Compliance & Regulation

Senate support for adding a housing component to the economic stimulus bill is growing and a proposal by minority leader Mitch McConnell, R-Ky., to include a 4% mortgage rate buy down program is gaining bi-partisan interest. "This proposal has been getting a lot of attention from many different sources and it appears that Congress is very seriously considering it," said Francis Creighton, the Mortgage Bankers Association's chief lobbyist. National Association of Home Builders chief executive Jerry Howard said senators realize that they have to do more to fix the housing market and stimulate home sales. The builders support what Sen. McConnell is trying to do. "I am not sure that 4% is enough to have the kind of stimulus impact we are pushing for," the NAHB CEO said. The builders have been lobbying for a buy down program that will provide a 2.9% mortgage rate for the first half of 2009 and a 3.9% rate in the second half. The National Association of Realtors is backing the McConnell proposal. But the MBA wants to see how it is structured and how it will be phased out. If the buy down program expires in 18 months, MBA is concerned a sudden jump in mortgage rates could be disruptive.

Firms that securitize mortgages and other assets will have to take a 10% first loss position on any new issuances under draft legislation being discussed in Congress. House Financial Services Committee chairman Barney Frank, D-Mass., said requiring a first loss hit for securitizers would stop Wall Street firms from providing liquidity on mortgages that borrowers cannot repay. Rep. Frank, a key player in any MBS related legislation, noted that assignee liability on MBS failed to stop bad underwriting practices during the subprime boom. The committee chairman is working with the Senate Banking Committee and Treasury Department in drafting proposals that the Obama Administration will present at an international summit on systemic risk in April.

President Barack Obama has nominated the county executive of King County, Wash., Ron Sims, to be the deputy secretary and second in command at the Department of Housing and Urban Development. If approved by the U.S. Senate, Mr. Sims will be in charge of the department's day-to-day operations. Mr. Sims has a "track record as an innovative leader," said HUD secretary Shaun Donovan. "His experience at the helm of a large urban government provides critical perspectives and his collaborative approach to problem solving has prepared him to effectively lead HUD's operations as the agency charts a new aggressive course," Mr. Donovan said. In his own statement on accepting the nomination, Mr. Sims referred to an op-ed piece he wrote for the Seattle Times last year. "I lamented that decades of misguided policies at the federal, state and local level have contributed to the problem; policies that have isolated the poorest urban neighborhoods from economic opportunities, and disenfranchised communities trying to do better. I said then, and I believe now that 'we all need to own the reality of inequity' and we need empowered community voices to partner with government in shaping decisions to attack inequities at their sources and solve them," he said.

Vijay K. Taneja, a mortgage banker in the Washington, D.C. area, has been sentenced to 84 months in prison following his conviction for defrauding four companies. His jail term will be followed by three years of supervised release, and he has been ordered to pay $33 million in restitution to four financial institutions: Franklin Bank, First Tennessee Bank, Wells Fargo Bank, and EMC Mortgage Co. Taneja, who resides in Fairfax, Va., pleaded guilty to money laundering in connection with a mortgage fraud scheme involving his company, Financial Mortgage Inc., which originated and sold mortgages on residential properties in the greater Washington, D.C. area. According to court documents, FMI initially utilized his warehouse lenders to temporarily fund the mortgages and then sold the mortgages to another group of financial institutions as long-term investments. Beginning in 2001, FMI began defrauding these financial institutions, causing an accumulated loss of at least $33 million to four financial institutions by the time FMI filed for bankruptcy in June 2008. Taneja created fictitious loans with phony loan closings, selling the same legitimate loan to multiple investors and pocketing the proceeds generated from refinancing loans, when the bulk of those proceeds were intended to pay off prior mortgages on the same properties.

The House Financial Services Committee is slated to mark up a bill on Feb. 4 which, if passed, would revamp the Federal Housing Administration's Hope for Homeowners program and strengthen the Federal Deposit Insurance Corp. The Hope for Homeowners refinancing program has been considered to be a disappointment so far. But the bill, crafted by committee chairman Barney Frank, D-Mass., would eliminate the 3% upfront mortgage insurance premium and cut the 1.5% annual premium in half. If passed, FHA could charge a 55 basis point to 75 basis point annual premium based on the borrower's credit risk. The bill (H.R. 703) also contains a safe harbor for servicers that engage in loan modifications to shield them from investor lawsuits. This safe harbor provision applies to all loan modifications initiated before the end of 2011. Servicers would be required to regularly report their loan modification activities to the Treasury Department. H.R. 703 would also make the temporary hike in deposit insurance coverage to $250,000 permanent and increase FDIC's borrowing authority from $30 billion to $100 billion. Rep. Frank said he wants to move this bill quickly through the House and attach it to legislation the Senate must pass.

A group of five newly elected senators is urging Senate Finance Committee chairman Max Baucus, D-Mont., to extend the $7,500 first-time homebuyer tax credit through the end of this calendar year. The tax section of the economic stimulus bill approved by the Finance Committee allows the tax credit to expire after June 30, 2009. The number of existing homes for sale is nearly three times the normal inventory and "it will take time to move this high volume of homes on an already sluggish market," according to the group of freshmen Democratic senators, which includes Jeanne Shaheen, N.H; Tom Udall, N.M.; Kay Hagan, N.C.; Mark Begich, Ark.; and Mark Udall, Colo. "We believe that extending the tax credit until the end of 2009 will encourage aspiring and qualified homebuyers to come off the sidelines and carve heavily into the nine-month inventory," the five freshmen say in a letter to Sen. Baucus. The Senate is expected to vote on the $900 billion economic stimulus bill this week.

Former loan broker John M. Rubischko of Eagan, Minnesota, was sentenced in federal court on counts of wire fraud and aggravated identity theft in connection with a mortgage fraud scheme resulting in losses of more than $1 million. U.S. District Court Judge Donovan Frank sentenced Rubischko to 87 months in prison and five years' supervised release. Rubischko was charged on June 16, 2008, and pleaded guilty on June 27, 2008. Rubischko was a mortgage broker who owned and operated licensed mortgage broker businesses, including Family First Mortgage, All Fund Mortgage and MortgageBanc.

Citing its strong loan production, Fidelity D & D Bancorp Inc., Dunmore, Pa., declined to participate in the U.S. Treasury Department's Troubled Asset Relief Program Capital Purchase Program, even though the government had approved its entry. It said it had ample liquidity to fund loans for the foreseeable future. Steven C. Ackmann, president and chief executive, said, "We are well-capitalized, solid, and continue to invest in our community. Because we are so well capitalized, we felt our customers and shareholders would be better served by not participating in the Treasury program." The lender continues to fund consumer, mortgage and commercial loans. In the fourth quarter Fidelity D&D originated $12 million in residential mortgages, and $40 million in commercial.

The Justice Department says it foiled a plot by a fired Fannie Mae contract worker to destroy all the data on the GSE's 4,000 computer servers nationwide. The worker, 35-year-old Rajendrasinh Makwana, of Glen Allen, Va., is scheduled for arraignment Friday in U.S. District Court in Baltimore on one count of computer intrusion, according to a report in the Associated Press. U.S. Attorney Rod Rosenstein said Mr. Makwana was fired in late October. The prosecutor said that on that day Mr. Makwana programmed a computer with a malicious code that was set to spread throughout Fannie's network of servers and destroy all the data by the end of January 2009. Mr. Makwana's public defender has yet to comment on the charges.

The Federal Reserve purchased nearly $70 billion of GSE mortgage-backed securities during the first month of its special initiative to lower loan rates and help stabilize the residential finance market. The New York Federal Reserve Bank started purchasing Fannie Mae, Freddie Mac and Ginnie Mae MBS on January 2, buying $10.2 billion in agency MBS the first week. By the mid-January, the 30-year mortgages had dropped below 5%, creating a surge in refinancing applications. But a sell off in the Treasury securities market has pushed mortgage rates up to 5.25% again. The Fed succeeded in narrowing the spread between the 10-year Treasury rate and mortgage rates, according to Mahesh Swaminathan, a Credit Suisse mortgage strategist. "The Fed's buying of mortgages is definitely a positive on the whole, but it doesn't guarantee lower mortgage rates if Treasury rates continue to sell off," he said. The New York Bank reported on Thursday that it purchased $16.8 billion in agency MBS from January 22 through January 28.