Compliance & Regulation

Three Republican hardliners on GSE reform will not be returning to the Senate Banking Committee in January, and the panel could have a new chairman in the wake of Democrats winning the White House and larger majorities in the House and Senate. During their terms Republican senators John Sununu (N.H.), Elizabeth Dole (N.C.), and Chuck Hagel (Neb.) co-sponsored several bills to tighten regulation of Fannie Mae and Freddie Mac but their efforts did not garner much Democratic support. Sens. Sununu and Dole lost their re-election fights on Tuesday and Sen. Hagel did not run for another term. Ms. Dole also was a booster of the mortgage insurance industry. (Four of the nation's seven MIs are based in North Carolina.) Next year, the Banking Committee may consider legislation to restructure the two GSEs, which were taken over by the government on Sept. 7 and placed into separate conservatorships. Meanwhile, committee chairman Christopher Dodd (D-Conn.) could have an opportunity to chair the Senate Foreign Relations Committee with the election of Sen. Joe Biden (D-Del.) as vice president. The second ranking Democrat on the Banking Committee is Sen. Tim Johnson (S.D.) who just won re-election.

TCF Financial, the banking parent of a mid-sized residential servicing company, has received preliminary approval from the Treasury Department to participate in the agency's capital purchase program. In a statement, TCF of Wayzata, Minn., said the government will buy $361 million worth of preferred stock in the depository and receive a warrant to buy 3.2 million shares of its common. At mid-year, the bank's subsidiary, TCF Mortgage of Minneapolis, ranked 54 among residential servicers with $6.7 billion in housing receivables, according to the Quarterly Data Report. The capital purchase effort is part of the government's new Troubled Asset Relief Program, legislated into law by the Emergency Economic Stabilization Act.

Despite weaker loan demand, about 80% of the largest banks and 55% of smaller banks tightened their lending standards on prime single-family loans during the third quarter, according to a Federal Reserve Board survey of senior loan officers. More than 70% of 52 respondent banks said they tightened the underwriting standards on prime loans even though 25 of the respondents reported "moderately weaker" demand for loans and five banks reported "substantially weaker" demand, according to the October survey. In the July survey, 75% of the banks said they had tightened their prime lending standards during the previous three months. The 52 banks in the latest survey held 78% of all residential mortgage loans in the commercial banking system. Almost all (90%) of the 29 banks that originate nontraditional mortgages said they tightened their lending standards. And all four respondent banks that originate subprime loans tightened too. Meanwhile, 85% of the participating banks that originate commercial real estate loans have tightened their lending standards during the third quarter.

The Department of Housing and Urban Development said general counsel Robert Couch is leaving the department and appointed Michael Flynn to be the acting general counsel. Mr. Flynn is a career attorney at HUD who previously served as general deputy general counsel. Mr. Couch became HUD general counsel in June 2007. A former Alabama thrift executive, he was elected chairman of the Mortgage Bankers Association in 2003 and was confirmed by the Senate to be president of Ginnie Mae in June 2006.

The serious delinquency rate on FHA single-family loans rose 31 basis points to 6.91% during fiscal year 2008 (which ended Sept. 30), according to Federal Housing Administration data. The increase occurred despite FHA adding 780,000 mortgages to its insured portfolio. The federal mortgage insurance agency ended FY 2007 with 6.60% of its loans 90 days or more past due. But FHA experienced a surge in mortgage originations during FY 2008 and its insured portfolio increased by 22% to 4.3 million single-family loans. In normal times, this influx of new loans would have driven the serious delinquency rate down. However, FHA borrowers are facing tough times and one-third of FHA foreclosed properties are in Ohio and Michigan, which are suffering from a prolonged economic downturn and loss of jobs. Agency officials also note that FHA loans with down payment assistance provided by nonprofits have a default rate three times higher than other FHA loans. And the performance of those loans will be a "drag" on the FHA insurance fund for the next three to five years, officials at FHA said. Congress passed a ban on DPA on FHA loans that went into effect Oct. 1. But DPA still accounted for 30,900 of the 150,000 FHA loans closed in September.

Federal Reserve Board chairman Ben Bernanke has laid out several options for Congress to consider in restructuring Fannie Mae and Freddie Mac but warns that some form of government backing for mortgage securitizations will be needed even if the two are privatized. "If the GSEs were privatized, it would seem advisable to retain some means of providing government support to the mortgage securitization process during times of turmoil," the Fed chief said. He suggested that a FDIC-type agency could provide bond insurance for mortgage-backed securities. GSEs could have closer ties to the U.S. government, he said, and be operated as public utilities with shareholders, or adopt a cooperative ownership structure like the Federal Home Loan Banks. But the Fed chairman does not see much of a role for covered bonds in the future. "Given the long-standing features of the U.S. system, such as the prominent role of the Federal Home Loan Banks, covered bonds may remain an unattractive option for U.S. banks," he said, speaking at a University of California mortgage meltdown symposium.

A group of credit unions calling themselves the Credit Union Housing Roundtable is calling on their regulator, the National Credit Union Administration, to make $1 billion of low-cost loans available to help consumers refinance troubled mortgage loans. The proposal comes as banking regulators are preparing a plan to fund mortgage refinancings through banks for millions of homeowners facing foreclosure or in delinquency on their home loans. "We think that credit unions are in a position to help and we ought to be able to create our own version that is not going to be at the taxpayers' expense," said Gary Oakland, president of BECU (formerly Boeing Employees CU), one of the organizers of the group. --Credit Union Journal

House Financial Services Committee chairman Barney Frank, D-Mass., has scheduled hearings for Nov. 12 and 18 on the implementation of the $700 billion Troubled Asset Relief Program and other initiatives under taken by Treasury, Federal Reserve and FDIC in response to the credit crisis. "We have three primary areas of interest. First the effort to recapitalize financial institutions. Second, the effort to reduce volatility and restore liquidity to financial markets. Third, the effort to reduce foreclosures and mitigate the erosion of housing values, which were and remain, the epicenter of the current economic crisis," Rep. Frank said. Congress is expected to return to Washington after the November elections for a lame duck session. Democratic leaders are hoping to pass another economic stimulus bill that could be a vehicle for giving the agencies more flexibility in administering TARP and foreclosure prevention programs, such as the Federal Housing Administration's Hope for Homeowners program. The Realtors and home builders also want Congress to enhance the homebuyer tax credit to spur more home sales and make the Fannie Mae, Freddie Mac and FHA maximum $729,750 loan limit permanent.

The White House is reviewing several foreclosure prevention programs but is not ready to endorse a new loan modification program that the Treasury Department and the FDIC are working on. "We're doing an analysis right now on several different ideas" to help more homeowners, said the President's press secretary Dana Perino. During a press briefing she said the White House is willing to consider the FDIC proposal, which involves guarantees to increase loan modifications. She said the Administration wants any program to strike a balance in terms of effectiveness, fairness and protecting the taxpayer. After her remarks, Senate Banking Committee chairman Christopher Dodd, D-Conn., sent a letter to President Bush urging him endorse the FDIC proposal and direct Treasury to create the new program. The program is needed to "address the exploding foreclosure crisis" and the country cannot afford "further delay," Sen. Dodd says in the letter, which was signed by eight other committee Democrats.

Suffering from decimated home values and a lack of customers -- not to mention no secondary market for non-prime -- mortgage bankers saw their loan volumes fall by 9% in the third quarter, according to preliminary survey figures compiled by National Mortgage News. The results are based on survey figures filed by ten firms, none of which are top ten lenders. However, the results show one intriguing trend: some lenders are posting gains in wholesale or correspondent production -- a likely response to all the companies that have left those channels. (For the full story and the rankings see the Monday edition of NMN.)