Compliance & Regulation

Beazer Homes USA Inc., Atlanta, has announced a settlement with the Securities and Exchange Commission under which it agrees, without admitting wrongdoing, to comply with certain securities laws and regulations. Beazer said it consented to a cease-and-desist order in connection with matters that were the subject of a previous investigation by the company's audit committee. The settlement, which does not impose a monetary penalty, concludes the SEC's probe of the matters and was accepted by the agency in view of remediation efforts and cooperation by the company, Beazer said. Beazer and its subsidiary Beazer Mortgage Corp. are still under investigation by state and federal agencies regarding matters that were the subject of the audit committee probe, the company said.

Some 302,593 mortgages backed by Fannie Mae and Freddie Mac (1% of all the notes they guarantee) are 90 days or more past due, placing them in the "seriously delinquent" category. According to new figures released by the Federal Housing Finance Agency, Fannie and Freddie together have 30.4 million loans in their guarantee portfolio. In testimony Thursday before the House Financial Services Committee, Freddie Mac's new chief executive, David Moffett, said his company has increased the financial incentive it pays seller/servicers to participate in a new Mass Modification program for troubled borrowers. Mr. Moffett maintains that the company will help 82,000 borrowers avoid foreclosure this year.

The 7th Circuit Court of Appeals has struck down the class certification in a closely watched lawsuit by a Wisconsin couple who maintained that they didn't understand the initial 1.95% teaser rate was only for one month when they took out a payment-option adjustable-rate mortgage from Chevy Chase Bank. A U.S. district court judge ruled in favor of Bryan and Susan Andrews in their request to rescind the loan under the Truth in Lending Act and certified a class action lawsuit. But circuit judges reversed the class certification and said the right of rescission is an individual remedy and that Congress did not intend to leave lenders exposed to class actions costing hundreds of millions of dollars. "Using a class action to resolve a multitude of individual, varied rescission claims is neither 'economical' nor 'efficient' in any sense of those terms," the opinion says.

The Bush administration is willing to accept some limits on executive compensation paid by firms that sell troubled mortgage assets to the government, according to Treasury Secretary Henry Paulson. In trying to sell his $700 billion troubled-asset purchase program, the Treasury secretary has run into criticism from Democratic and Republican lawmakers about bailing out firms that have rewarded their executives for taking excessive risks with bonuses and severance packages. The secretary told the House Financial Services Committee that he is willing to consider compensation limits if they are fashioned in a way that does not discourage participation in the program. He noted that community banks and credit unions, not just Wall Street firms, will be encouraged to participate. The latest House Democratic legislative draft calls for a prohibition on "golden parachutes" for two years. The Democratic draft also allows distressed homebuyers to seek relief in the bankruptcy courts -- despite strong opposition from the financial services industry.

House and Senate Democrats have agreed on most details of a $700 billion bailout plan for the credit and mortgage industries, including a provision that will allow bankruptcy judges to reduce ("cram down") the outstanding balance on troubled mortgages. The cramdown proposal is vehemently opposed by the mortgage banking industry. As of MortgageWire's deadline, Democrats were meeting with Republicans on the legislation. Among other things, the Democratic version of the bill would allow the Treasury to spend an unspecified portion of the money prior to going before an oversight board for further spending allowances. The money will be used to buy troubled mortgage-backed securities from financial service companies (including depositories) of all sizes. Republicans and the White House support Democratic language that would limit compensation for executives whose firms sell into the program.

Interthinx, a provider of risk mitigation and regulatory compliance tools based in Agoura Hills, Calif., is touting the loan-level identity component of its FraudGuard tool to help mortgage lenders comply with so-called red-flag rules that take effect Nov. 1. The Fair and Accurate Credit Transactions Act requires banks to develop policies (consistent with Customer Information Program rules) to identify potential identity theft. FraudGuard uses public and proprietary data to generate more than 45 alerts that help lenders comply with the red-flag rules, the company said. "Creditors and financial institutions are obligated to implement a written program that would satisfy the requirements to detect, prevent, and mitigate identity theft," said Kevin Coop, president of Interthinx. "FraudGuard provides a multitude of critical alerts to support compliance in areas such as Social Security numbers issued prior to date of birth of borrower, invalid phone numbers, and inconsistent personal identification information." The company can be found online at http://www.interthinx.com.

In a battle that has national implications, a Miami Beach city commissioner is taking on condominium lenders in Florida who don't pay what he says is their fair share of condo assessments. Jerry Libbin has formed a coalition of unit owners to lobby state legislators to force banks to pay the full assessment on units that have been taken back from borrowers. Under current law, lenders need pay only 1% of the normal fee once they foreclose on a unit. But Mr. Libbin says some banks don't even do that, and many associations have to sue lenders to recover their unpaid assessments and late fees. Worse, the Miami Beach commissioner maintains, other owners are forced to pay more than they otherwise would so they can maintain their buildings. "Banks are taking unfair advantage of condo owners who have done absolutely nothing wrong," he said. "We must stop this vicious cycle." With 23,631 associations governing a total of 1.4 million units, according to the state's business department, Florida has perhaps the greatest concentration of condos in the country. In Miami-Dade County alone, there are 4,045 buildings with 242,352 units.

Fannie Mae and Freddie Mac will fall short of their affordable housing goals by a large margin in 2008, according to the Federal Housing Finance Agency, which has asked the government-sponsored enterprises to draw up their own AH goals for 2009. FHFA Director James Lockhart indicated that the affordable housing goals developed by the Department of Housing and Urban Development in 2004 are too ambitious in view of today's market conditions. "With the enterprises now in conservatorships, even if some or all of the goals are found to be unattainable, I will expect each enterprise to develop and implement ambitious plans to support the borrowers and markets targeted by the goals," Mr. Lockhart told the Senate Banking Committee. The FHFA director also noted that his agency is preparing regulations so the Federal Home Loans Banks can use their affordable housing funds to restructure underwater mortgages for borrowers that qualify under a Federal Housing Administration refinancing program called Hope for Homeowners. "FHFA plans to have the regulation in place by Oct.1," he testified.

The Federal Housing Administration is warning its lenders not to finance "buy-and-bail" transactions in which the borrowers are planning to default on their old mortgage as soon as they move into their new home. These borrowers generally tell lenders that they are planning to rent their current home after they move into a less expensive house. To stop this "unscrupulous practice," the FHA says it is temporarily changing its underwriting guidance to ensure that the borrower can make payments on both mortgages without relying on rental income. The underwriting analysis "may not consider any rental income from the property," the FHA says in a mortgagee letter, unless the borrower has a loan-to-value ratio of 75% or less. Fannie Mae has instituted a similar buy-and-bail policy.

Despite Bush administration objections, congressional Democratic leaders are planning to require financial services firms that sell distressed mortgage assets to the Treasury Department to restrict executive compensation. House Financial Services Committee Chairman Barney Frank, D-Mass., also said Democrats feel "strongly" about a provision that would allow bankruptcy judges to restructure mortgages. He said the bankruptcy provision would provide relief for distressed homeowners whose mortgages are not purchased by the Treasury. Mr. Frank said House and Senate leaders are "very close" to agreeing on a bill that would allow Treasury to purchase up to $700 billion in illiquid mortgages. Once congressional leaders agree on a bill, they will begin negotiations with the administration, the chairman said. Separately, 35 consumer, labor, and civil rights groups said they "strongly" back the bankruptcy provision. "We cannot support legislation that fails to help millions of families in danger of losing their homes, while spending hundreds of billions of dollars of taxpayer money to bail out those who caused the problem," the groups said in a letter to Congress.