Compliance & Regulation

The National Association of Mortgage Brokers on Friday sued the Department of Housing and Urban Development, seeking an injunction to coming changes under the Real Estate Settlement Procedures Act. In an interview with MortgageWire NAMB president Marc Savitt said, "We're asking for an injunction so the rule will not be finalized." NAMB has a number of complaints with the changes proposed by HUD. The new rules -- which go into effect a year from now -- require yield spread premiums to first be disclosed as a borrower paid item and then a broker credit back to the borrower. NAMB believes this will only confuse mortgage applicants and does not create a level playing field because mortgage bankers are not required to disclose servicing and secondary marketing fees paid to them. The trade group also does not like the new three-page good faith estimate (GFE) disclosure form because it is not itemized (as it is now) and quotes the borrower only one figure. Mr. Savitt said his brokerage has been asking customers whether they prefer an itemized explanation of their closing costs, "and all of them told us yes -- that they want to know how we arrived at that number." In a statement, HUD said, "In this housing market, the nation is crying out for reasonable regulation to help families shop for and save money on the largest purchase of their lives. This rule is that reasonable regulation and it helps consumers to avoid getting into trouble in the first place. It's mystifying why anyone would stand in the way of the kind of transparency this rule brings to the marketplace."

After pleading guilty before U.S. District Judge Keith Ellison, Seth Srader has been convicted for participating in a scheme to defraud residential mortgage lenders. According to Tim Johnson, acting U.S. attorney for the Southern District of Texas, Srader was involved in a mortgage fraud scheme where individuals were recruited 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 used to furnish false and fraudulent information to the lenders. Loan proceeds were 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 using false and fraudulent information. The loans Srader obtained, totaling $869,310, eventually fell into default. Srader, one of six people indicted in connection with the scheme, has been permitted to remain free on bond pending sentencing, which has been set for March 3, 2009.

Dorie DiMarca of Andover, Massachusetts, was charged with two counts of wire fraud concerning real estate appraisal services she had performed. According to Thomas P. Colantuono, U.S. attorney for the District of New Hampshire, Ms. DiMarca was arraigned on the charges on Dec. 8, 2008, and entered pleas of not guilty to the charges. The indictment alleges that Ms. DiMarca provided appraisal services to two mortgage brokerage companies located in New Hampshire: New England Regional Mortgage and First Call Mortgage. The indictment further alleges that Ms. DiMarca represented herself as a licensed appraiser when she was not licensed and had no authority to provide real estate appraisals. The indictment lists at least 22 properties in New Hampshire and Massachusetts for which Ms. DiMarca provided a purportedly legitimate appraisal. Ms. DiMarca allegedly e-mailed the appraisals from Massachusetts to the offices in New Hampshire. She was released on bail pending her trial, which is scheduled for Jan. 21, 2009.

Mortgage interest rates of 4.5% will not be enough to lure homebuyers, according to the National Association of Home Builders, which is pushing for a government program to buy down rates to 2.9% and really stimulate sales. "Some of our homebuilding companies have gone out with 4.5% interest rates recently," NAHB chief executive Jerry Howard. "Although there has been an uptick in business, it is not enough to be called an economic stimulus." Congress is expected to pass an economic stimulus package early next year and home builders and a coalition of housing-related industries want the buy-down to be part of the package. With a 2.9% mortgage rate and an expanded homebuyer tax credit, it could help to eliminate the inventory of unsold homes in six to 12 months, Mr. Howard told reporters. NAHB also supports efforts to prevent foreclosures, including the Federal Deposit Insurance Corp. loan modification program. "Foreclosures need to be addressed," Mr. Howard said.

Fannie Mae and Freddie Mac servicers will begin sending thousands of letters of delinquent borrowers this month offering them the chance to sign up for a streamlined loan modification that could reduce their mortgage payments to 38% of gross monthly income. The government sponsored enterprises issued servicer guidelines for the new streamlined modification program (SMP) on Dec.12 and they held a press conference in Washington to kick off the new foreclosure prevention program. "Along with other recently announced initiatives to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component our company's foreclosure prevention efforts," Fannie president and chief executive Herb Allison said. The SMP is available to borrowers who have missed at least three payments on their existing mortgage and have no more than 10% equity in the property. The mortgage interest rate can be reduced to 3% for five years to make the modified loan affordable.

Fannie Mae is tightening its lending standards on condominiums and it is introducing a new project eligibility review service (PERS) for new and newly converted condos that will be mandatory in Florida starting Jan. 15 and optional elsewhere. The delinquency and default rates on condo loans in Florida are "at an all time high," Fannie says in a notice to lenders. And the secondary market agency is reducing the maximum loan-to-value ratios for established condos in Florida when lenders don't use PERS or don't conduct full lender reviews. Use of PERS will cost lenders $30 per unit. Effective immediately, Fannie has eased its owner-occupied requirements for condominiums with bank-owned foreclosed units. Real estate owned units that are for sale (not rented) will be counted in the owner-occupancy ratio. The National Association of Realtors asked for this change. Meanwhile, lenders are bracing for loan buy-backs demands from Fannie and Freddie Mac and the lenders expect to face a lot of buy-backs involving condo loans, a source said.

U.S. District Court Judge Alan Gold sentenced real estate attorney Joseph J. Weisenfeld to 63 months in prison following his guilty plea to charges stemming from Weisenfeld's misappropriation of more than $3 million in client funds purportedly held in escrow for authorized real estate transactions and related expenses. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Weisenfeld, a licensed attorney, represented individuals and/or entities (mostly buyers) in real estate transactions. As the closing agent in many of these transactions, Weisenfeld would collect funds from buyers and lenders, and would represent to the parties engaged in the transaction that these funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. However, he misappropriated the escrowed funds for his use and benefit. Over the course of the scheme, Weisenfeld misappropriated more than $3 million in client funds from his attorney trust account. No fine was imposed and a restitution hearing is scheduled for Jan. 24, 2009.

Gateway Funding Diversified Mortgage Services, Horsham, Pa., has agreed to pay $200,000 to the Federal Trade Commission to settle charges that it engaged in discriminatory lending practices, even though it refutes the allegations. The FTC had originally levied a $2.9 million judgment against the non-bank lender, which was once headed by a top officer of the Mortgage Bankers Association. Gateway had been battling the FTC for three-and-a-half years. The agency alleged that in 2004 and 2005 the lender violated the Equal Credit Opportunity Act. During these two years, Diversified was managed by Regina Lowrie, who served as annual chairman of the Mortgage Bankers Association for 2005/2006. The FTC alleged that Gateway allowed its loan officers to charge overages that resulted in African-Americans and Hispanic applicants paying higher fees and interest rates than whites. But Gateway president and chief executive Bruno Pasceri says the company uses the term overage in an unusual way and it does not mean loan officers can charge overages. "We tried to explain," he said. "But they could not get their heads around that we don't operate like other people." FTC began its investigation in 2005 when Ms. Lowrie was president and CEO of Gateway and MBA chairman. She could not be reached for comment. She left Gateway about two years ago. "We do not discriminate," Mr. Pasceri said. "The only we reason we agreed to settle is because the legal fees are destroying us. Our legal bills were $100,000 a month," he added.

Ginnie Mae officials expect to guarantee $300 billion to $325 billion in mortgage-backed securities in fiscal year 2009, up from $220 billion in FY 2008 (which ended Sept. 30). "We are looking at another significant growth year," said Ginnie president Joseph Murin. He told reporters that some of agency's biggest issuers expect to securitize 40% to 50% of their mortgage production through Ginnie Mae. Ginnie Mae topped Fannie Mae and Freddie Mac in MBS issuance in October and November. Mr. Murin said Ginnie issuance in December will probably be somewhere between $27 billion and $29 billion.

The Federal Open Market Committee said in a statement accompanying its decision to drop the fed funds target range to a record low rate of zero to 0.25% that it "stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." The FOMC said it "will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," including expanding the aforementioned agency program beyond its existing commitment to purchase $500 billion in MBS and $100 billion in debt. The committee said that it "anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time" and that it also is "evaluating the potential benefits of purchasing longer-term Treasury securities."