Compliance & Regulation

Democratic leaders are rushing to pass the massive economic stimulus bill and they are urging the House and Senate conferees to agree on a final bill quickly so the House can vote on the bill this Thursday. The final bill is expected to include an increase in loan limits and a tax credit for homebuyers. On Tuesday, the Senate passed its $820 billion economic stimulus bill with a larger tax credit than the House-passed stimulus. The Senate doubled the size of the tax credit to $15,000 and opened it to all homebuyers - not just to first-timers like the House bill. House conferees are expected to pare back the tax credit. But supporters of the Senate version are hoping it will remain open to all homebuyers. The National Association of Home Builders estimates the $15,000 homebuyer tax credit could generate 500,000 additional home sales and 255,000 jobs this year. Senate conferees are expected to accept a House provision that raises the maximum loan limit on Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 for the rest of this calendar year. Earlier in the debate, Senate Republicans failed in their efforts to include a mortgage buydown program in the stimulus bill. This expensive program to reduce mortgage rates to 4% was defeated in the Senate by a 62-35 vote.

Alexander Kaplan of Brooklyn, New York, was found guilty in Manhattan federal court of participating in a multimillion-dollar mortgage fraud scheme. According to the evidence at trial, from late 2004 through January 2007, Kaplan and his coconspirators, using straw buyers, obtained hundreds of mortgage and home equity loans by submitting loan applications and supporting documents that contained information about, among other things, the prospective borrower's employment, income and assets and intent to reside in the property in question, as well as the fair market value of the property. Additionally, Kaplan and his co-conspirators, using artificially inflated appraisals, sought and obtained mortgages at values that exceeded the properties' actual sale prices and true market values. Kaplan served as the attorney for the straw buyers and the banks in the closings of sales of 10 rent-regulated condominium apartments on the Upper West Side of Manhattan. None of the documents submitted to the lenders in these transactions disclosed that: certain buyers were seeking loans to purchase more than one apartment as a primary residence; each of the apartments was already occupied by a tenant and therefore not suitable for a primary residence; or the apartments were subject to rent regulation laws that precluded the buyer from charging the reported rents. Kaplan presided over the closings and obtained false documents. Almost all of the apartments were then resold to straw buyers within a matter of months. The purported sales prices for each of the flips were almost twice the initial purchase price and Kaplan's co-conspirators obtained almost $13 million in additional loans on the apartments. Of the 26 other defendants originally charged with Kaplan, 25 have pleaded guilty. Sentencing for Kaplan is for May 1, 2009.

John A. Yanchek of Sarasota, Florida, has pleaded guilty to three counts of a 47-count indictment charging him and three other individuals with conspiracy, making false statements in connection with bank loans, scheming to defraud several FDIC-insured banks and money laundering. According to the plea agreement, Yanchek entered into a conspiracy to make false statements to federally insured banks in connection with applications for commercial loans to fund the purchase of vacant land in the Sarasota/Manatee, Fla., area for development. The object of the conspiracy was to obtain a loan from a bank in an amount that was sufficient to allow the conspirators to purchase the property without contributing any equity of their own and to receive excess loan proceeds for their personal use and benefit. To influence the lending decision of the various banks, Yanchek, acting in his legal capacity as the closing attorney, made false statements regarding the financial resources of the borrower, the amount and source of equity contributed by the borrower, compliance with the seller's obligation to provide marketable title to the property and distribution of the loan proceeds. The total face amount of the commercial loans fraudulently obtained from seven banks was $82.7 million. Yanchek was one of four individuals indicted in connection with this scheme, including Neil Mohamed Husani, Larry P. Nardelli and Michael A. Tringali. According to the U.S. attorney's office, co-defendant Tringali pleaded guilty to the conspiracy charge on Nov. 3, 2008, and awaits sentencing. Mr. Nardelli is on trial this week. Mr. Husani has been arrested in Jordan.

The American Securitization Forum has begun its next phase of a project aimed at restoring investor confidence in the moribund market for mortgage- and asset-backed securities that includes a proposal for monthly servicer reporting on deals through maturity. The group, as part of its ongoing Project on Residential Securitization Transparency and Reporting, released a request for comment on its new residential MBS reporting package for the securities that sets guidelines aimed at making the performance of their underlying loans easier to track. The reporting package consists of a proposed package of data fields set to be updated monthly by RMBS servicers throughout the life of an RMBS deal and distributed to investors and credit rating agencies. The ASF, in conjunction with its conference in Las Vegas, also has released for comment a revised version of last year's proposed RMBS disclosure package, a 135-field package of pool and loan-level information that was designed to be used when RMBS deals are initiated and aimed at allowing investors to more easily compare loans and transactions across all issuers and perform some key loan-level analysis. The ASF said it also has issued a set of recommended data fields for manufactured housing securitizations and addressed issues involving information about modifications, second liens, fraud, the definition of "full documentation" and standard terms and identifiers designed to avoid confusion. Both packages include similar recommendations for file naming conventions and were designed to complement each other.

Treasury Secretary Timothy Geithner Tuesday morning promised that a "comprehensive" government program to revive the housing market and help consumers avoid foreclosure is in the works but offered no details on what the effort might entail. The new Treasury secretary said specifics of the plan will be released in the next few weeks. At press time, Treasury officials were offering no guidance on the issue. "Millions of Americans have lost their homes, and millions more live with the risk that they will be unable to meet their payments or refinance their mortgages," said Mr. Geithner. Meanwhile, the new Term Asset-Backed Securities Loan Facility, or TALF, does not include single-family mortgages. (See related story.)

The government sponsored enterprises' regulator wants the Obama administration to use some of the second installment of the Troubled Asset Relief Program funds to shore up the capital bases of the private mortgage insurance companies so that Fannie Mae and Freddie Mac can finance more homebuyers. "I am hopeful that TARP II will address the private mortgage insurers' capital issues," Federal Housing Finance Agency director James Lockhart told an American Securitization Forum meeting in Las Vegas. The government-sponsored enterprises depend on PMI to serve borrowers with down payments of less than 20%. But the PMI companies have increased premiums, tightened underwriting and become less competitive as a result of default and foreclosure losses. Due to "stresses on mortgage insurance company capital," Mr. Lockhart said, the GSE market share has fallen while the market share of government-insured Federal Housing Administration/Veterans Affairs loans has increased dramatically. "The private mortgage insurers' market share versus FHA/VA fell from nearly 80% in the first quarter of 2007 to about 30% in the third quarter of 2008," the GSE regulator said.

Howard A. Sperling of San Diego pleaded guilty in federal district court to conspiracy to commit wire fraud for his part in a scheme to defraud a California construction firm of nearly $13 million. According to the information presented in court, from August 2003 through January 2004, Sperling and his co-defendants conspired to defraud Cornell Corrections of California, a private company that operates corrections facilities for various governmental units. In June of 2003, Cornell Corrections contracted to have a corrections facility built in Canon City, Colo., for $13 million. The $13 million purchase price was to be held in an escrow account until the facility was completed. In August 2003, Sperling and his co-defendants induced Cornell Corrections to transfer its $13 million to an account in Atlanta controlled by co-defendant, Edgar J. Beaudreault, by falsely representing to Cornell that the account was an escrow account that was administered by a reputable bank. Upon receipt of Cornell Corrections' $13 million, Sperling and his co-defendants, Beaudreault and Robert B. Surles, wire transferred the majority of Cornell's $13 million to other accounts to be used for their own purposes. Most of the money was disbursed to the accounts of the three co-conspirators. Sperling withdrew $365,000 in cash, transferred $400,000 to personal and family members' accounts, paid $215,000 to banks and credit card companies, $85,000 to a Harrah's Casino and $60,000 for a luxury Mercedes Benz automobile. Sentencing is scheduled for April 30, 2009, before U.S. District Judge Clarence Cooper. Beaudreault pleaded guilty in December 2008 and is scheduled to be sentenced on March 18, 2009. Mr. Surles awaits trial and was unavailable for comment.

The Federal Reserve on Friday released details on how it will jump-start the asset-backed securities market but for now is excluding real estate-backed receivables from the program. Initially, the central bank will provide financing on consumer debt including auto, credit card and student loans but not commercial or private label mortgages. At press time a spokesman from the Fed had not returned a telephone call about the matter. The private label residential mortgage market ground to a near halt almost a year ago. When the $200 billion ABS program was announced late last year commercial real estate loans and private label mortgages were supposed to be included in the effort, at least according to comments made by then Treasury secretary Henry Paulson. According to the outline released Friday, the Fed will provide non-recourse financing to ABS issuers on only AAA rated collateral. If the borrower/issuer does not repay the loan to the Fed the agency will sell the note to a special purpose vehicle whose job it will be to collect on the debt.

Treasury secretary Timothy Geithner is slated to present the Obama administration's plan to stabilize the financial section and address the foreclosure crisis on Feb. 10. It appears Mr. Geithner will offer banks a menu of options so they can apply for new capital infusions, sell bad assets to the government and receive assistance in modifying troubled single-family loans. The new secretary has been rushing to put this plan together and it is unclear how soon the various parts can be implemented. Secretary Geithner is expected to unveil the plan at a Treasury Department event in the morning and testify before the Senate Banking Committee later in the afternoon about the plan.

As the Senate moved closer to passing an $827 billion economic stimulus bill, lawmakers added language that directs the Treasury Department to use at least $50 billion of the Troubled Asset Relief Program funds for loan modifications. Obama administration officials had stated several times that they plan to use $50 billion to $100 billion of the TARP to prevent foreclosures and the administration might unveil its plan on Feb. 10. But the sponsor of the amendment, Sen. Christopher Dodd, D-Conn., said the Bush administration refused to use TARP for loan modifications and he doesn't want to be burned again. Sen. Dodd's amendment also includes changes to Hope for Homeowners to make the Federal Housing Administration refinancing program more attractive to borrowers and servicers. The Senate is slated to vote on stopping a Republican filibuster of the stimulus bill this evening and vote on Feb. 10 on passage of the compromise stimulus bill put together by Sens. Susan Collins, R-Me., and Ben Nelson, D-Neb. The $15,000 homebuyer tax credit is part of the compromise bill. But the National Association of Home Builders and other supporters are concerned the tax credit could be pared back when House and Senate conferees sit down to hammer out a final bill. "One of the most damaging - from a stimulative impact - would be to knock it down to first time homebuyers," NAHB chief executive Jerry Howard said.