Compliance & Regulation

Residential servicing firms could reap rewards of up to $2,000 per year (per loan) under the White House's new initiative to help struggling homeowners. Under the "stability" portion of the Obama administration's $75 billion Homeowner Affordability and Stability Plan, servicers will receive an upfront payment of $1,000 per loan for each eligible modification. As long as the borrower stays current on his modified loan the same servicer can receive a second payment of another $1,000 at year-end. The White House/Treasury/HUD program also is offering a $2,000 incentive to lenders and mortgage holders if they modify "at risk" loans before the borrower actually goes delinquent. Under this clause the servicer can make $500 and the investor $1,500 per loan. Roughly $75 billion in taxpayer money will be used to help 3 million to 4 million homeowners that might lose their homes to foreclosure.

The leader of a multi-state fraud scheme that cost lenders at least $2.5 million was sentenced to 45 months in prison. After being convicted in April 2008 for masterminding a mortgage fraud scheme involving homes in Phoenix, Las Vegas, San Diego and other areas, Marcus Dozzell of Henderson, Nev., was sentenced while co-defendant Lutrell Sharpe received a term of 88 months in prison. According to U.S. attorney Diane J. Humetewa of Arizona, from May 2002 through May 2007, Dozzell, Sharpe and others conspired to commit mortgage fraud whereby Dozzell and Sharpe fraudulently submitted mortgage loan applications on behalf of straw buyers under false pretenses, obtaining and disbursing the proceeds of fraudulently obtained loans, including directing portions of the proceeds to bank accounts in Dozzell and Sharpe's and other defendants control. Sharpe directed others to prepare fraudulent loan applications misrepresenting salary, assets and liabilities. Ten other co-conspirators were also charged and have pleaded guilty. Sentencing for that group will come in the next few months.

Freddie Mac said there will be no change to its business relationship with three mortgage insurance firms recently downgraded by Moody's Investor Service. The GSE clarified that there is no change to the "Type I" mortgage insurer status it has assigned to Mortgage Guaranty Insurance Corp., Radian Guaranty Inc., or PMI Mortgage Insurance. All three were downgraded by Moody's Investors Service on Feb. 13 to below investment grade. The share price of all three fell sharply Tuesday, along with the overall market. Moody's also downgraded United Guaranty Inc., Genworth Mortgage Insurance Corp. and Republic Mortgage Insurance - but maintained investment grade ratings on all three of those firms. A call to Fannie Mae to confirm if that company was still treating these firms as Type I insurers was not returned by deadline. In a statement, Radian Group chief executive S.A. Ibrahim said Moody's action did not reflect the company's "substantial claims-paying resource and the improving quality of our mortgage insurance portfolio." He added the move should not affect Radian's ability to insure loans sold to Fannie Mae or Freddie Mac. MGIC and PMI said they had no comment about the downgrade.

The National Association of Realtors estimates the $8,000 first-time homebuyer tax credit in the economic stimulus bill could generate 300,000 additional home sales this year. The bill, which the House and Senate passed on Friday, also raises the maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 for the rest of this calendar year. "These important provisions will help bring first-time homebuyers into the market and reduce housing inventory," said NAR president Charles McMillan said. President Obama signed the bill Tuesday morning.

Fannie Mae and Freddie Mac have joined several major banks in declaring a foreclosure moratorium, a move designed to give the Obama administration a few weeks to roll out its homeowner retention plan. During the Christmas holiday season the two GSEs put a foreclosure moratorium in place but it expired at the end of January. Fannie Mae said it is suspending all foreclosures and evictions of owner-occupied properties through March 6 in anticipation of the administration's national foreclosure prevention and loan modification program. President Obama, Treasury secretary Timothy Geithner and Housing secretary Shaun Donovan will present their plan to address the foreclosure crisis at a Feb. 18 event in Mesa, Ariz. Chase, Wells Fargo, Bank of America and Citigroup have all suspended foreclosures. Citigroup said its moratorium will extend until President Obama has finalized the details of the loan modification program or March 12, whichever comes first.

Once again industry trade groups are trying to get HUD to backpedal on a Real Estate Settlement Procedures Act rule, claiming the department should work with the Federal Reserve Board on making mortgage disclosures complementary with the Fed's so consumers will not get confused. The Fed is working on making disclosure changes that fall under the Truth in Lending Act. "We urge that HUD and the board to join together, with industry, consumers and other stakeholders, to make the disclosures as effective as possible," according to a Feb. 9 letter sent to HUD secretary Shaun Donovan. The eight groups contend that the Department of Housing and Urban Development should withdraw or suspend a recently finalized RESPA that revamps the good-faith estimate disclosure. However, the housing industry is no longer united in opposition to the final RESPA rule. Stalwart opponents of past RESPA reforms -- the National Association of Realtors, RESPRO and the American Land Title Association -- did not sign the letter. The American Bankers Association, Mortgage Bankers Association and five other lender groups did. The eight trade groups noted that last summer 243 congressmen signed a petition urging HUD to pull back from issuing a final RESPA rule and coordinate its disclosures with the Fed's Truth in Lending Act mortgage disclosure project.

An Oxon Hill, Maryland, man pleaded guilty to mail fraud in connection with the fraudulent purchase of 25 properties in Maryland, the District of Columbia and Virginia. According to prosecutors, Terrence White and others used false mortgage and settlement documents to buy the homes, and paid at least 15 "straw buyers" $10,000 per property to purchase the properties on their behalf. White created false mortgage and settlement documents, many of which misrepresented the straw purchasers' income and assets. White and others also created false invoices to claim that their now defunct company, Brotherly Investment Group, performed "renovations" on some of the properties. Using these false invoices, White and others were "repaid" at closing for the purported renovations. Between 2006 and 2008, White and others received $3.83 million in fraudulent funds. Many of the purchased properties have been foreclosed upon.

Office of Thrift Supervision director John Reich said he is leaving his post as the chief supervisor of 800 federally chartered thrift institutions at the end of this month. OTS senior director Scott Polakoff will serve as acting director until President Obama nominates a new director to run the agency. During his four-year tenure at OTS, Mr. Reich witnessed the demise of some of the largest savings and loans in history. Washington Mutual, IndyMac Bank and Countrywide failed on his watch. The OTS director was the most reluctant of federal banking regulators to tighten subprime and Alt-A lending underwriting guidelines. He generally insisted on giving thrifts the most flexibility in setting their lending polices. Mr. Reich was a Sarasota, Fla., banker before he came to Washington to work on the staff of former Sen. Connie Mack, R-Fla. President Bush nominated Mr. Reich to run OTS in 2005.

Obscure clauses in securitization documents could spell big losses for depositories if Congress passes mortgage bankruptcy legislation, according to a report in American Banker. U.S. banks and thrifts hold hundreds of billions of dollars of non-agency mortgage-backed securities. Most if not all of these bonds are rated triple-A, meaning that normally they would be well cushioned against any loss, as lower-rated classes would take a hit first. However, many securitization documents contain language that identifies bankruptcy as a condition in which all bondholders share losses equally. According to a report by Credit Suisse, pending cram down language "will be a distinct negative for many senior prime RMBS bonds that have a unique feature wherein bankruptcy losses are set at a maximum dollar amount, beyond which additional bankruptcy-related losses will be allocated to all bonds regardless of seniority."

House and Senate conferees raised the first-time homebuyer tax credit to $8,000 (a $500 increase) during last-minute negotiations on the pending economic stimulus bill. Also, the effective date of the credit was increased by three months to December 1. The final stimulus bill (H.R. 1) also raises the maximum GSE loan limit to $729,720. At press time the House was voting on the $800 billion package. A Senate vote on final passage could come as early as Friday evening or during the weekend. As reported earlier, the conferees cut a $15,000 homebuyer tax credit approved by Senate in half and limited the tax benefit to first-time homebuyers. The final version of H.R. 1 also restores the maximum $729,750 loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans for the rest of this calendar year. (The current limit is $625,500.) Reinstating the higher loan limits will "help to reduce inventory and improve liquidity in the overall mortgage market," said Charles McMillan, president of the National Association of Realtors. Although the $8,000 first-time homebuyer tax credit is a disappointment to many in the industry, the tax writers made it a real tax credit so homebuyers do not have to repay it like an interest-free loan. Eliminating the repayment provision should bring more buyers into the market, Mr. McMillan said. The final stimulus bill also raises the loan limit on FHA-insured reverse mortgages to $625,500 from $417,000 for the rest of the calendar year.