Compliance & Regulation

After being found guilty by a Navarro County jury for orchestrating a $3 million mortgage fraud scheme, Kandace Yancy Marriott of Gun Barrel City, Texas, was sentenced to 99 years in prison, according to a report from the Texas Attorney General's office. According to prosecutors, Marriott received monthly mortgage payments from her clients, failed to remit those payments to the lender and embezzled the homeowners' funds, causing her clients to default on their home loans. Marriott's conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme's principal operators were said to be the defendant and her husband who sold manufactured homes through their company, One Way Home & Land. State investigators allege both defendants illegally forged homebuyers' signatures, inaccurately completed loan applications and falsified supporting documents, including the buyers' rent payment verification statements, proof of employment and Social Security Administration benefits data. The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. As a result, when the unqualified buyers defaulted on their home loans, their lenders did not suffer financial losses. Instead, HUD had to cover the default costs. Investigators believe the defendants' scheme cost the taxpayers more than $3 million. The defendants closed the One Way Home & Land after litigation and investigations ensued in late 2005. As a result, they opened a Kaufman County firm under a different assumed name, and additional criminal charges in Kaufman County stem from that later operation.

The Mortgage Bankers Association has drafted and sent to Washington officials a regulatory reform proposal suggesting how a new federal mortgage regulatory agency the group has been calling for might set lending and servicing rules for the entire mortgage industry, regardless of charter or license. "Under our proposal, we are calling for one federal regulator to implement standards and oversee all mortgage bankers and brokers," MBA president and chief executive John Courson said. State and federal regulators would sit on the board of directors of the newly created Federal Mortgage Regulatory Agency, which will establish uniform lending standards and update them as needed without going to Congress for approval. "The new regulator also will work with federal and state regulators to enforce lending standards for their regulated entities," MBA says in a letter to House and Senate banking committee leaders.

The Office of Management and Budget is considering changes to the estimates the Federal Housing Administration is using for house values over the next several years, which could lead to a possible increase in mortgage insurance premiums FHA charges on single-family loans. Sources also note that losses on FHA loans with seller-funded downpayment assistance continue to rise. A re-estimate by OMB could show "massive losses," which might require a congressional appropriation or higher premiums, said a former Department of Housing and Urban Development official. William Apgar, senior advisor to the HUD secretary for mortgage finance, said HUD is working with OMB, but he could not comment further because the budget projections have not been finalized yet. Mr. Apgar noted that FHA is vulnerable to rising unemployment, declines in house prices and a weak economy. The FHA program has weathered many housing downturns, Mr. Apgar said. "FHA has historically played the role as the stabilizer in tough markets." OMB is expected to send the President's fiscal year 2010 budget to Congress in late April to early May.

New homes sales jumped 4.7% in February from January and it could be a sign that the housing market is finally bottoming out. "We have been looking for a bottom to form sometime in the first half of the year and it looks like things have firmed up a little bit," said Scott Anderson, senior economist at Wells Fargo & Co. The U.S. Census Bureau reported that sales of new single-family homes rose from a seasonally adjusted annual rate of 322,000 in January to 337,000 in February. The bureau revised the January sales number upward from 309,000. The new home sales report combined with the 4.4% jump in sales of previously owned homes is "very encouraging at this point," Mr. Anderson said. But he wants to see a couple more months of good reports before calling a bottom. "Now that the Federal Reserve is trying to push down mortgages, we are seeing a refi boom and it seems like it is helping to give some confidence to buyers to go ahead with a purchase."

Freddie Mac purchased $40 billion of mortgages in February, an 84% increase from the previous month as declining interest rates led to increased business for the government-controlled giant. However, compared to the same month a year ago, purchases fell 16%. According to new figures released by the company, Freddie now holds $123 billion of whole loans (not securitized) in its portfolio, a 43% increase over 12 months. The GSE ended the month with a retained portfolio of $822 billion, a 16% increase compared to February 2008. But there was some negative news in the new numbers: its mortgage "purchase and sale agreements" fell to $4 billion in February, from $17 billion the prior month. Fannie Mae has not yet released its February numbers.

Michael Hershkowitz, a Manhattan real estate developer, pleaded guilty in federal court to participating in a $27 million mail and wire fraud conspiracy.According to documents filed in this case, as well as statements made during the plea, Hershkowitz, working through a Manhattan real estate development company, the Kingsland Group, and related entities, fraudulently induced 70 individuals to lend the Kingsland Group more than $27 million, purportedly to fund the renovation of 16 multi-family apartment buildings located in upper Manhattan. Hershkowitz and co-conspirator Ivy Woolf-Turk falsely represented that the lenders would hold, as collateral for the loans, interests in first mortgages in the various properties in which they thought they were investing. However, the lenders did not hold recorded, first mortgages in the properties but instead were provided with forged documents falsely reflecting that the mortgages had been properly recorded with New York City. Interest was paid on the loans for some years after they were first made, but ultimately the principal on the loans was not repaid when due. It was determined that the lenders did not have valid first mortgages on the properties in question.

The Mortgage Bankers Association on Monday laid off about 16% of its workforce — about 20 full-timers — including four of its vice presidents.A spokeswoman for the trade group said the layoffs "were across the board" affecting all of its departments, including communications, government, marketing and research. Since last year MBA has lost about 30% of its staff. After the cutbacks the organization will employ about 110. Recently, mortgage technology vendors said MBA would eliminate its annual technology trade show to save money, but the spokeswoman shot down such talk in part. Sources say it is unlikely the MBA will hold a standalone technology show and may fold it into other shows or hold smaller regional conferences. MBA's membership ranks have been hurt by the worst housing downturn since the Great Depression, resulting in hundreds of non-banks and depositories closing their doors over the past 18 months.

Federal Deposit Insurance Corp. officials are ready to begin discussions with banks that want to sell pools of troubled real estate loans under its new "Legacy Assets" program, but it could be three or more months before the agency is ready to conduct the first competitive sealed bid auctions. FDIC intends to solicit public comments on the new program, which is designed to cleanse banks of high-risk residential mortgages and commercial real estate loans. Although the comment period will be very short, FDIC officials want to "nail down" the structure before they begin marketing the program to private investors who will be asked to take a 50% equity position in the loan pools as part of a public-private investment fund. FDIC also has to provide private investors time for due diligence to evaluate the assets before they submit bids. FDIC chairman Sheila Bair estimates that the Legacy Asset program could remove $500 billion in high-risk mortgages from the banking system if private investors put up $50 billion in capital. There are "huge challenges of implementing a program of this magnitude quickly," Ms. Bair said. "We intend to move forward with this program in a methodical and a transparent fashion."

Federal Deposit Insurance Corp. officials are ready to begin discussions with banks that want to sell pools of troubled real estate loans under its new "Legacy Assets" program, but it could be three or more months before the agency is ready to conduct the first competitive sealed bid auctions. First FDIC intends to solicit public comments on the new program, which is designed to cleanse banks of high-risk residential mortgages and commercial real estate loans. Although the comment period will be very short, FDIC officials want to "nail down" the structure before they begin marketing the program to private investors who will be asked to take a 50% equity position in the loan pools as part of a public-private investment fund. FDIC also has to provide private investors time for due diligence to evaluate the assets before they submit bids. FDIC chairman Sheila Bair estimates that the Legacy Asset program could remove $500 billion in high-risk mortgages from the banking system if private investors put up $50 billion in capital. There are "huge challenges of implementing a program of this magnitude quickly," Ms. Bair said. "We intend to move forward with this program in a methodical and a transparent fashion."

The Mortgage Bankers Association on Monday laid off about 16% of its workforce - about 20 full-timers - including four of its vice presidents. A spokeswoman for the trade group said the layoffs "were across the board" affecting all of its departments, including communications, government, marketing and research. Since last year MBA has lost about 30% of its staff. After the cutbacks the organization will employ about 110. Recently, mortgage technology vendors said MBA would eliminate its annual technology trade show to save money, but the spokeswoman shot down such talk in part. It is unlikely the MBA will hold a standalone technology show, but rather fold technology into its other shows or do smaller regional technology shows. Its membership ranks have been hurt by the worst housing downturn since the Great Depression, resulting in hundreds of non-banks and depositories closing their doors over the past 18 months. The trade group has been criticized by members and past employees for two large, somewhat recent blunders: building a new $100 million headquarters in Washington and then struggling to lease out its empty floors. It also merged with a subprime lending trade group, most of whose lending members have failed. Discussing the office building, one former MBA executive said, "They basically traded paying the rent for bodies." The executive, requesting anonymity, said the staff cuts "will impact a lot of long-term projects they have."