Compliance & Regulation

Sen. Dick Durbin, D-Ill., has expanded his bankruptcy reform bill so that servicers are required to use the FHA Hope for Homeowners program for qualified borrowers. "Virtually every economist agrees that the financial crisis will not diminish, and the economy will not begin to recover, until we address the root cause of the problem: the failed mortgage market," Sen. Durbin said. Congress created the Federal Housing Administration's Hope for Homeowners program to "encourage" servicers to write down the loan amount on underwater mortgages and refinance borrowers into affordable FHA loans. But the Senate majority whip wants to make it mandatory and require servicers to survey their portfolios for delinquent loans that could be restructured through the Hope for Homeowners program. For banks receiving capital injections from the Treasury Department, the Durbin bill would prohibit an increase in dividends and reduce dividends by the amount of compensation paid to the top five executives in excess of $500,000. Like the original bill, the new bill allows bankruptcy judges to modify mortgages on primary residences. The mortgage industry strongly opposes such bankruptcy "cramdowns." Sen. Durbin called the bill a "marker for future action" that he wants to pass next year.

Sen. Dick Durbin, D-Ill., has expanded his bankruptcy reform bill so that servicers are required to use the FHA Hope for Homeowners program for qualified borrowers. "Virtually every economist agrees that the financial crisis will not diminish, and the economy will not begin to recover, until we address the root cause of the problem: the failed mortgage market," Sen. Durbin said. Congress created the Federal Housing Administration's Hope program to "encourage" servicers to write down the loan amount on underwater mortgages and refinance borrowers into affordable FHA loans. But the Senate majority whip wants to make it mandatory and require servicers to survey their portfolios for delinquent loans that could be restructured through the Hope program. For banks receiving capital injections from the Treasury Department, the Durbin bill would prohibit an increase in dividends and reduce dividends by the amount of compensation paid to the top five executives in excess of $500,000. Like the original bill, the new bill allows bankruptcy judges to modify mortgages on primary residences. The mortgage industry strongly opposes such bankruptcy "cram downs." Sen. Durbin called the bill a "marker for future action" that he wants to pass next year.

Fannie Mae has priced two respective $1 billion reopenings of three- and five-year Benchmark Notes in what has been a challenging market for agency debt. It priced its three-year, $1 billion reopening of 3.625% Benchmark Notes (CUSIP 31398ATL6) at 101.766 to yield 2.948% and its five-year $1 billion 3.875% reopening (CUSIP 31398ASD5) at 101.206 to yield 3.590%. Freddie Mac has said it will not issue any of its equivalent Reference Note securities during November.

Anthony Affatati of Parkland, Florida, pleaded guilty to charges related to two separate fraud schemes, one of them a multi-million dollar mortgage fraud scheme. According to documents filed with the court and statements made during the plea, Affatati became involved in mortgage fraud and purchased his Parkland home through a straw buyer who provided false financial information to the mortgage lender to secure the loan on Affatati's behalf. In a separate case, Affatati also pleaded guilty to conspiracy to sell fraudulent securities to the public. Sentencing has been set for Jan. 8, 2009.

Riccardo White pleaded guilty in federal court in White Plains, N.Y., to charges relating to his participation in a scheme to defraud homeowners in the New York metropolitan area and mortgage brokers across the country. According to Michael J. Garcia, U.S. attorney for the Southern District of New York, White and his co-conspirators engaged in a scheme to defraud homeowners around the New York metropolitan area through misrepresenting the terms of mortgages. White contacted homeowners and offered them mortgages with low interest rates and attractive rate caps. The terms of the mortgages obtained by homeowners from White and his co-conspirators were materially different from those White and his co-conspirators offered. The loss to the homeowners defrauded by the scheme was more than $1.3 million. White also participated in a scheme to defraud residential mortgage brokers throughout the country. He and his co-conspirators contacted residential mortgage brokers and sold them lists of names containing individuals purportedly interested in obtaining mortgages, as well as services associated with those lists. In actuality, the lists that they provided to the mortgage brokers were not lists of people interested in obtaining mortgages and the services the defendants promised to provide were not provided. The loss to the residential mortgage brokers defrauded by the scheme was more than $350,000. White is scheduled for sentencing on April 3, 2009.

August Blass, a former wholesale mortgage executive, has started a company that will provide quality control, risk assessment, and fraud prevention services to banks and lenders. The Walnut Creek, Calif., company, National Loan Auditors Inc., said Monday that it will "assist loan modification professionals, review loan documents for errors or misrepresentations and help in reducing the high foreclosure rates that have overcome the real estate market." Mr. Blass is a former Western regional correspondent manager for Wholesale Lending Online in Millbrae, Calif. In the 1990s he wrote "Internet Strategies for the Mortgage Banking Industry," published by Faulkner & Gray, which is now part of NMN's publisher SourceMedia Inc. "There is a need in the current market to provide an in-depth look at loan portfolios and financial documents to find potential errors and expose hidden liabilities," Mr. Blass said in a press release Monday. National Loan Auditors "will help financial institutions save millions in foreclosure dollars by providing them with an accurate report of which loans present the most risk."

The Federal Housing Finance Agency said Monday that the combined debt of Fannie Mae, Freddie Mac, and the Federal Home Loan banks was $6.8 trillion at the end of September, exceeding the total publicly held debt of the United States by $1 trillion. As of June, the GSEs' combined debt and obligations totaled $6.6 trillion, exceeding the publicly held debt of the United States by $1.3 trillion. The FHFA also said Monday it has "successfully integrated" the Federal Housing Finance Board, the Office of Federal Housing Enterprise Oversight, and staff from the Department of Housing and Urban Development in less than 90 days. In a 180-page performance and accountability report, the agency, created in July by the Housing and Economic Recovery Act, said an independent outside audit "found no material weaknesses" in the Finance Board's internal control structure. The report included a system wide analysis of the 12 Home Loan banks' purchases and management of mortgage-backed securities. The FHFA said in the report that OFHEO "substantially achieved" its major performance goals for the fiscal year, which ended Sept. 30, with its primary duty ensuring the safety and soundness of Fannie and Freddie Mac.

The National Association of Mortgage Brokers has vowed to pull out all the stops in an effort to kill the final rule implementing changes in the Real Estate Settlement and Procedures Act. "We are not going to stand for this," President Marc Savitt said at the NAMB West regional conference in Las Vegas. The West Virginia broker wouldn't reveal the group's exact strategy but said "nothing is off the table," including legal action against the Department of Housing and Urban Development. "We have several ideas up our sleeves but we'll wait for the new administration to take over before we do anything," Mr. Savitt said. NAMB has numerous issues with the new RESPA regulations, but its main complaint is the method HUD has chosen to disclose yield spread premiums - first as a borrower paid item and then as a broker credit back to the borrower. "We thought that dog was dead but it came back to life," Mr. Savitt said, referring to the fact that the disclosure plan first surfaced in 2002. The final RESPA rule takes effect Jan. 1, 2010.

The Federal Home Loan Bank of Chicago posted a $33 million profit in the third quarter after taking $142 million in losses over the previous two quarters. The FHLBank attributed the improved performance to a $29 million increase in net interest income and hedging/derivative gains of $18 million. But it also took a $9 million charge on its investments in private label mortgage-backed securities. Despite the turnaround, the bank said it does not expect to resume paying dividends this year. Separately, the FHLBank System Office of Finance said the Seattle FHLBank has not filed its third quarter financial report yet because it is still completing an "other-than-temporary impairment" analysis for certain investments. As a result, there will be a delay in publishing the combined financial report of the 12 FHLBanks, the Office of Finance said.

House Democrats are accusing the Treasury Department of "abandoning" Congress' mandate to use part of the $700 billion Troubled Asset Relief Program funds to prevent foreclosures and brushing aside an FDIC program that would use federal loan guarantees to facilitate loan modifications. Treasury Secretary Henry Paulson told a House panel that he continues to look for a TARP foreclosure prevention program that "strikes the right balance" between protecting taxpayers and being effective. Federal Reserve Board Chairman Ben Bernanke testified that the Federal Deposit Insurance Corp. has developed a "very promising approach." However, he has concerns that the "government might be liable for $100,000" in some modifications if a homeowner with large negative equity simply abandons the property. Secretary Paulson noted that Fannie Mae, Freddie Mac and the Hope Now servicers have adopted a streamlined loan modification approach modeled after the FDIC program. But House Financial Services Committee chairman Barney Frank, D-Mass., argued that such initiatives are not a "substitute" for developing a TARP foreclosure reduction program.