Compliance & Regulation

The $825 billion economic stimulus package drafted by House Democratic leaders will restore the $729,750 GSE loan limit in high cost areas until year-end 2009. The package also includes a provision that increases the loan limit on Federal Housing Administration-insured reverse mortgages to $625,500 from $417,000 nationwide. Congress originally raised the maximum loan limit on Fannie Mae, Freddie Mac and FHA 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 stands today. In addition to raising the maximum loan limit, the House bill expands the definition of high cost areas by allowing regulators to designate wealthy residential communities as "sub-areas" within a metropolitan statistical area. If the maximum loan limit in an MSA is $650,000, for example, the loan limit in the sub-area could be $729,750.

Fannie Mae and Freddie Mac have been directed by their regulator to record -- beginning in 2010 -- identification numbers for loan officers, appraisers and others involved in originating mortgages they purchase in the secondary market. The names of these origination professionals will not be recorded and instead each will be given a number under a new national registry for mortgage professionals. Requiring "identifiers" will allow the GSEs to "monitor performance and trends of their loans," said Federal Housing Finance Agency director James Lockhart. "If originators or appraisers have contributed to the incidences of mortgage fraud, these identifiers allow the enterprises to get to the root of the problem and address the issues." A nationwide licensing and registry system that goes into effect June 30 requires all loan officers and mortgage brokers to have a unique identification number. But the GSE regulator is taking it a step further by insisting on appraiser identifiers. FHFA maintains it is important to detect negligence and fraud. In addition, Fannie and Freddie will be changing their systems to collect loan originator and company identifiers. "Simultaneously implementing collection of appraiser identifiers would be reasonable and practical," the agency said.

House tax writers are proposing to make a first-time homebuyer tax credit more attractive to buyers and provide tax refunds for builders and certain financial institutions that have incurred large losses in 2008, but were profitable in past years. The package also includes a five-year carry-back provision that allows companies to charge off their 2008 losses against their profits going back to 2003. But Fannie Mae, Freddie Mac and companies receiving assistance from the Troubled Asset Relief Program are not eligible for this extended carry-back provision under the tax provisions drafted by House Ways and Means Committee chairman Charles Rangel, D-N.Y. "This package was developed with strong coordination between the House and Senate leaders, president-elect Obama and his economic team," Rep. Rangel said. The tax package removes a repayment requirement on the $7,500 first-time homebuyer tax credit. But it does not increase the tax credit or expand it to all homebuyers as requested by the homebuilders and Realtors. These tax provisions and others will be included in the economic stimulus bill.

To jump start multifamily projects that depend on low-income housing tax credits, the Mortgage Bankers Association and other housing groups are recommending a program that would provide 4.5% financing. "Under our proposal, the Treasury Department would purchase mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae that are backed by loans on properties assisted by the LIHTC program," according to a letter to House and Senate Democratic leaders that are working on the economic stimulus package. Under this approach, "Treasury would agree to purchase the loans at a 4.5% note rate," the Jan. 13 letter says. The eight housing groups, including the National Apartment Association and National Multi Housing Council, point out that many projects to build and renovate affordable rental housing are stalled due to the drop in the value of the tax credits and other market factors. But the low cost financing would "reduce debt service costs" and allow a number of these developments to move forward, create jobs and increase the supply of affordable housing, according to the proponents.

After pleading guilty in Suffolk Superior Court to multiple charges in connection with her fraudulent activity in securing subprime mortgages for several unqualified homebuyers, Nicole Lyder of Dorchester, Mass., has been sentenced by Suffolk Superior Court Judge Christine McEvoy to serve two years in prison. Beginning in November 2005, Lyder engaged in fraudulent activity in order to secure subprime mortgage loans for several homebuyers in Dorchester, Randolph and Taunton, Mass. Lyder, working as a mortgage officer for a Quincy, Mass.-based mortgage company, engaged in this activity without the knowledge of the homebuyers and with the knowledge that the buyers would not otherwise qualify for mortgages. After receiving a complaint about Lyder in September 2006, the attorney general's office began an investigation into Lyder's activities, focusing on mortgage loans that Lyder assisted homebuyers in securing (two for properties in Dorchester, one in Randolph and one in Taunton). Investigators found that Lyder had forged business certificates, which contained false information relating to the financial status of the homebuyers. Lyder then submitted those forged business certificates on behalf of the homebuyers. In addition, in each of these four home purchases Lyder also exaggerated the homebuyers' financial standing on various other documents submitted to Fremont in support of the loan applications. As a result of this fraudulent activity, Lyder collected thousands of dollars in commissions.

Citing the success of its current business model as a multifamily lender, New York Community Bancorp Inc., Westbury, N.Y., has turned down $596.0 million in Troubled Asset Relief Program funds. The company had previously applied for the money and was approved to participate in the Capital Purchase Program. But New York Community's board elected to decline the money, saying the decision was in the shareholders' best interests. Chairman, president and chief executive Joseph R. Ficalora said, "We believe that our current capital position is sufficient to support the communities we serve and to enhance shareholder value by growing our assets, our franchise, and our earnings capacity. We believe we are well positioned to continue the pursuit of our business model, which has been consistent in its emphasis on the production of multifamily loans on rent-regulated buildings, the maintenance of conservative credit standards, and the growth of our franchise through accretive acquisitions of local banks and thrifts. In 2008, the pursuit of this model resulted in the expansion of our net interest margin, the growth of our operating earnings, and the maintenance of our strong record of asset quality."

The vice chairman of the Federal Reserve said Tuesday that the Treasury Department should consider buying troubled mortgages from financial institutions as both a way to prevent foreclosures and help banks clean up their balance sheets. In testimony before the House Financial Services Committee, Fed vice chairman Donald Kohn noted that the presence of "hard-to-value" assets (including subprime ABS) at depositories is making it difficult for banks to find new investors and raise private capital. The original intent of the $700 billion Troubled Asset Relief Program was to buy underwater mortgages and MBS from financial institutions but was shelved by Treasury secretary Henry Paulson in favor of making preferred stock investments in banks. John Bovenzi, the Federal Deposit Insurance Corporation's chief operating officer, told the committee that removing problem assets (presumably mortgages) from the balance sheets of financial institutions "continues to be vitally important."

The incoming administration of Barack Obama wants to revamp the Hope for Homeowners program to make the Federal Housing Administration refinancing initiative more "effective," according to Shaun Donovan, Obama's nominee to be the new Housing and Urban Development secretary. Mr. Donovan told the Senate Banking Committee at his confirmation hearing that he is taking an active role in developing a "bold, comprehensive" foreclosure prevention effort that Mr. Obama has advocated. The former New York City housing commissioner and HUD deputy assistant secretary said the H4H program would be an "important piece" of the foreclosure prevention plan. And he said the Federal Deposit Insurance Corp. plan that provides loan guarantees for newly modified loans is "promising." But they want to make sure the incentives are structured to reduce re-defaults and minimize taxpayer costs. The Senate is expected to confirm Mr. Donovan to be the new HUD secretary next week after Mr. Obama is sworn in as president.

The electronic registry for tracking ownership of mortgage loans and servicing rights has been expanded to allow the registration of loans where MERS is not the mortgagee of record. These "information only" registrations are being called MERS iRegistrations, and they give members the anti-fraud and tracking benefits of a "MERS as original mortgagee" registration without naming MERS as the mortgagee. The iRegistration procedure can be used to register a loan prior to closing, MERS said. The MERS website is www.mersinc.com.

Yadira Garrido, Jorge Cordero and Maritza Salan were sentenced in connection with their participation in a mortgage fraud scheme. U.S. District Court Judge Federico Moreno sentenced defendant Garrido to 51 months in prison, followed by three years of supervised release and ordered to pay $5.32 million in restitution. Cordero was sentenced to 10 months in prison, three years supervised release and ordered to pay $841,863 in restitution. Salan was sentenced to 60 days in prison, three years of supervised release and was ordered to pay $841,863 in restitution. Another co-conspirator, Ishmett Nazario, was previously sentenced to 41 months in prison, three years supervised release and was to pay $1.44 million in restitution. The defendants were charged for their respective roles in the fraudulent sale of residential property located in Coral Gables, Fla. They subsequently pleaded guilty in November 2008. According to the statements made during the pleas, the defendants transferred the residential property three times within approximately one year, resulting in almost doubling the price of the property from $780,000 to $1.4 million. Garrido purchased the residential property and flipped it to straw buyer Cordero. Cordero then transferred the property to co-defendant Jose Alvarez, who sold the property to a second straw buyer Salan. Garrido provided false employment information to the lender to artificially increase Salan's ability to borrow $1.33 million in loans to purchase the property. Once the sale to Salan was in effect, Salan failed to make a single payment on these loans. The property ultimately went into foreclosure, resulting in a significant loss to the lender.