Compliance & Regulation

A St. Louis man has pleaded guilty to mortgage fraud charges in connection with loans extended by Wells Fargo Home Mortgage and others. In the scheme Henry Broussard admitted to using phony gift letters to convince mortgage lenders that buyers were financially suitable to purchase properties owned by Broussard, when in fact he had provided the funds to satisfy downpayment requirements of various lenders. Broussard also admitted to fraudulently obtaining a loan of approximately $60,000 from Wells Fargo Home Mortgage. In all, Broussard admitted his fraudulent activities involved in excess of $120,000 of actual and intended losses. Broussard pleaded guilty to mail fraud before U.S. District Court judge Henry E. Autrey. Sentencing is set for April 2009.

In early April a U.S district court judge will hear arguments in the National Association of Home Builders' case against the government, challenging newly issued Real Estate Settlement Procedures Act regulations that could hurt builders.NAHB originally filed for a preliminary injunction to block implementation of the "required use" section of the RESPA rule that bans builders from offering discounts and upgrades to buyers that are contingent on their use of an affiliated mortgage company. The trade group dropped that request after the Department of Housing and Urban Development agreed to delay the effective date. HUD extended the implementation date from Jan. 16 to April 16. NAHB claims the RESPA rule will force them to divest their affiliated mortgage and title companies, which could "greatly obstruct" the industry's effort to stimulate demand and sell off the excess supply of newly constructed homes. "In promulgating the final rule, HUD has flouted consumer satisfaction surveys and dampened the housing sector's efforts toward economic recovery," NAHB said in a filing with the U.S district court in Alexandria, Va.

The economic stimulus package, which is slated for a full House vote next month, will hike the Fannie Mae/Freddie Mac loan limit back up to $729,500, said Rep. Barney Frank, chairman of the House Financial Services Committee. The Democrat from Massachusetts said the loan limit increase has received the blessing of the incoming Obama Administration. The loan limit (for high-cost housing areas only) had been temporarily increased to $729,500 early last year but expired at Dec. 31. The new loan cap is $625,000, which will remain in place until the stimulus legislation passes. Many top ranked lenders continue offering jumbo mortgages but at interest rates 200 basis points higher than on "conforming" loans.

Craig A. Long of Kansas City, Missouri, has pleaded guilty to federal mortgage fraud charges. In his plea, Long admitted he conspired with others to defraud lenders by submitting fraudulent loan applications and false real estate appraisals. Long and his co-conspirators obtained loans for purchase or refinancing of real property by submitting to the Federal Housing Administration and other lenders loan applications containing false information about borrower's identities, employment and income, as well as false information about liens, occupancy and sales contracts. In June 2005, he provided false information to lenders for money to finance the purchase of a house in Kansas City. A sales contract falsely represented there was a $43,800 lien on the property. The loan application falsely stated the buyer was earning $8,500 a month as the owner of a construction company when in fact the buyer was retired and living on Social Security. Additionally, the value of the property was fraudulently inflated. Sentencing is set for Apr. 6, 2009.

Michael P. Rumore, who ran his law practice from his Lyndhurst, N.J., home, pleaded guilty to stealing approximately $4 million entrusted to him for real estate closings, which he used to gamble in Atlantic City. Rumore entered his plea before Superior Court Judge Harry G. Carroll in Bergen County to first-degree money laundering and second-degree theft by failure to make required disposition of property received. Rumore was hired as an attorney and settlement agent for real estate purchasers. Between April 2007 and August 2008, he received approximately $4 million from various mortgage companies to disburse the funds for closings and use them to pay balances on existing mortgages and other associated costs and fees. Rumore admitted that he instead transferred the funds into his personal and business accounts and used them to gamble at casinos in Atlantic City. Rumore surrendered his license to practice law in the state and was disbarred by the Office of Attorney Ethics in September 2008. Sentencing is scheduled for Apr. 17, 2009.

Fannie Mae has priced a 2% $6 billion Benchmark Note due Jan. 9, 2012 at 99.983 to yield 2.006% at a spread of 83 basis points over the 1.125% Treasury due Jan. 15, 2012. Barclays Capital Inc., Deutsche Bank Securities Inc. and J.P. Morgan & Co. are the joint lead managers. The co-managers include Banc of America Securities, Citigroup Global Markets Inc., Goldman Sachs & Co. and UBS Securities LLC. Barclays Capital Inc., Deutsche Bank Securities Inc., and J.P. Morgan & Co. The Committee on Uniform Securities Identification Procedures identifier for the issue is 31398AUU4.

Fannie Mae and Freddie Mac will extend its suspension of foreclosure sales and evictions until January 31 to give their servicers more time to help troubled borrowers and to implement a new streamlined loan modification program. In November, the mortgage giants said they would suspend evictions during the holidays, but that was due to end Jan. 15. This extension will "give servicers additional opportunities to help put more families on the path to stable homeownership," Freddie Mac chief executive David Moffett said. Fannie Mae said the extension also gives servicers more time to implement its new policy that allows renters to continue to live in foreclosed properties. Previously, renters were automatically evicted. Freddie is developing a similar policy to allow renters to remain in their homes, a company spokesman said.

President-elect Barack Obama wants Congress to pass his massive economic stimulus bill shortly after he takes office on Jan. 20 and he will hold off on proposing a "sweeping" plan to prevent foreclosures. In a CNBC-TV interview, Mr. Obama said he will work with the chairmen of the House and Senate banking committees in developing the foreclosure plan. "I expect to unveil plans to prevent foreclosures in consultation with [Rep.] Barney Frank and [Sen.] Chris Dodd, who've done some very good work on this, sometime in the next month or two," he told CNBC. On Wednesday, Sen. Richard Durbin, D-Ill., told MortgageWire he didn't know when Obama's team would send the stimulus bill to Congress, but he is urging them to include a bankruptcy provision that allows judges to modify mortgages on primary residences. Meanwhile, it appears that some in the mortgage industry may put aside their long-standing opposition to bankruptcy modifications -- provided it is a last resort and servicers have tried to modify the loan first. The Wall Street Journal reported that Citicorp is in discussions with key Senators on a possible bankruptcy compromise.

A coalition of mortgage lenders led by a former Fannie Mae official and two other industry veterans, may lobby elected officials and regulators to allow Fannie Mae, Freddie Mac and the Federal Home Loan Bank system to provide warehouse financing to non-banks, MortgageWire has learned. Glen S. Corso, a former executive at PMI Group of Walnut Creek, Calif., said having the GSEs provide warehouse financing is just one of many ideas the group is kicking around. Currently, the warehouse lending arena is dominated by commercial banks, but there are major capacity issues regarding warehouse financing because of all the lenders that have left the sector. Mr. Corso is heading a group called the 'Warehouse Lending Project' along with Bob Englestad, a former Fannie Mae official, and Pete Mills, who was once the top Washington lobbyist for Countrywide Home Loans. Mr. Corso said 50 non-bank mortgage lenders are part of the coalition. (For the full story see the Monday edition of National Mortgage News.)

Timothy Pearson of Beavercreek, Ohio, was sentenced to 20 months in federal prison, followed by three years of supervised release and ordered to pay $171,211 in restitution to the Internal Revenue Service for his role in a mortgage fraud scheme. Pearson had previously been employed as a loan officer. Pearson pleaded guilty on March 12, 2007 to one count of conspiracy to commit money laundering and to two counts of income tax evasion. According to court documents, Pearson was involved in a mortgage fraud conspiracy between March 2001 and December 2005 where he directly and indirectly participated in at least 365 fraudulent real estate closings in the greater Dayton, Ohio area. Pearson prepared and submitted fraudulent mortgage loan applications on behalf of prospective purchasers of residential properties, a majority of which were located in the Dayton area. In addition, Pearson fraudulently provided downpayments for the purchasers at the real estate closings.