Compliance & Regulation

Citing "recent industry and market conditions, Ginnie Mae said it will raise the bar for issuers of its mortgage-backed securities. In a memo to lenders dated Friday, Michael J. Frenz, an executive vice president at Ginnie, said that by Oct. 1 of 2010 all issuers of its single-family MBS must have a net worth of at least $1 million, quadruple the current requirement for most single-family issuers and double that for reverse mortgage lenders. In addition, beginning Oct. 1 all new issuers will be subject to a one-year probationary period beginning with the first MBS issuance or acquisition of servicing rights on a Ginnie pool. During this period, Ginnie will keep close tabs on performance measures like delinquencies and early payment defaults, and it will conduct an onsite review of the issuer within the first six months.

The Department of Housing and Urban Development is very close to finalizing guidelines for the Hope for Homeowners program that will allow second lienholders on restructured loans to share in future appreciation of the property, according to a Federal Housing Administration official. "This would be the one method" that the board overseeing the Hope program "can use to entice those subordinated lienholders to participate in the program," FHA director for single-family program development Meg Burns told a Mortgage Bankers Association compliance conference. "So we are looking at that particular feature and planning to share that appreciation with the existing subordinated lienholders." The foreclosure prevention program is targeted at rescuing borrowers with underwater mortgages. All subordinate liens much be extinguished before the homeowner is refinanced into a new FHA-insured mortgage with a 90% loan-to-value ratio. In a successful restructuring, HUD and the homeowner would split any appreciation 50-50 if the property is sold after five years. The Hope board still has to decide how much should be shared with second lienholders. However, the 10% equity cushion that is created by the writedown (to a 90% LTV ratio) cannot be shared with a second lienholder, Ms. Burns said.

Department of Housing and Urban Development officials have refused to testify before a House Financial Services subcommittee and defend its RESPA rule before congressional and industry critics who want to kill the rule. HUD told subcommittee Chairman Mel Watt, D-N.C., that they should not comment about the Real Estate Settlement Procedures Act rule while it is under review at the Office of Management and Budget. Rep. Watt said at the hearing that he was disappointed that HUD Secretary Steve Preston did not show up. "I though it would be fun to see a bipartisan pummeling of a federal government agency and a spirited defense," he said. Federal Reserve Board officials also declined to testify, "citing a reluctance to be critical of another federal agency," Rep. Watt said. Congressional critics have urged HUD to withdraw the RESPA rule and work with Federal Reserve staff in developing more simplified mortgage and real estate settlement cost disclosure forms. Fed staffers have also urged HUD to take a more coordinated approach in revamping the consumer disclosures. But HUD ignored the Fed and sent the final RESPA rule to the OMB on Aug. 21. Meanwhile, Rep. Judy Biggert, R-Ill., said she expects to get over 200 fellow members of Congress to sign a "dear colleague" letter that urges the OMB to postpone final approval of the RESPA rule until HUD holds public hearings on it.

Lenders originated $156.5 billion in FHA single-family loans in the first 11 months of fiscal year 2008, nearly triple the total for all of fiscal 2007, according to Department of Housing and Urban Development data. The HUD numbers show that FHA loan production accelerated in the spring and the summer. In July and August, lenders originated $47.9 billion in FHA loans, nearly topping the $54.3 billion originated over the previous three months. The FHA surge is also boosting the issuance of Ginnie Mae mortgage-backed securities. In July, Ginnie's single-family MBS issuance totaled $25.8 billion, which exceeded Freddie Mac's MBS issuance by $4 billion. In August, FHA lenders originated $24.4 billion in single-family loans and Ginnie guaranteed $28.8 billion in MBS. The Department of Veterans Affairs guarantee loan program is also kicking in. Lenders originated $8.2 billion in VA loans in July and August, compared with $10.4 during the previous three months.

Loan modifications by banks and thrifts rose substantially in the second quarter, but delinquency and default rates also increased, according to data compiled by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Combining their data for the first time, the OCC and the OTS said new loan modifications by banks and thrifts increased by 56% from the first to the second quarter of this year. Repayment plans on home loans serviced by banks and thrifts also increased, but by just 8%. All told, banks and thrifts servicing nearly 35 million home loans engaged in some form of loss mitigation on 208,250 mortgage loans in the first quarter and 252,508 loans in the second quarter. Of the total, 92.6% of the loans were performing, down from 93.4% in the first quarter. The share of loans in foreclosure rose from 1.4% in the first quarter to 1.6% in the second.

Late next month the Federal Deposit Insurance Corp. will accept bids for $360 million in performing commercial real estate loans owned by IndyMac Bank, Pasadena, Calif. The portfolio is being marketed for the agency by First Financial Network Inc., Oklahoma City. As reported by MortgageWire on Sept. 8, bids are due on most of IndyMac's other assets, including its residential servicing franchise. Buyers can buy the whole company or pieces of it. The commercial real estate loan portfolio is being marketed separately, with bids due Oct. 21. FDIC and FFN officials did not respond to telephone calls about the auctions by MW's deadline. The commercial portfolio is being stratified into pools based on collateral and geographic location. The loans are backed by properties in California, Texas, Ohio, Washington, Arizona, and Georgia, according to a statement released by FFN.

The House Financial Services Committee is slated to mark up a bill Sept. 16 that would give the Federal Housing Administration some latitude to price mortgage insurance premiums based on risk and allow nonprofit housing groups to continue to arrange downpayment assistance on FHA loans. The bill (H.R. 6694) would reverse provisions in a major housing bill Congress passed this summer that bans seller-funded downpayment assistance on FHA loans starting Oct 1 and bars the FHA from using risk-based pricing for 12 months. The Department of Housing and Urban Development says it has "deep reservations" about the bill even though the FHA has been seeking congressional authorization for risk-based pricing for several years. On Tuesday morning, a HUD official is scheduled to testify before a House Financial Services subcommittee on its Real Estate Settlement Procedures Act reform proposal, which many in Congress and the housing industry want HUD to withdraw. HUD Secretary Steve Preston continues to insist, however, that the department will issue a final RESPA rule that will provide homebuyers with a "clear and understandable" disclosure of their mortgage terms and costs.

Four Democratic senators are calling on Fannie Mae's and Freddie Mac's new chief executives to declare a moratorium of at least 90 days on all foreclosure proceedings and urging them to establish aggressive loan modification programs now that the two mortgage giants have been placed in conservatorship. "This action would provide immediate relief for many homeowners and, as importantly, give each GSE a further opportunity to turn these non-performing loans into performing assets to minimize losses," the senators say in a letter to Fannie CEO Herb Allison and Freddie CEO David Moffett. Sens. Charles E. Schumer (N.Y), Robert Menendez (N.J), Sherrod Brown (Ohio), and Robert P. Casey Jr. (Pa.) also addressed the letter to Federal Housing Finance Agency Director James Lockhart, the government-sponsored enterprise regulator who is overseeing the conservatorships. The four Senate Banking Committee members argued that Fannie's policy of allowing modifications only after a loan is 120 days delinquent is counterproductive. "Though [Fannie's] introduction of the HomeSaver program has brought some relief, a true loan modification remains far more preferable to an additional loan to a delinquent borrower," the Sept. 11 letter says.

Demand for federal rural development single-family loans has doubled this fiscal year to $6.1 billion, and agency officials estimate that the rural housing program could guarantee $10 billion in loans in fiscal 2009 if Congress approves additional support for the program. "We are bolstering the market and providing support the way government should during hard times," said Joaquin Tremolf, single-family director of the U.S. Department of Agriculture's Rural Development agency. The rural housing program provides no-downpayment loans for low- and moderate-income homebuyers in rural areas. "It is the only no-downpayment program left for nonveterans," Mr. Tremolf said. However, the agency has strict underwriting standards, and it reviews "every single appraisal" before approving a loan, the director said. The foreclosure rate on rural housing loans was 1.4% as of June 30, compared with 2.3% for Federal Housing Administration single-family loans.

Supporters of the controversial seller-funded downpayment assistance program rallied in Washington on Wednesday, calling on Congress to pass a bill that would save DPA from being eliminated Oct. 1. The Oct. 1 ban -- signed into law July 30 as part of the Housing and Economic Recovery Act of 2008 -- has mobilized community activists who say it will disproportionately affect minorities, especially first-time homebuyers and female-headed households. A recent analysis by Washington-based Matrix Global Advisors of government data on FHA-insured loans found that over 40% of African-Americans who receive FHA loans, and 27% of Hispanics, rely on seller-funded DPA. According to Scott Syphax, president and chief executive of DPA pioneer Nehemiah Corporation of America, 90% of the 300,000 families Nehemiah has directly served have not faced foreclosure. While stressing that roughly 40% of Nehemiah clients have been minorities, he called on the administration to right a wrong "by supporting H.R. 6694 and reinstating DPA indefinitely."