Compliance & Regulation

Isaac Yass, an Israeli citizen living in Los Angeles, and Robert Andrew Blechman of Culver City, Calif., were convicted for running a scam in which homeowners who were behind on their mortgage payments paid them to hold off foreclosure by filing fraudulent bankruptcy petitions. During the trial, prosecutors presented evidence that Yass and Blechman conspired to operate a fraudulent service called Stopco claiming to be able to save homeowners who were behind on their mortgage payments from losing their homes. Evidence showed that Yass solicited homeowners who were going through foreclosure proceedings and told them that for a fee he could help them keep their houses. The defendants filed fraudulent bankruptcy petitions in federal bankruptcy courts in Topeka, Wichita and Kansas City, Kan. The petitions were filed in the name of nonexistent individuals with businesses that claimed to be part owners of properties that were in foreclosure. The result was an automatic stay in the foreclosures, halting any further actions by creditors against the properties. The defendants delivered the fraudulent petitions, which contained false names and Social Security numbers and addresses for the creditors that were in fact mailboxes or UPS Store locations in Kansas, to the bankruptcy court. Sentencing is set for May 11, 2009.

Godwin Asifo has been indicted in Alexandria, Virginia for his alleged role in a mortgage fraud scheme. The indictment lists four properties in Virginia that were granted mortgage liens based on false and fraudulent misrepresentations. According to the indictment, Mr. Asifo, an Allstate agent in Alexandria, allegedly recruited straw buyers in the purchases and worked with mortgage brokers on falsifying loan applications to show that straw buyers had more money in their bank than they actually had, earned more income than they actually earned and falsely show that the straw buyers worked at businesses with which Mr. Asifo was associated. Mr. Asifo is alleged to have temporarily put funds into a straw buyer's bank account so that when called to verify the amount of money on deposit, bank employees would respond that the straw buyer had more money in his account than was in fact his money. Mr. Asifo also allegedly had associates respond to requests for verification of employment by falsely stating that the straw buyers worked at certain businesses. According to a spokesperson for Allstage, Mr. Asifo is still employed with the company. Neither Mr. Asifo nor his attorney, John Iweanoge, returned calls requesting comment.

Homes in the Western U.S. and South led in price declines in November, according to new figures compiled by the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac. FHFA - which calculates its numbers solely on the value of homes collateralizing mortgages bought or guaranteed by Fannie and Freddie - said that nationwide home values fell 1.8% in November compared to the previous month. Year-over-year, prices fell 8.7%. In November the steepest declines occurred in the West North Central region of the nation (-2.7%), Mountain (-2.4%), South Atlantic (-2.3%) and Pacific (-2.2%). The Pacific region, which includes California, had the largest 12-month decline: -22.1%.

The Office of Thrift Supervision failed to curb the risky lending activities of IndyMac Bank and Washington Mutual that led to the giant thrifts' demise, according to a new report by the Center for Responsible Lending. "OTS has failed in its primary mission" and it should be eliminated as a free-standing agency, CRL says in a report entitled the "Second S&L Crisis." The federal thrift regulator allowed WaMu, IndyMac and other thrifts to "engage in increasingly risky lending practices that harmed borrowers, undermined the institutions' own financial health and ran up enormous costs that have landed in the taxpayer's lap," the report says. In addition, the OTS "hid" the seriousness of the thrifts' financial condition from investors and the public. "OTS was created in 1989 to clean up that era's S&L mess," co-author Michael Hudson said. "Now the agency is presiding over the second S&L scandal -- one that couldn't have happened without the inaction and negligence by the very agency responsible for policing the industry." OTS declined to comment.

House Financial Services Committee chairman Barney Frank, D-Mass., is looking to attach major amendments to the Hope for Homeowners program, the economic stimulus bill or any bill that is moving quickly. "It is a major priority for us," committee spokesman Steve Adamske told MortgageWire. The amendments to the Hope program would revamp the Federal Housing Administration refinancing program to make it more attractive to borrowers and servicers. The changes would eliminate the 3% upfront insurance premium, cut the 1.5% annual premium in half and drop shared appreciation where the government could take 50% of the price increase when the house is eventually sold. For servicers, the bill ensures they will receive a fee for refinancing underwater mortgages and eliminates liability for a first payment default. Rep. Frank incorporated the Hope changes in a bill that spells out how the new Obama administration should spend the remaining $350 billion of the Troubled Asset Relief Program funds. The House passed the TARP bill (H.R. 384) by a 260-166 vote on Wednesday. But the Senate is not expected to consider H.R. 384. So Rep. Frank is looking for alternative legislative vehicle for the Hope amendments. The Senate already passed a resolution that allows the new administration to use the remaining $350 billion TARP funds and House action is unnecessary.

With demand for its product red hot, the Government National Mortgage Association issued $24 billion of mortgage-backed securities in December, and moved to ask the Obama Administration for a 50% increase in staff. "We sent in a request for additional people," GNMA president Joseph Murin told MortgageWire. The guarantor wants to add 30 people to its current staff of 61. Mr. Murin said the Obama transition team has supported his request. "We're just waiting for appropriations," he said. "We're looking for analytic types." For calendar year 2008 GNMA issued a record $270 billion in MBS. In recent selected months it has been issuing even more MBS than Fannie Mae and Freddie Mac. (For the full story see the Monday edition of National Mortgage News.)

Congressman Al Green has introduced H.R. 600, a bill that would reinstate the controversial seller-funded down payment assistance banned last October despite being credited with helping over one million families become homeowners. Scott Syphax, president and CEO of the Nehemiah Corp. of America, Sacramento, CA, a DPA pioneer and supporter, applauded the bill that helps broaden homeownership opportunities for borrowers who qualify for Federal Housing Association-insured loans without using government or taxpayer dollars. "With foreclosures on the rise and banks maintaining their stranglehold on credit," he said, DPA can have a big impact on the market's recovery. "Through H.R. 600, DPA offers a simple solution that can empower thousands of worthy families to take advantage of depressed home prices therefore reducing the glut of homes on the market. Further, it does so without spending a single government or taxpayer dime, according to the Congressional Budget Office." Mr. Syphax said DPA is a source of opportunity for responsible, sustainable homeownership in times when the housing market is crumbling. DPA supporters hope President Obama's Administration will help reinstate the program.

The home building slump has resulted in a loss of more than three million jobs, according to an analysis by economists at the National Association of Home Builders. Because production has dropped by more than one million units since starts hit their peak in 2005, 1.4 million construction workers have had to seek employment elsewhere, the NAHB said at its annual convention in Las Vegas. "But the loss doesn't stop there," according to the report, which says the slump also has resulted in the loss of nearly 562,000 jobs in the businesses which make building products and nearly 583,000 jobs in such service-related industries as architects, lawyers and engineers. That adds up to 3.05 million jobs that no longer exist, and $145 million in lost wages. Home building also is generating far less tax income for federal, state and local governments. "When one million single-family homes are not built, it means a loss of $89 billion in government revenue," the report said. Also lost is the $4.9 billion that is usually spent on appliances, home furnishings and property alterations in the first year after one million fewer families move from one house to another, the NAHB claimed.

If economics is the "dismal science," then Frank Nothaft is living up to his billing as the chief economist at Freddie Mac, at least in the short term. "The only good thing I have is that mortgage rates are at a record low," Mr. Nothaft told MortgageWire at the National Association of Home Builders' convention. But even that bit of good news is problematic, the economist said, because lenders' underwriting requirements are so stringent these days that it is far more difficult to qualify for financing. Still, he told a convention session that he expects a housing recovery to begin in the second half of 2009 and pick up a solid head of steam in 2010. Former Fannie Mae chief economist David Berson also expects sales to stabilize and grow stronger into next year. But Mr. Berson, who now is chief economist and strategist at PMI, Walnut Creek, Calif., also believes house prices will continue to fall. In 97% of the metropolitan statistical areas PMI follows, the probability is that prices will be lower in two years than they are now, he told the convention. "The risk has gone up almost everywhere, and there's a better than 50-50 chance of lower prices in slightly more than half the markets." At the same time, Mr. Berson assured the meeting that this too shall pass. "Eventually, the unsold inventory will get worked off," he said. "I don't want to minimize the problems we're going through now, but ultimately we will get through this period and get back to basic demographic trends."

Turmoil in the capital markets is leaving no segment of the housing business unscathed. Now feeling the pinch is the multifamily sector, where developers at the National Association of Home Builders' annual convention in Las Vegas say tight financing conditions have severely hampered their ability to produce both affordable and market-rate projects. Robert Greer of Michaels Development, Marlton, N.J., a big developer of low- and moderate-income apartments, said big investors - including Fannie Mae and Freddie Mac - are not actively seeking low-income housing tax credits because they have no profits to offset. Consequently, the firm, which has built more than 40,000 LIHTC units over the past 30 years, has had to scramble to find equity investors. So far, the firm has been successful, Mr. Michaels said, but assembling the capital needed to get projects off the ground is becoming more and more difficult, especially for firms that are smaller than his. The Lawson Cos., a market-rate apartment builder in Virginia Beach, also is feeling the pain. "We're struggling just like the rest of the housing industry," said president Steve Lawson. "The credit markets have turned upside down on us." When money is available, Mr. Lawson said, underwriting is so tight that he has to bring "twice as much equity" to the table as he used to. The Virginia builder fears that when members of the Generation Y start forming households, there won't be enough apartments to handle the onslaught. The NAHB is forecasting just 188,000 million multifamily starts for 2009, down more than 100,000 units from 2008. But it could ratchet its prediction down further if the credit markets don't thaw soon.