Compliance & Regulation

In downgrading its ratings on Carmel, Ind.-based insurance company Conseco Inc., Fitch Ratings cites concerns with the company's commercial and residential mortgage investments. "Fitch believes Conseco's statutory capital will be pressured by impairments in the deteriorating market for commercial mortgage backed securities and commercial mortgages. Fitch also notes Conseco's exposure to a sizable but highly rated alt-A residential mortgage-backed security portfolio and below-investment-grade fixed maturity corporate securities that are greater than 100% of statutory capital. The company has a meaningful exposure to GAAP unrealized losses on its investment portfolio that under statutory accounting rules are not reflected in capital," the rating agency said. The report added that Conseco is working on various initiatives to improve statutory capital and the future of its ratings will be based on the ability to improve is financial profile.

A survey conducted for Reecon Advisors, an independent real estate economics and information company, finds that most people oppose using federal bailout funds to help pay the mortgages of homeowners who are in default. While 51% of respondents opposed using the bailout to help homeowners in trouble, 43% supported helping troubled homeowners, according to the Reecon Advisory Report. David Lereah, a former Mortgage Bankers Association and National Association of Realtors chief economist who is president of Reecon Advisors, said the findings indicate that there are "significant political barriers to proposals now being drafted in Congress to use some of the remaining $700 billion of bailout funds to help stem foreclosures by helping defaulted homeowners with their mortgages." Reecon Advisors publishes a new weekly newsletter about residential real estate, which can be found at www. reeconadvisoryreport.com.

Roughly 50 different investors received confidential bid packages on IndyMac Bank FSB, the insolvent thrift that is also the nation's ninth largest residential servicer. A spokesman for the Federal Deposit Insurance Corp. also clarified that the investor group awarded IndyMac this past Friday is putting roughly $2.9 billion into the deal: $1.6 billion that represents the difference between the thrift's liabilities and the value of its assets (after the assets have been marked-to-market) and another $1.3 billion in cash that will be used to capitalize the re-constituted lender/servicer. "It's failed bank math," he said. The spokesman said at least 80 different investors were invited to bid but declined to say how many were involved in the final bid process. Of the 80, 50 received bid packages. Late last week the FDIC agreed to sell the Pasadena, Calif.-based IndyMac to IMB Management Holdings, a consortium of hedge funds led by Dune Capital, J.C. Flowers, Paulson & Co., and others. IndyMac has $13.9 billion in assets and $12.3 billion in liabilities, said the spokesman.

The National Association of Realtors' Pending Home Sales Index fell 4% between October and November and is now at the lowest point since the trade group started tracking this data in 2001. Job losses and low consumer confidence were the driving factors, the group said. The new index is 82.3, compared with 85.7 in October and 86.9 for November 2007. And according to NAR chief economist Lawrence Yun, "December's housing market activity could be comparably lower due to ongoing problems in the economy, so a real-estate focused stimulus plan is urgently needed. With a properly real-estate focused stimulus measure, home sales could rise more than expected, by more than 10% to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country." NAR calls for expanding a $7,500 tax credit to all homebuyers and permanently raising the conforming loan limits. "The unique housing affordability conditions in today's market underscore the opportunities in giving consumers the necessary incentives to stimulate our economy through a housing recovery," Mr. Yun said.

The Department of Housing and Urban Development has agreed to delay for 90 days the implementation of a RESPA rule that would ban builders from offering discounts to home buyers that use their affiliated mortgage companies. The National Association of Home Builders is trying to overturn the "required use" section of the new Real Estate Settlement Procedures Act rule that was slated to go into effect Jan. 16. The builders have filed a complaint in a U.S. district count in Alexandria, Va., seeking an injunction to block implementation. A HUD spokesman said the department agreed to postpone the effective date so its attorneys "can argue the case on the merits of the issue." NAHB officials could not be reached for comment.

President-elect Barack Obama and vice president-elect Joe Biden want to provide "immediate assistance" for struggling homeowners as part of their economic stimulus plan. They are urging Congress to enact a 90-day moratorium on foreclosures and changes to the bankruptcy code that allow judges to modify mortgages on primary residences. "Obama and Biden are calling for legislation to close the loophole in our bankruptcy code that allows bankruptcy judges to modify the terms of mortgages on investment properties and vacation homes but not on primary residences," according to "The Obama-Biden Plan" that the president elect's transition team provided congressional staffers on Monday. The mortgage industry strongly opposes such changes to the bankruptcy code, claiming it will increase mortgage rates and slow the recovery of the secondary mortgage market. The plan directs the Department of Housing and Urban Development to move "aggressively" in implementing the Hope for Homeowners Program, which uses Federal Housing Administration loans to refinance underwater mortgages. So far, the H4H program has been a flop. But the plan calls for Congress to remove any tax or legal impediments to encourage the use of shared-equity mortgages in H4H refinancings. And it calls for the Treasury Department to use its authority to guarantee newly modified loans. The Obama-Biden Plan is posted on the transition team's website: change.gov.

An accused participant in a mortgage fraud scheme has pled guilty to conspiring to commit mail fraud and wire fraud. Seth Srader entered his plea on Dec. 11, 2008, before U.S. District Judge Keith Ellison. Srader was charged in a mortgage fraud scheme involving the recruitment of individuals to purchase residential properties at or near 100% financing using their good credit. The borrowers were paid from the loan proceeds for their participation in the acquisition of the property. Loan officers at mortgage brokerage offices were utilized to furnish false and fraudulent information to the lenders. Loan proceeds would be disbursed to one or more of the conspirators through checks or wire transfers from the title company to a bank account established in an assumed name. Srader participated in the scheme as a borrower, purchasing two residential properties in the Houston area, borrowing a total of $869,310. Each loan was obtained using false and fraudulent information. The residential loans Srader obtained during the scheme eventually fell into default. Srader has been permitted to remain free on bond pending sentencing, which has been set for March 3, 2009.

The National Association of Realtors is demanding an explanation for Fannie Mae's latest loan fee hike, warning that it could push more borrowers into Federal Housing Administration loans and counter the government's effort to lower the cost of mortgage financing. In a letter to the GSE's regulator, Realtors president Charles McMillan notes that Fannie provided no "justification or even explanation for the increases" even though it is operating in conservatorship and under government control. A Federal Housing Finance Agency spokeswoman said the agency is "reviewing the Realtors' letter." Fannie Mae continues to charge a 25 basis point adverse market fee on all loans. Starting April 1, Fannie Mae is raising its delivery fees on certain cash-out refinancings, two-unit properties, condominiums, interest-only loans and loans with subordinate financing, according to a Dec. 29 letter to its lenders. The standard delivery fee on a mortgage to a borrower with a 670 credit score and a 20% down payment would go up by 75 basis points to 2.5%. "Is the purpose of increasing fees to shift higher risk borrowers to the FHA insurance program? What will the impact of such a move be in terms of risk and cost to the government and the taxpayer?" the NAR letter says.

The Treasury Department used its asset guarantee authority in taking a second-loss position in a $308 billion pool of mortgages to help stabilize Citicorp. But going forward it expects to use asset guarantees "sparingly," it said in a report to Congress. Congress granted Treasury the authority to develop an asset guarantee program as part of the $700 billion Troubled Asset Relief Program. "This [guarantee] program will be applied with extreme discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly. It is not anticipated that the program will be made widely available," the Treasury report said. The report notes that Treasury gets a greater bang for the TARP buck "by taking an early loss position over a narrow interval of losses rather than a late loss position over a larger range of losses." And the department will generally take an early loss position if it uses guarantee powers again, it said.

The Tennessee Commissioner of Commerce and Insurance is now requiring fingerprints from certain license and registration applicants, including mortgage lenders, brokers, servicers and loan originators. According to written analysis from iComply, which is authored and published by a team of mortgage banking attorneys, there must be provisional authorization for mortgage loan originators to conduct business while awaiting registration approval from the commissioner. The requirement became effective on January 1. In other regulatory news, with the start of the new year North Carolina is requiring mortgage servicers to be licensed by the its Commissioner of Banks before acting as a servicer. The bill also changes the "brick-and-mortar" requirements for mortgage brokers to specify that a broker's physical location in North Carolina may not be a home or residence.