Compliance & Regulation

Former American Home Mortgage founder and CEO Michael Strauss — who is now running a loan modification startup — has agreed to pay the Securities and Exchange Commission $2.45 million to settle a slew of allegations including one where he had others turn company losses into "fictional" profits. Mr. Strauss, who could not be reached for comment, also agreed not to serve as an officer or director of a publicly traded company for five years. The SEC also brought charges against two other former AmHome executives, Stephen Hozie (CFO), and Robert Bernstein. Both could not be reached for comment and have yet to settle. Two former officers of AmHome (once a publicly traded REIT) told National Mortgage News that they have been contacted by the FBI concerning AmHome's operations. Mr. Strauss' new loan modification company is called InstaModify and according to its website has offices in East Meadow, N.Y., and Irvine, Calif. This publication left a message for Mr. Strauss at the East Meadow office and had received no response at press time. A prime and alt-A lender/servicer, AmHome filed for bankruptcy in the summer of 2007, costing investors hundreds of millions of dollars.

To jumpstart the Hope for Homeowners program, the Treasury Department will pay servicers hefty bonuses to use the FHA refinancing program and purchase Ginnie Mae securities backed by H4H loans. "These purchases will increase secondary market liquidity for new Hope for Homeowners loans, supporting additional assistance to homeowners," Treasury says in an update to the Obama administration's loan modification program. Participating servicers are expected to evaluate homeowners that are going through a trial loan modification to see if they can qualify for a principal writedown under the Federal Housing Administration H4H program. If the investor agrees to a writedown, the servicer would receive a $2,500 up-front incentive payment for a successful H4H refinancing, instead of the $1,000 that is paid for a standard loan modification. In addition, "lenders who originate the new H4H loan are eligible for success fees of up to $1,000 per year for up to three years, so long as the refinanced loan remains current," Treasury says.

The Treasury Department has revised the President's loan modification plan to require participating servicers to consider the FHA Hope for Homeowners program as an option and write down the principal amount of the mortgage. "For borrowers where Hope for Homeowners works, it can be a better option for them," because it allows underwater borrowers to re-establish equity in their homes, HUD secretary Shaun Donovan said. If the investor is willing to do a writedown, "that will be first alternative to a modification," the Department of Housing and Urban Development secretary told reporters. The HUD secretary admitted the FHA H4H program is flawed and it has only refinanced 50 homeowners. However, the Obama administration is urging Congress to pass a housing bill (H.R. 1106) to revamp the H4H program and make it a more effective part of the administration's loan modification program. The new HUD secretary also said 11 of the largest servicers have signed up to participate in the President's loan modification program and they are beginning to modify mortgages in private-label securities. "Servicers are moving forward with modifying PLS loans." He also noted that an increasing number of investors are willing to do principal write downs under the FHA program.

Sen. Richard Shelby, R-Ala., has placed on hold on the President's nominee David Stevens to be the new Federal Housing Administration commissioner as the result of a lawsuit against his former employer Long and Foster. The Senate Banking Committee approved four other Department of Housing and Urban Development nominees on Tuesday (April 28) and cleared the way for their confirmation by the full Senate. However, committee chairman Christopher Dodd, D-Conn., did not seek a vote on Mr. Steven's nomination. "Sen. Shelby agreed with chairman Dodd that this matter needs to be thoroughly examined before moving forward with a committee vote on Mr. Stevens' nomination," said a spokesman for Sen. Shelby. The class action lawsuit is understood to involve possible RESPA violations by Long and Foster, which is the largest privately owned real estate brokerage firm. Meanwhile, the committee approved the following HUD nominees: Ronald Sims to be deputy secretary, Helen R. Kanovsky to be general counsel, Peter Kovar to be assistant secretary for congressional and intergovernmental affairs, and John D. Trasvina, to be assistant secretary for fair housing and equal opportunity.

The Senate has passed a bill that expands the bank fraud statutes to cover independent mortgage companies and mortgage brokers and increases funding for federal investigations of mortgage and financial fraud by $165 million. By a vote of 92-4, the Senate approved the Fraud Enforcement and Recovery Act that also expanded federal fraud laws to cover funds involving the $700 billion Troubled Asset Relief Program that is being used to capitalize banks and deal with problem assets. The bill (S. 386) expands the definition of "finance institutions" to ensure mortgage brokers and mortgage companies are held fully accountable under the federal fraud laws. It also makes it a crime for brokers and mortgage bankers to make materially false statements or to willfully overvalue properties to influence any action by a mortgage lending business. The Obama administration supports the bill and the House of Representatives is working on a similar bill. "The legislative enhancements would help the Department of Justice to combat mortgage fraud, securities and commodities fraud, money laundering and related offenses, and to protect taxpayer money that [has] been expended on recent economic stimulus and rescue packages," the White House told the Senate in a statement of administration policy.

Sen. Richard Shelby, R-Ala., has placed on hold on the President's nominee David Stevens to be the new Federal Housing Administration commissioner as the result of lawsuit against his former employer Long and Foster. The Senate Banking Committee approved four other Department of Housing and Urban Development nominees on Tuesday (April 28) and cleared the way for their confirmation by the full Senate. However, committee chairman Christopher Dodd, D-Conn., did not seek a vote on Mr. Steven's nomination. "Sen. Shelby agreed with chairman Dodd that this matter needs to be thoroughly examined before moving forward with a committee vote on Mr. Stevens' nomination," said a spokesman for Sen. Shelby. The class action lawsuit is understood to involve possible RESPA violations by Long and Foster, which is the largest privately owned real estate brokerage firm. Meanwhile, the committee approved the following HUD nominees: Ronald Sims to be deputy secretary, Helen R. Kanovsky to be general counsel, Peter Kovar to be assistant secretary for congressional and intergovernmental affairs, and John D. Trasvina, to be assistant secretary for fair housing and equal opportunity.

The National Credit Union Administration has assumed control of Eastern Financial Florida CU, the once high-flying airlines credit union that lost $114 million last year.Among the causes of the failure of Florida's third largest credit union were bad real estate investments, including two failed condominium projects, and more than $70 million of failed collateralized debt obligations. The Florida Office of Financial Regulations, Bureau of Credit Union Regulation appointed NCUA as conservator today after placing the $1.6 billion credit union into conservatorship. NCUA has assumed control of the credit union and has appointed officials from Space Coast CU of Melbourne, Fla., to temporarily manage Eastern Financial Florida CU's day-to-day operations. NCUA's goal is to continue credit union service to the members and ensure safe and sound credit union operations. Eastern Financial was chartered in 1937 to serve employees of what eventually became Eastern Airlines. When Eastern was liquidated in 1991, the credit union branched out to serve more than 1,000 select groups.

Treasury officials are revising the President's loan modification plan to deal with second mortgages and give servicers the option of paying off second lien holders.Treasury would use TARP funds to fund the partial payoffs that would be based on a formula originally designed for the FHA 'Hope for Homeowners' program. In exchange for a lump sum payment, the second lien would be extinguished. Second lien holders can make it very difficult to modify a first mortgage even when the first mortgage is underwater and there is no equity under the second lien.

Although the Federal Housing Administration is on a pace to insure some 2 million mortgages in fiscal year 2009 — a 30% market share or better — fears that the agency will soon be mired in a sea of defaults are "premature," said FHA Commissioner Brian Montgomery.Mr. Montgomery told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington that FHA-insured loans "continue to outperform" the subprime loans that helped bring the mortgage market to its knees. He said only 7% of FHA loans are past due 90 days or more compared to nearly one in four subprime loans. One reason for the agency's success is that it is attracting "better quality borrowers," Mr. Montgomery told the meeting. The average FICO score of an FHA borrower was 680 at the end of fiscal 2008 compared to 640 the year prior. Another factor cited by the commissioner, who was making his last official appearance in the nation's capital, is that the agency doesn't have a lot of exposure in high-flying markets such as California, where the cost of housing has made the insurance program all but a non-entity until its loan limits were raised recently. Senate confirmation of Mr. Montgomery's replacement, David Stevens, is expected to come any day.

Sen. Richard Durbin, D-Ill., said he will offer a bankruptcy cramdown amendment to a housing bill later this week, although he does not have the votes to pass the proposal which would allow judges to reduce the principal amount of delinquent mortgages that cannot be modified. "It's time for Congress to act and I hope we can muster the courage and find the votes, although I know it is going to be hard to image that today the mortgage bankers would have the clout in this Chamber, but they do," Sen. Durbin said. The assistant majority leader said he is disappointed that the American Bankers Association, Mortgage Bankers Association and Financial Services Roundtable refused to work with him on a cramdown compromise. "I have worked with them on so many issues. I have never found them more unyielding and unreasonable than on this issue," Sen. Durbin said in addressing the Senate. Under Durbin's cramdown amendment, at-risk homeowners could not file for a bankruptcy cramdown if they qualify for relief under the President's loan modification program or the FHA Hope for Homeowners initiative.