Compliance & Regulation

President Barack Obama has nominated Michael Barr to be Treasury assistant secretary for financial institutions where he will probably play an important role in guiding reform of the mortgage finance system. A professor of law at Michigan University and senior fellow at the Brookings Institution, Mr. Barr is currently working in the White House. He previously served as a special assistant to former Treasury secretary Robert Rubin during the Clinton administration. The Treasury nominee recently told a Center for American Progress forum that consumer protection needs to be at the "heart of our system of mortgage finance — not an after-thought or relegated to second class status." In related news, the President has nominated Helen Kanovsky to be the general counsel at the Department of Housing and Urban Development. She is currently the chief operating officer of the AFL-CIO Housing Investment Trust and previously served as chief of staff for Sen. John Kerry.

Renato Gonzales Quiazon of Hayward, Calif., pleaded guilty to fraud charges arising from a loan kickback scheme. Specifically, Quiazon pled guilty to one of the 11 counts of wire fraud and four counts of filing false tax returns. Quiazon is alleged to have devised a scheme to fraudulently obtain payments of loan kickbacks, commissions and cash outs/extraneous line items from borrowers' escrow accounts. Beginning about January 2000 through October 2004, the defendant was employed as a loan officer with New Century Mortgage in Emeryville, Calif. During this time, Quiazon entered into an agreement with an independent mortgage broker to use his name and broker's license on loans that the defendant processed as the loan officer. By using the mortgage broker's identity on these particular loans, New Century Mortgage issued a 1% commission (1% of the total loan amount) to the mortgage broker. As part of the agreement with the mortgage broker, the mortgage broker was to retain 20% of the commissions and pay Quiazon a kickback of 80% of the commissions, he admitted. In contrast to his arrangement with the mortgage broker, in about 2002, the defendant started to get the commission checks directly and forged the mortgage broker's signature on the back and deposited the checks into his bank account. Quiazon also filed false individual income tax returns for the tax years 2001, 2002, 2003 and 2004. The defendant admitted he deducted expenses that did not exist and failed to report the loan kickbacks and other payments that he received which totaled approximately $430,661 for the period under investigation. New Century did not respond to requests for comment.

AmeriCU Mortgage of Michigan has been approved by state regulators to provide origination and servicing services for credit unions in Wisconsin, where several CUs are still calculating their losses from the collapse of Central States Mortgage. AmeriCU Mortgage is a wholly owned subsidiary of privately held Towne Mortgage Co., Troy, Mich., and provides mortgage origination and servicing and default management services for credit unions. Central States, which provided mortgage services to more than 250 credit unions, Friday filed for receivership with the Milwaukee County Court, which is similar to a federal bankruptcy and will entail a liquidation of the mortgage company's assets overseen by a court-appointed receiver. The company, which had written more than $500 million in loans last year, shut its doors March 9 after a $33 million warehouse line of credit was called by Members United Corporate FCU, throwing about 220 people in five states out of work. Wisconsin has filed a $3 million wage lien against the mortgage banker/broker, which owes wages for March and commissions for February and March. The state is investigating whether Central States violated plant closure laws when it shut down.

Fannie Mae acquired $53.7 billion of mortgages during February, an 86% increase from January, and its best purchase month since June of last year. According to new figures released by the company, Fannie issued $45.3 billion in MBS, more than double its issuance volume of the prior month. (As reported last week, Freddie Mac purchased $40 billion of mortgages in February, an 84% gain from January.) Thanks to the Federal Reserve and Treasury driving rates lower by purchasing billions in MBS, both GSEs are seeing their seller/servicers deliver more product. Fannie ended the month with $36.4 billion in "commitments to purchase" which means in March acquisitions could be strong too. Both GSEs have been operating under a federal conservatorship since early September.

Fannie Mae has increased its required yield on Federal Housing Administration reverse mortgages, which will have the net effect of increasing the interest rate on those loans by 50 to 75 basis points, according to lenders. National Reverse Mortgage Lenders Association president Peter Bell said Fannie Mae's action was unexpected. "It's pretty draconian," he said. "We wish Fannie had given us more notice. A lender has to eat the difference for loans in the pipeline in order to honor the interest rate that it sold its borrowers. Or they have to go back to them and redo the numbers with a higher interest rate, which means the borrower will get a smaller benefit." A higher interest rate reduces the proceeds seniors receive from a reverse mortgage. The FHA's Home Equity Conversion Mortgage program dominates the reverse mortgage market. Fannie Mae is the largest investor in FHA-insured HECMs. Fannie officials could not immediately be reached for comment.

The House Financial Services Committee has postponed a markup of a mortgage reform bill that bans certain types of yield-spread premium payments and requires lenders to retain 5% of the credit risk on subprime loans that are sold to investors. The committee had scheduled a Tuesday (March 31) markup session, but canceled it without explanation. Lenders that sell subprime loans will not be allowed to "directly or indirectly transfer the credit risk it retains," according to the bill, sponsored by committee chairman Barney Frank, D-Mass., and fellow Democratic Reps. Brad Miller and Mel Watt of North Carolina. The sponsors want to crack down on compensation that might encourage mortgage lenders and brokers to steer borrowers into higher-cost loans. "Specifically, the new measure will strengthen restrictions on compensation paid to mortgage loan originators and brokers that is based on a loan's interest rate and terms, often called a yield-spread premium," according to Rep. Miller. Marc Savitt, president of the National Association of Mortgage Brokers, said that he is okay with the language in the bill, noting that "this doesn't ban yield-spread premiums outright" and instead "prevents people from making a couple of extra points" by putting consumers in higher-cost loans. Mr. Savitt added that his reading of the bill indicates that it would require mortgage banking firms to disclose their "servicing-released premiums" to the public as well. "The bill means you have to disclose everything," said Mr. Savitt. The legislation also mandates that all licensed and registered originators would be subject to a "federal duty of care" measure under the bill, obligating them to only make loans that a customer can afford. With refinancings, lenders would have to prove a "net tangible benefit.

Acknowledging that non-depository mortgage bankers are facing a warehouse funding crisis, the Federal Housing Finance Agency said it has met with industry leaders and is seeking proposals on how Fannie Mae and Freddie Mac can play a role in solving the problem.Glen Corso, who runs an advisory group called The Warehouse Lending Project, said he is working on a proposal where Fannie and Freddie would use their "guarantee authority" to help warehouse banks move the loans "off-balance" sheet which would alleviate capital charges on the credits. Mr. Corso said TWLP soon will submit its ideas to FHFA. The Mortgage Bankers Association is expected to submit a proposal too, but on Monday the trade group did not return a telephone call about the matter. In a statement FHFA said it has met "with a number of industry participants and others to try to develop solutions."

The House Financial Services Committee has postponed a markup of a mortgage reform bill that bans certain types of yield-spread premium payments and requires lenders to retain 5% of the credit risk on subprime loans that are sold to investors. The committee had scheduled a Tuesday (March 31) markup session, but canceled it without explanation. Lenders that sell subprime loans will not be allowed to "directly or indirectly transfer the credit risk it retains," according to the bill, sponsored by committee chairman Barney Frank, D-Mass., and fellow Democratic Reps. Brad Miller and Mel Watt of North Carolina. The sponsors want to crack down on compensation that might encourage mortgage lenders and brokers to steer borrowers into higher-cost loans. "Specifically, the new measure will strengthen restrictions on compensation paid to mortgage loan originators and brokers that is based on a loan's interest rate and terms, often called a yield-spread premiums," according to Rep. Miller. Marc Savitt, president of the National Association of Mortgage Brokers, said that he is OK with the language in the bill, noting that "this doesn't ban yield-spread premiums outright" and instead "prevents people from making a couple of extra points" by putting consumers in higher-cost loans. Mr. Savitt added that his reading of the bill indicates that it would require mortgage banking firms to disclose their "servicing-released premiums" to the public as well. "The bill means you have to disclose everything," said Mr. Savitt. The legislation also mandates that all licensed and registered originators would be subject to a "federal duty of care" measure under the bill, obligating them to only make loans that a customer can afford. With refinancings, lenders would have to prove a "net tangible benefit.

Craig Tengowski, a licensed appraiser from Pittsburgh, Pennsylvania, pleaded guilty to wire fraud in connection with a mortgage fraud conspiracy involving inflated appraisals.An interagency Mortgage Fraud Task Force that includes the FBI and other federal, state and local law enforcement agencies conducted the investigation that led to Tengowski's prosecution. Chief U.S. District Judge Donetta Ambrose has scheduled sentencing for Sept. 18.

A federal bankruptcy court in Newark has ordered that CU National Mortgage/U.S. Mortgage of New Jersey turn over any and all funds belonging to Picatinny FCU that the $220 million credit union claims the failed mortgage servicer has been illegally withholding from it. The court also ordered that CU National transfer millions of dollars of Picatinny mortgages it has been servicing to a new servicer, CUMAnet. The ruling bodes well for more than two dozen credit unions that are also fighting for the return of funds they claim have been held by CU Mortgage without their authorization. However, an individual representing the credit unions said the Picatinny FCU order does not affect them and they are still fighting for their funds. The credit unions are all fighting for the return of as much as $160 million of their mortgages they claim CU National transferred to Fannie Mae without their authorization. Fannie Mae representatives declined to comment.