Compliance & Regulation

Fannie Mae's new chief executive Michael Williams has recruited three bankers from outside the company to serve as his executive vice presidents in key posts. Timothy Mayopoulos from Bank of America will serve as EVP, general counsel and corporate secretary. Edward G. Watson from Citicorp will be Fannie's new EVP for operations and technology. And Kenneth J. Phelan from Wachovia Corp. will be EVP for risk management.

Department of Housing and Urban Development secretary Shaun Donovan said he is working with the Justice Department to step up enforcement of fair housing and lending laws. "I have already met with attorney general Eric Holder to discuss work we can do - not just at HUD - but also the partnership we can have with the FBI and the civil rights division," he told a Washington meeting of the National Low-Income Housing Coalition. "You will see across this administration a rejuvenated commitment" to fair housing and lending enforcement and to a "regulatory system that ensures equal, safe access to financial products and credit for low-income and minority borrowers," the HUD secretary said. Mr. Donovan also noted that the president's fiscal year 2010 budget that will be released in a few weeks provides more funds for fair housing enforcement and $1 billion for the National Affordable Housing Trust Fund. The NLIHC pushed Congress to create the trust fund last year. He also noted that the budget will provide full funding for Section 8 rental vouchers as well as project-based rental subsidies to preserve affordable housing.

There will be no "great rush" to restructure Fannie Mae and Freddie Mac until the private sector is capable of providing affordable mortgage credit again, according to a key housing staffer on the House Financial Services Committee. Staffer Scott Olson told housing advocates that Fannie, Freddie and Ginnie Mae dominate the secondary mortgage market and they have become instrumentalities of the government's approach to the housing crisis. "They are all we've got these days," he said. Any changes to their structure would have a "significant real world impact," and "people are going to be wary of any precipitous change," he said during a National Low-Income Housing Coalition panel discussion on the future of the government sponsored enterprises. Mr. Olson noted that his boss, committee chairman Barney Frank, D-Mass., is interested in making the temporary $729,750 GSE loan limit permanent. The loan limit will drop back to $417,000 at yearend unless Congress extends the $729,750 limit or makes it permanent. In passing the GSE reform bill last year, Congress directed Fannie and Freddie to provide affordable housing support for manufactured housing, affordable housing preservation and rural housing. "It is very important that they don't exit from these areas," Mr. Olson said.

Freddie Mac has delayed its pricing of a five-year Reference Note offering expected to be at least $1 billion in size due to the "unattended death" of the government-sponsored enterprise's acting chief financial officer David Kellermann — an employee of the firm for 16 years. Mr. Kellermann was found dead at his Northern Virginia home early Wednesday morning, according to police. A spokeswoman for the Fairfax County Police Department told National Mortgage News that the medical examiner will perform an autopsy on the 41-year-old Mr. Kellermann later today. The police issued a press statement saying, "there was no evidence of foul play." Freddie said it found it "appropriate" to "temporarily postpone" the pricing "at least one day" in response to the death. Mr. Kellermann had been Freddie's CFO since September, when the government placed it and its sister company, Fannie Mae, into a federal conservatorship. As acting CFO, Kellermann was responsible for the GSE's financial controls, financial reporting, tax, capital oversight and related matters. He began his career at the company as a financial analyst/auditor. He also worked in Freddie's securities sales and trading unit. One former Freddie employee who worked at the GSE when Mr. Kellermann was there described him as "a very nice man, a family man." According to his company bio, he was a volunteer board member of the D.C. Coalition for the Homeless. Back in 2003 Freddie was embroiled in an accounting scandal where its top executives were accused of under-reporting income by $5 billion. A criminal investigation ensued but no charges were ever brought. Freddie's CEO (also appointed in September), David Moffett, resigned last month. Mr. Kellermann was promoted to acting CFO when Anthony 'Buddy' Piszel resigned.

David Kellermann, the acting chief financial officer of Freddie Mac -- and an employee of the firm for 16 years -- was found dead at his Northern Virginia home early Wednesday morning in what authorities said was an apparent suicide, according to combined press reports. The 41-year-old Kellermann had been Freddie Mac's chief financial officer since September, when the government placed the mortgage investing giant and its sister company, Fannie Mae, into a federal conservatorship. A spokesman for Freddie Mac had no comment and referred all press inquiries to the Fairfax County police. As acting chief financial officer, Kellermann was responsible for the GSE's financial controls, financial reporting, tax, capital oversight and related matters. He began his career at the company as a financial analyst/auditor. He also worked in Freddie's securities sales and trading unit. Freddie's CEO (also appointed in September), David Moffett, resigned last month. The company's stock trades for 86 cents a share.

The industry is looking for a more specific definition of "imminent default" in conjunction with its use in qualifying borrowers for new Treasury-directed agency refinancing and modification programs, according to panelists at the Mortgage Bankers Association's National Secondary Market Conference. Companies refinancing or modifying loans through the programs are concerned about whether they might be liable if the mortgages are found to not have met the definition, said Susanna Konracki, senior vice president of valuation and advisory services at RiskSpan Inc. They also fear exposure to other legal liabilities if they choose not use the programs. As a result, several industry groups including the MBA have been working with the agencies to develop a consensus definition for the term, Ms. Konracki told this publication.

House Financial Services Committee chairman Barney Frank, D-Mass., might be open to exempting certain Federal Housing Administration loan products from his subprime mortgage bill. Rep. Frank told the National Low Income Housing Coalition conference that he wants the bill to restrict subprime lending and increase FHA lending. FHA currently insures one-year adjustable-rate mortgages and hybrid ARMs. The subprime lending bill (H.R. 1728) requires lenders that originate ARMs to retain 5% of the credit risk when the loans are sold or securitized. When asked about ARMs, Rep. Frank said FHA will have to be "more cautious" but added that ARMs are not a "problem for people in upper incomes." He also noted that FHA will have stronger debarment powers to deal with bad lenders. "We will be talking with FHA," Rep. Frank told reporters after speaking at the NLIHC Washington conference. He wants the committee to mark up H.R. 1728 next week or the week after.

The Mortgage Bankers Association plans to challenge a proposal that requires originators to have "skin in the game" when it testifies Thursday on Rep. Barney Frank's legislation to curb predatory lending practices. The bill, H.R. 1728, by the chairman of the House Financial Services Committee would require lenders to retain a minimum 5% economic interest in loans they sell on the secondary market. Such a provision would be a "huge call on capital," MBA president John Courson told reporters at the group's National Secondary Market Conference in Chicago. He said that it is unclear whether the Massachusetts Democrat means 5% of the loan amount, a 5% loan cap, a 5% share of the total loss, or 5% of the first loss. But anyway you look it, he said, the requirement represents a "total change of the landscape." Calling the proviso "premature," Mr. Courson said it "seem to be totally out of place with this particular piece of legislation" and should be debated as part of the discussion expected later this year to totally restructure the secondary market. "We will urge as aggressively as we can that this does not belong as part of an anti-predatory lending bill," the MBA president said.

The Federal Reserve Board has no particular exit strategy in mind when it comes to leaving the MBS market once it reaches the $1.25 trillion net purchase goal it set for 2009, said former FRB governor Randall Kroszner. Speaking at the Mortgage Bankers Association's National Secondary Market Conference, Mr. Kroszner said the central bank will "do whatever it takes" to keep rates in check until the MBS market returns to some semblance of normalcy. For the most part, the central bank is now the secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, having purchased more than $300 billion worth of the bonds in the first quarter. But the MBA is worried that when the Fed reaches its goal, its exit from the market will cause mortgage rates to shoot upward. Mr. Kroszner, who spent three years at the central bank before returning to the University of Chicago in January, said, "The real challenge is to thread the needle. Whether the Fed will purchase more or less will depend on the facts and circumstances at the time." If the central bank is satisfied by 2010 that the market is coming back, it will reduce it purchases, said Mr. Kroszner, who was a member of the President's Council of Economic Advisors from 2001 to 2003, and "mortgage rates should rise at a normal pace."

House Financial Services Committee chairman Barney Frank, D-Mass., might be open to exempting certain Federal Housing Administration loan products from his subprime mortgage bill. Rep. Frank told the National Low Income Housing Coalition conference that he wants the bill to restrict subprime lending and increase FHA lending. FHA currently insures one-year adjustable rate mortgages and hybrid ARMs. The subprime lending bill (H.R. 1728) requires lenders that originate ARMs to retain 5% of the credit risk when the loans are sold or securitized. When asked about ARMs, Rep. Frank said FHA will have to be "more cautious" but added that ARMs are not a "problem for people in upper incomes." He also noted that FHA will have stronger debarment powers to deal with bad lenders. "We will be talking with FHA," Rep. Frank told reporters after speaking at the NLIHC Washington conference. He wants the committee to mark up H.R. 1728 next week or the week after.