Compliance & Regulation

A man responsible for digging up Social Security numbers and other personal data that was used to siphon millions of phony home equity lines of credit from credit unions and banks was convicted on bank fraud charges last week. Yomi Jagunna, a 44-year-old Nigerian immigrant, is one of a handful of small players to plead guilty in this international scheme, which stole as much as $5 million from U.S. credit unions and banks and wired the proceeds overseas, beyond the reach of U.S. law enforcement. Jagunna, who held back tears during last week's plea hearing, told authorities he set up a sham collection agency to gain access to a commercial database. He admitted selling 39 Social Security numbers for $30 a piece, but authorities said he had access to a database of more than 100,000 Social Security numbers. Jagunna is one of 17 individuals charged in the nationwide HELOC scheme that fooled credit union and bank employees into transferring funds to accounts in at least seven countries, authorities said.

The Senate has confirmed Ron Sims to be the deputy secretary and second in command at the Department of Housing and Urban Development. Mr. Sims is the former executive of King County, Washington, and has plenty of experience in urban affairs. Meanwhile, the HUD secretary continues to support David Stevens to be the new Federal Housing Administration commissioner. But the Senate Banking Committee is holding up his confirmation due to a RESPA lawsuit filed against his former employer — the real estate brokerage firm Long and Foster. Stevens' supporters are hoping he will be confirmed before the Senate adjourns for the Memorial Day recess.

A House-passed mortgage reform bill makes it tough for borrowers to get traditional adjustable-rate mortgages that are considered safe enough so lenders don't have to retain 5% of the credit risk when they sell or securitize the ARM. Originally the bill (H.R. 1728) provided this exemption or safe harbor only for prime fixed-rate mortgages and mortgages guaranteed by government entities. But the House expanded the safe harbor to include ARMs - provided borrowers are qualified at the fully indexed rate at the end of seven years. So a borrower taking out a 5/1 hybrid ARM with 2% annual interest rate adjustment cap must be able to afford a 9% interest rate. "There are provisions that limit consumer choice and credit availability for garden variety prime products that have not been associated with any of the problems that previously existed with subprime lending," said Robert Davis, executive vice president for the American Bankers Association. The House passed H.R. 1728 by a 300-114 vote last Thursday (May 7).

The Federal Reserve Bank of New York has invested at least $248.3 billion in MBS and debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, according to a budget addendum released Monday by the White House.The figure represents asset and debt purchases as of March 31. A spokeswoman for the New York Fed was asked to provide an updated figure for the end of April but at press time had not gotten back to National Mortgage News. The MBS (Fannie/Freddie guaranteed) bought by the government total $201.5 billion, with the debt at $46.8 billion. The debt number includes $11.1 billion in bonds issued by various FHLBs. In the new "Analytical Perspectives, Budget of the U.S. Government" the White House also discusses the future of the GSEs, mentioning — as one option — their dissolution.

The Senate has confirmed Ron Sims to be the deputy secretary and second in command at the Department of Housing and Urban Development. Mr. Sims is the former executive of King County, Washington, and has plenty of experience in urban affairs. Meanwhile, the HUD secretary continues to support David Stevens to be the new Federal Housing Administration commissioner. But the Senate Banking Committee is holding up his confirmation due to a RESPA lawsuit filed against his former employer -- the real estate brokerage firm Long and Foster. Stevens' supporters are hoping he will be confirmed before the Senate adjourns for the Memorial Day recess.

American International Group reported a $4.35 billion ($1.98 per share) loss for the first quarter that included a $1.9 billion charge for restructuring costs at AIG Financial Products Corp. Over the past five quarters, AIGFP has reduced its portfolio of collateralized debt obligations (backed mostly by subprime MBS) by more than 40% to $1.5 trillion. AIG also reported that American General Finance Inc., which originates mortgages, lost $203 million in the first quarter, due to a $186 million increase in the provision for finance receivables. Meanwhile, AIG continues to own mortgage insurer United Guaranty Corp. after the splitoff of its property/casualty business. UGC, based in Greensboro, N.C., had $483 million in operating losses during the quarter. Overall, the first quarter results mark an improvement, compared to AIG's $7.8 billion ($3.09 per share) loss a year ago.

Five people have been indicted in connection with a $14 million mortgage fraud scheme in Wisconsin. According to the U.S. attorney's office for the Eastern District of Wisconsin, Paul J. Zaleski and Robert Farrell, both formerly of Richmond, Ill.; Michael Pembroke of Twin Lakes, Wisc.; John F. Hochrek, Jr., of Spring Grove, Ill.; and Patricia Lynn Kay of Kenosha, Wisc., have been charged in a 24-count indictment, accused of wire fraud and money laundering. The indictment alleges that Mr. Zaleski orchestrated the purchase of at least 40 real estate properties by straw buyers who were led to believe that they were members of an investment group. In order to secure mortgage loans, Messrs. Zaleski and Farrell, working as loan originators in Kenosha, Wisc., allegedly prepared fraudulent loan applications containing inflated appraisals in the names of the buyers. Mortgage lenders advanced more than $14 million in loans. The mortgages subsequently went into default and then foreclosure. An initial appearance for Mr. Pembroke, Mr. Hochrek and Ms. Kay has been scheduled for May 14 before Judge William E. Callahan. Mr. Zaleski and Mr. Farrell have been arrested in California and are awaiting return to Wisconsin.

The U.S. mortgage insurance business of Genworth Financial Inc. had a net operating loss of $135 million for the first quarter, as higher captive reinsurance benefits were more than offset by higher incurred losses. The first quarter loss was substantially higher than the $36 million net operating loss the unit had in the first quarter 2008. Gross losses before the impact of captive reinsurance benefits were $522 million. The Richmond, Va., insurer benefited from $119 million (on a pre-tax basis) of captive reinsurance coverage. Paid claims were $205 million for the quarter, up by $121 million over the first quarter 2008, while average paid claim leaped to $55,500, versus $42,200 one year ago. Genworth approved approximately 5,800 workouts, which resulted in $57 million of reduced loss exposure. New insurance written was substantially down from the previous year, $3.6 billion in the first quarter 2009 ($2.5 billion flow, $1.1 billion bulk), compared with $15.1 billion (all but $0.1 billion flow) one year prior. Genworth chief financial officer Ronald Joelson expects to see an increase in new insurance written during the rest of 2009. "New business levels are expected to trend up from the first quarter as we have the capital flexibility to take advantage of strengthening market conditions," he said. The parent company lost $469 million ($1.08 per share) for the quarter.

In a hypothetical situation in which the economy is worse than expected over the next two years, the 19 bank holding companies participating in federal "stress tests" would find first-lien mortgages to be responsible for about one-sixth of the losses they would cumulatively have to absorb. This category of losses, estimated to represent $102.3 billion of a total $599.2 billion in losses under the "more adverse" scenario for the BHCs, was the largest in the Supervisory Capital Assessment Program report. The next largest category was second/junior lien mortgages, which was estimated in the scenario to potentially account for $83.2 billion of losses. Commercial real estate loans was the fourth largest category of potential losses, behind commercial and industrial loans. Potential losses tied to these categories were respectively estimated at $53 billion and $60.1 billion.

Fannie Mae posted a $23.2 billion loss in the first quarter and is asking the Treasury Department for $19 billion in new assistance so it can maintain a positive net worth position as its real estate owned portfolio continues to grow dramatically. At-year end Fannie Mae owned 62,371 homes, a 44% increase over the past 12 months. It reported that its guaranty book of business has $145 billion in non-performing mortgages — a 12-fold increase from the same period last year. In posting yet another enormous loss, Fannie blamed the poor performance on the nation's housing depression which caused it to take impairments on its MBS holdings, and increased credit reserves. In the same quarter last year the GSE lost $2.5 billion. Even though the industry is in the throes of a refi boom, Fannie's guaranty fee income (money it receives from its seller/servicers) actually fell in the first quarter by 37% to $1.8 billion. In 4Q Fannie had 'g-fee' income of $2.8 billion. It blamed the decline in g-fees on revenue recognition factors, including expected prepayment rates. Fannie has been a ward of the government since early September 2008.