Compliance & Regulation

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 the 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.

Half of all home sales in the first quarter involved first-time homebuyers and the National Association of Realtors expects more new buyers will be entering the market to take advantage of low prices and distressed property sales. "Close to 455,000 buyers purchased their first home during the first quarter, and those are likely just the first wave of new buyers coming into the market," NAR chief economist Lawrence Yun said. "Housing affordability conditions are at record levels and we expect a measurable increase in home sales in the second half of this year, which would help stabilize prices in most areas," he said. An NAR survey also found that half of all sales in the first quarter involved foreclosed properties and short sales, which continue to put downward pressure on prices. At NAR's Washington conference, some Realtors noted that first time buyers are competing with investors for foreclosed properties.

A Florida man who operated and worked with companies that sold sex toys and pornographic videos this week pleaded guilty to his involvement in a mortgage fraud scheme. According to the Florida attorney general's office, between May 2007 and August 2007, Rory V. Porter of Columbia County, Fla., befriended homeowners whose homes were free of any liens, vacant and for sale. Using information he obtained from the homeowners and public records, Porter forged documents and recorded deeds to transfer the homes to his possession. He then located private lenders and borrowed money using the homes as collateral. The AG's office believes Porter stole homes in the Gainesville and Lake City areas worth more than $800,000 and obtained loans against those homes for more than $500,000. After obtaining the proceeds from the new home mortgages, Porter laundered the money through different banks and companies that he controlled or did business with, including companies that sold adult sex toys and pornographic videos. In just over two months, he laundered the proceeds through at least four banks and closed the accounts. Porter will be sentenced in June.

Ginnie Mae guaranteed $34.5 billion in mortgage-backed securities in April for the second consecutive month, compared to $28 billion in February and $27.3 billion in January. "We are steadily growing," said Ginnie president Joseph Murin. Ginnie Mae single-family MBS totaled $33.8 billion and multifamily totaled $707 million in April. Ginnie I single-family MBS totaled $26.8 billion in April — $1.4 billion less than in the previous month. However, Ginnie II single-family multiple issuer pools totaled $6.6 billion, up $1.1 billion from the previous month.

Housing secretary Shaun Donovan has decided to move ahead with a RESPA rule issued by the Bush administration that requires the industry to adopt new standardized mortgage disclosures by next January. However, the Department of Housing and Urban Development is dropping — for now — a "required use" section of the Real Estate Settlement Procedures Act rule that the National Association of Home Builders challenged in court. The RESPA rule issued shortly after the November election bans builders from offering homebuyers discounts or upgrades that are tied to the use of affiliated mortgage and title companies. "We will propose a clearer and more effective 'required use" definition that truly protects borrowers from those who force them to use affiliated businesses," said Mr. Donovan. The House passed a comprehensive mortgage reform bill May 7 that directs HUD to withdraw the RESPA rule and urges the department to work with the Federal Reserve Board in issuing "complimentary" mortgage disclosures. The Fed is working on updating its Truth in Lending Act mortgage disclosures. Secretary Donovan added: "We will implement the new RESPA rules as part of broader reforms to the mortgage process that include ensuring that RESPA and TILA are coordinated."

The Department of Housing and Urban Development will ask Congress for expanded commitment authority for Ginnie Mae and the Federal Housing Administration single-family program, allowing the government to insure up to $400 billion of new mortgages in fiscal 2010. HUD estimates that FHA will endorse $290 billion of single-family loans in FY 2009, which ends September 30. The government estimates that FHA loan production will continue at a torrid pace until private mortgage markets recover. "For FY 2010, we are asking Congress for the authority to endorse up to $400 billion of loans," HUD secretary Shaun Donovan told the National Association of Realtors at its mid-year legislative conference. The housing secretary stressed that FHA will be able to provide this level of support for the mortgage market without a congressional appropriation and without raising FHA mortgage insurance premiums or changing the premium structure. "FHA will continue to be a source of stable, reasonably priced safe financing in the marketplace." Mr. Donovan said.

The government today gave the green light to the financing of bridge loans of up to $8,000 to first time home buyers who qualify for tax credits under the Obama Administration's economic stimulus plan. The new mortgagee letter stipulates that government agencies, non-profits and FHA-approved lenders can give advances on the tax credits. Housing secretary Shaun Donovan told a national Realtor group Tuesday that, "We want to enable FHA consumers to access the tax credit funds when they close on their home loans so that cash can be used as a downpayment." The mortgagee letter is now available online but more details are to follow.

Housing secretary Shaun Donovan has decided to move ahead with a RESPA rule issued by the Bush administration that requires the industry to adopt new standardized mortgage disclosures by next January. However, the Department of Housing and Urban Development is dropping — for now — a "required use" section of the Real Estate Settlement Procedures Act rule that the National Association of Home Builders challenged in court. The RESPA rule issued shortly after the November election bans builders from offering homebuyers discounts or upgrades that are tied to the use of affiliated mortgage and title companies. "We will propose a clearer and more effective 'required use' definition that truly protects borrowers from those who force them to use affiliated businesses," said HUD secretary Shaun Donovan. The House passed a comprehensive mortgage reform bill May 7 that directs HUD to withdraw the RESPA rule and urges the department to work with the Federal Reserve Board in issuing "complimentary" mortgage disclosures. The Fed is working on updating its Truth in Lending Act mortgage disclosures.

Ginnie Mae guaranteed $34.5 billion in mortgage-backed securities in April for the second consecutive month, compared to $28 billion in February and $27.3 billion in January. "We are steadily growing," said Ginnie president Joseph Murin. Ginnie Mae single-family MBS totaled $33.8 billion and multifamily totaled $707 million in April. Ginnie I single-family MBS totaled $26.8 billion in April -- $1.4 billion less than in the previous month. However, Ginnie II single-family multiple issuer pools totaled $6.6 billion, up $1.1 billion from the previous month.

Thomas Hastert of Nevada City, Calif., pleaded guilty to 59 felony counts related to orchestrating a $20 million real estate scheme. According to California Attorney General Edmund G. Brown Jr., between September 2004 and September 2007, Hastert brokered more than 270 hard-money loans in Nevada, Sacramento, Sutter, Butte, Placer and Yolo Counties for real estate development projects. He secured $20 million from several investors, using the funds to broker hard-money loans to borrowers seeking to develop homes on real estate. He told investors that the borrowers had excellent credit scores and were capable of repaying the loans, when in fact many had poor credit scores, didn't make regular loan payments and held properties in foreclosure. Rather than place the loans he brokered into a special trust account overseen by a third-party escrow firm to ensure the project was being built, Hastert instead used the money to pay his office expenses and other development projects. Though he told investors he'd personally oversee the development of the land, investors once asked Hastert to drive them to a property supposedly under development and he was unable to find it. To keep concerned investors at bay, Hastert set up fake investors/straw men. If a legitimate investor tried to initiate foreclosure proceedings, he'd contend that the supposed majority owner opposed the action. He also took all his fees up-front as if the loans were fully funded, when in fact some loans never fully funded and others took more than a year to fully fund. Hastert will be sentenced on June 25 in Nevada County Superior Court.