freddie's net worth position above zero. Freddie said it had impairments of $7.1 billion on "available-for-sale" securities and $8.8 billion of provisions for credit losses. Its net interest income grew by almost 400% in 1Q to $3.8 billion (compared to just $798 million in 1Q08) because its funding costs plummeted thanks to government intervention in the credit markets. Fannie Mae, which released earnings on Friday, lost $23 billion and disclosed that it had $145 billion in nonperforming loans on its books. Fannie's earnings have been hammered by its huge investment in alt-A loans. Also, Fannie's largest customer for many years was Countrywide Home Loans. Countrywide's delinquencies were among the worst in the industry.

Freddie Mac's guaranteed loan portfolio is becoming more vulnerable to defaults due to a growing number of single-family mortgages with high loan-to-value ratios. The percentage of Freddie loans with LTV ratios above 90% had doubled over the past four quarters to 28% as of March 31. These mortgages are "more likely to default in the event of financial hardship," the mortgage giant says in its first quarter financial report. The company expects home prices will decline 5% to 10% this year and unemployment to rise, which will increase credit losses. In March, the percentage of single-family loans 90 days or more past due rose to 2.29%, up 57 basis points from Dec. 31. "We expect our delinquency rates will continue to rise in the remainder of 2009," Freddie says.