Compliance & Regulation

Senior U.S. District Judge James C. Fox sentenced Kimberly Taylor of Fayetteville, North Carolina, to 70 months' imprisonment followed by five years of supervised release following Taylor pleading guilty to charges related to a mortgage fraud scheme. The court also ordered Taylor to pay $91,933 in restitution. A Federal Grand Jury returned a criminal indictment on October 24, 2007. At her arraignment Taylor pleaded guilty on July 10, 2008, to 10 counts of bank fraud and two counts of aggravated identity theft. Starting in June 2005 and continuing through June 2006, while working as a licensed mortgage broker, Taylor devised a scheme in which she took the identities of clients or potential clients, to include their names, social security numbers, and dates of birth, and submitted loan applications to RBC Centura to obtain loans totaling $184,400.

After pleading guilty to charges related to a scheme resulting in losses of more than $3.5 million to HUD, an unlicensed real estate agent and property investor was sentenced to 36 months in federal prison, followed by three years of supervised release, and ordered to pay restitution of $2.83 million. According to the plea agreement, between August 1993 and May 2001, Robert Duran, aided and abetted by others, caused the funding and insuring of approximately $11.45 million in fraudulent FHA-insured home mortgage loans on at least 73 properties in Los Angeles and Riverside counties, California. All the properties went into default and were resold at a loss to HUD of approximately $3.56 million. Duran worked as an unlicensed real estate agent and property investor for real estate and investment companies. As an investor, Duran provided false employment, credit and income documents to mortgage lenders, many of which were FHA-insured lenders. Duran also acted as a real estate agent on sales of property to either straw buyers, fictitious buyers or buyers that did not qualify for an FHA-insured mortgage loan. Duran would also assist investors in facilitating sales of property to non-qualifying buyers or would act as an investor himself. He caused fraudulent employment, income, credit and identification documents to be submitted to FHA and enlisted notaries to falsely notarize that they witnessed the signing of loan documents. Duran also used the notary books of others to falsely notarize loan documents without the knowledge of those notaries and placed downpayments into escrow on behalf of non-qualifying buyers.

Fannie Mae and Freddie Mac are extending the suspension of all eviction proceedings through March 31, 2009 as Fannie Mae implements the Home Affordable Refinance and Home Affordable Modification initiatives. Both programs are available to its servicers and borrowers as part of the Obama Administration's Making Home Affordable program. Most borrowers refinancing an existing Fannie Mae loan will not be required to buy new or additional mortgage insurance if the loan at the time of the refinance is more than 80% of a home's value. Fannie Mae can refinance loans up to 105% of a home's value with this new flexibility, so even borrowers who are "underwater" may be able to refinance. Beginning in April, all 1,600 lenders and 29,000 mortgage brokers using Fannie Mae's Desktop Underwriter platform will be able to process an application to refinance any existing Fannie Mae loan, allowing for greater origination capacity and easier refinancing for borrowers. Through the Home Affordable Modification, loan servicers participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31% of the borrower's gross income. Fannie Mae has also issued special foreclosure sale requirements. A foreclosure sale may not occur on any Fannie Mae loan until the loan servicer verifies that the borrower is ineligible for a Home Affordable Modification and all other foreclosure prevention alternatives have been exhausted.

The Department of Housing and Urban Development wants to reconsider a new Real Estate Settlement Procedures Act provision that prohibits builders from offering homebuyers discounts and upgrades that are tied to the use of the builder's affiliated mortgage and title companies. "HUD will delay the planned implementation of RESPA's 'required use' provision for 90 days, or until July 16, as it solicits public comment on whether to withdraw its new definition that would have taken effect in January," the department said. The Bush administration postponed the effective date of the RESPA provision from January 16 to April 16 after the National Association of Home Builders sued HUD to block implementation of the required use provision. A U.S district court is scheduled to hear arguments on the controversial RESPA provision April 3. NAHB declined to comment on HUD's latest move. "This is welcome news to home builders and their affiliated companies, which now have more time to continue business as usual under existing RESPA requirements," said RESPA attorney Phillip Schulman.

The mortgage insurance division of Genworth Financial lost $368 million in 2008 compared to a $167 million profit the year before as default claims swamped the unit.According to the Quarterly Data Report, Genworth — one of the industry's most conservatively managed MIs — ranks fourth nationwide in terms of policies-in-force with $147 billion. Genworth's shares have been trading under $1 for the past two weeks. Meanwhile, according to a recent report in Reuters, the U.S. Treasury Department has no current plans to give the ailing MI sector an injection of capital using Troubled Asset Relief Program funds. As reported by National Mortgage News, Federal Housing Finance Agency chief James Lockhart is in favor of the MIs receiving a capital injection under TARP.

The House of Representatives on Thursday night approved legislation 234 to 191 that would let bankruptcy judges modify or "cram down" mortgages, but the bill's fate in the Senate remains unclear. Though the House leadership had enough of a majority to pass the bill over opposition from Republicans and several conservative Democrats, Senate leaders do not have as much leeway. Some Senate Democrats, including Sen. Evan Bayh of Indiana, continue to push for ways to narrow the bill, encouraged by the banking industry, which believes the legislation will drive up the cost of credit. The bill passed on Thursday included language designed to encourage borrowers to attempt to seek a loan modification from their lender before bankruptcy. For example, if a servicer offered a borrower a loan modification, the homeowner would have to consider it before heading to bankruptcy court. The judge would retain the ultimate say in determining if the borrower acted in good faith and could still reduce the terms of the mortgage. The borrower also would have to wait 30 days between trying to receive assistance from the servicer and going to bankruptcy. The National Association of Consumer Bankruptcy Attorneys said the bill "will not excuse families from paying their mortgage. It simply gives bankruptcy court judges the authority to modify loans and puts a floor on the downward spiral of home values in neighborhoods across the country."

Employment in the loan brokerage sector fell to an eight-year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year-over-year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.

Employment in the loan brokerage sector fell to an eight year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year over year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.

The House of Representatives on Thursday night approved legislation 234 to 191 that would let bankruptcy judges modify or "cramdown" mortgages, but the bill's fate in the Senate remains unclear. Though the House leadership had enough of a majority to pass the bill over opposition from Republicans and several conservative Democrats, Senate leaders do not have as much leeway, according to a report in American Banker. Some Senate Democrats, including Sen. Evan Bayh of Indiana, continue to push for ways to narrow the bill, encouraged by the banking industry, which believes the legislation will drive up the cost of credit. The bill passed on Thursday included language designed to encourage borrowers to attempt to seek a loan modification from their lender before bankruptcy. For example, if a servicer offered a borrower a loan modification, the homeowner would have to consider it before heading to bankruptcy court. The judge would retain the ultimate say in determining if the borrower acted in good faith and could still reduce the terms of the mortgage. The borrower also would have to wait 30 days between trying to receive assistance from the servicer and going to bankruptcy.

A Columbus, Ohio restaurant owner, Gihan Ahmed Ismail Zalat, was sentenced to four years in prison for her role in a mortgage flipping scheme. Zalat pleaded guilty to three counts of engaging in a pattern of corrupt activity and five counts of money laundering. Zalat was indicted in February 2008 for a mortgage fraud scheme involving several Ohio properties. Zalat is a former co-owner of the Happy Greek restaurant, South Campus Gateway, Ohio. The scheme took place between 2005 and 2007 and involved false documentation and misrepresentations in loan applications, property flips, using inflated appraisals and unauthorized kickbacks disguised as construction monies for home improvement.