Compliance & Regulation

Genevieve Simmons of the Bronx, New York, pleaded guilty before U.S. District Judge Lawrence M. McKenna in Manhattan federal court to falsely obtaining Section 8 federal housing subsidies. According to Lev L. Dassin, acting U.S. attorney for the Southern District of New York, Simmons worked as a correction officer with the New York City Department of Correction from approximately 1990 through 2008. From April 2003 through March 2007, Simmons received Section 8 housing subsidies from HUD by falsely claiming that she was unemployed. These housing subsidies are intended for individuals who meet low-income and other eligibility requirements. By misrepresenting that she had no employment income, Simmons pled to obtaining more than $40,000 in federal housing subsidies to which she was not entitled.

Four individuals have been charged with conducting a million-dollar mortgage fraud scheme in Michigan. Three are charged with racketeering: Dequincy Hyatt, of Detroit; Seaesther Thompson-Hayes, of Flat Rock; and Aaron Brooks, Jr., of Southgate. The fourth, Pietro Biundo, of Washington, Michigan, is charged with filing false documents when selling a home in one of the transactions. According to Michigan's attorney general Mike Cox, in 2006, Mr. Hyatt, managing partner of a homebuilding firm, Mr. Thompson-Hayes, a mortgage broker, and Mr. Brooks, a former credit union service representative, allegedly partnered together to perpetrate a mortgage fraud scheme involving two properties. In the first case, it is alleged the defendants secured a $710,000 mortgage for a $510,000 home in Shelby Township. After paying fees, the defendants were able to skim more than $163,000 off the transaction. In the second case, the defendants allegedly secured a $785,000 mortgage though the straw buyer for a $515,000 Clinton Township home. Mr. Biundo was the seller of the home in this case. The indictment alleges that the defendants sought and obtained a straw buyer for the two targeted luxury properties, who was told that her name and credit, boosted by inflated income and asset data, would be used to purchase the properties. The defendants would make the mortgage payments for her and her name would later be removed from the mortgages. In return, the straw buyer was promised compensation. About a year after the transactions, the defendants stopped making payments and the straw buyer was left with two mortgages in her name and unable to make payments. Both houses went into foreclosure. The defendants were unavailable for comment.

Mark Turkcan of Kirkwood, Missouri, pleaded guilty before U.S. District Judge Donald J. Stohr to the misapplication of funds connected with his position at First Bank Mortgage, causing a loss of $35 million. According to Catherine L. Hanaway, U.S. attorney for the Eastern District of Missouri, the losses began as early as 1987 when Turkcan was employed by Sheahan Financial. In 1990, First Bank purchased Sheahan Financial without knowing about the losses concealed on the books of Sheahan Financial, causing First Bank to overpay in the purchase. After the purchase of Sheahan in 1990, Turkcan became president of First Bank Mortgage, where he continued to buy and sell mortgage-backed securities as part of his job. However, losses from the unauthorized and unapproved borrowings rose to approximately $35 million. They were covered up and concealed from First Bank by destroying or changing records and posting profits on the books and records of the Bank. To cover the losses, Turkcan borrowed against the mortgage-backed securities of First Bank Mortgage. These loans were also concealed from First Bank. To conceal the true nature of these transactions, Turkcan created fictitious trade tickets and Bear Stearns confirmations. Ultimately these losses rose to a level of approximately $35 million, which First Bank had to pay Bear Stearns. Sentencing is scheduled for Apr. 17, 2009. "It was strictly a solo operation," said Michael Reap, first assistant U.S. attorney, who is prosecuting the case. Mr. Reap added that Turkcan was immediately terminated when bank officials interviewed him about this matter.

The House has passed the $820 billion economic stimulus bill that restores the $729,750 loan limit in high cost areas for the rest of this year. Congress originally raised the maximum loan limit on Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 in February 2008 as part of the first stimulus bill. But that provision expired Dec. 31 and the loan limit adjusted downward to $625,500 where it is today. The Senate is expected to vote on a stimulus bill next week. But so far the Senate package does not include a loan limit increase. Housing industry lobbyists are working to attach the House loan limit provision to the Senate bill. The House bill also includes a provision that increases the loan limit on FHA-insured reverse mortgages from $417,000 nationwide to $625,500 for the rest of calendar year.

The former executive vice president and chief financial officer at Freddie Mac, Anthony "Buddy" Piszel, has been named as chief financial officer and treasurer at the First American Corp., Santa Ana, Calif. Mr. Piszel was with Freddie Mac starting in November 2006 and left the company following its being placed into conservatorship in September 2008. Before joining Freddie Mac, he was the chief financial officer for Health Net Inc., and before that he held a number of senior financial positions at Prudential Financial Inc., with his final job being senior vice president and corporate controller from 1998 to 2004. At First American, Mr. Piszel will oversee the financial reporting group, capital markets activities and investor relations.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae's and Freddie Mac's respective on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie's and Freddie's portfolios cannot grow any larger than $850 billion each, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.

The Federal Reserve Board said it would modify certain distressed residential mortgages that it inherited when it made loans at the discount window to Bear Stearns and American Insurance Group. It's unclear how many consumers might benefit or what the dollar amount involved might but the Fed is expected to try different methods to help struggling mortgagors, including interest rate and principal reductions, loan term extensions, and payment deferrals. AIG - which is mostly owned by the government - and Bear (now the property of JPMorgan Chase) pledged mortgage-backed securities to the central bank in exchange for discount window loans. Fed chairman Ben Bernanke told Congress that the Fed governors have adopted a policy to help avoid preventable foreclosures based on its authority under the Troubled Asset Relief Program. The Federal Reserve Bank of New York is expected to hire asset managers to handle the workouts.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence by a 21 to 15 vote, but politicians and industry lobbyists differ on the scope of an exemption for FHA and VA mortgages. Mortgage industry lobbyists tried to narrow the scope of the bill. But an amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated. Committee chairman John Conyers, D-Mich., said his bill exempts Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. But industry lobbyists claim the exemption for government-insured loans does not go far enough and amounts to little more than guidance to the bankruptcy courts. "If this bill is enacted, lenders will no longer participate in these programs because it provides no assurance against a possible cramdown," one bankruptcy expert said. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence - with the exception of government insured loans. The measure passed by a vote of 21 to 15. Mortgage industry lobbyists tried to narrow the scope of the bill, but committee chairman John Conyers, D-Mich., only agreed to exempt Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. An amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated by a 20-15 vote. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae and Freddie Mac's on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie and Freddie's portfolios cannot grow any larger than $850 billion, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.