Compliance & Regulation

Nehemiah Corporation of America, Sacramento, Calif., has announced the launch of DPAGroundSwell.org, a Web-based community aimed at mobilizing industry opposition to the ban on seller-funded downpayment assistance. The site will provide a central information hub to fight the ban, which was written into law with the signing of H.R. 3221 Housing and Economic Recovery Act of 2008. "Since the passage of the housing bill, we have been contacted by families, industry groups, and individuals voicing concern about the long-term impact of this ban on themselves and their communities," said Scott Syphax, president and CEO of Nehemiah. "When the bill passed, we pledged to continue to fight for these programs, and DPAGroundSwell.org is an important tool that will enable us to harness the swell of industry dissent against the ban by empowering individuals at all levels to influence public-policy decisions." The new site can be found online at http://www.dpagroundswell.org.

JPMorgan Chase has warned in a Securities and Exchange Commission filing that trading conditions "have substantially deteriorated" in the third quarter, affecting spreads on mortgage-backed securities and loans. These spreads have "sharply widened, causing the company to incur losses (net of hedges) of approximately $1.5 billion for the quarter to date," according to a company 10-Q report filed Aug. 11. "The firm's current expectations are for the global and U.S. economic environments to continue to be weak, for capital markets to remain under stress and for a continued decline in U.S. housing prices," JPMorgan Chase said. JPMorgan Chase can be found on the Internet at http://www.jpmorganchase.com.

Only 32% of 50 banks in a Federal Reserve Board survey said they have securitized or sold "conforming jumbo" mortgages to Fannie Mae or Freddie Mac in the past three months. But 44% of the banks expect to securitize or sell jumbo loans to the government-sponsored enterprises over the next six months, according to the Fed's July survey of senior loan officers. Congress raised the maximum loan limit for the GSEs from $417,000 to $729,050 in high-cost areas as part of an economic stimulus package President Bush signed into law Feb. 13. The two GSEs began purchasing jumbos in April and, according to securities filings, Fannie purchased $947 million in jumbos in the second quarter and Freddie $471 million. In its 10-Q filing, Freddie said it does "not anticipate purchasing material amounts of conforming jumbo product in 2008," due to increased competition, especially from the Federal Housing Administration. The Fed's survey also found that 75% of domestic banks tightened their lending standards on prime mortgages -- up from 60% in the April survey. And 80% of respondent banks tightened their standards for approving applications for home equity lines of credit.

An attorney who spoke at the Western States Loan Servicing Conference in Las Vegas predicts that the Federal Trade Commission will produce a "significant enforcement action" involving a major mortgage servicer within the next several months. Anand Raman, a partner at Skadden, Arps, Slate, Meagher & Flom, said the FTC has broad authority to scrutinize loan servicing practices under its broad authority to address "unfair and deceptive trade practices," and that even practices that are not "manifestly illegal" may get servicers into trouble. Issues the FTC and other regulatory agencies are likely to investigate include internal documentation, monthly billing statement information, and customer service, he said, noting that regulators are under political pressure to get tough with the mortgage industry. "There is a lot of pressure to bring home scalps," Mr. Raman said during a panel session at the conference, which was sponsored by the California Mortgage Bankers Association. "Unfortunately, those servicers that are not operating at a best-practices level make easy targets."

Over 240 members of Congress are urging the Department of Housing and Urban Development to withdraw a proposed RESPA rule and undertake a joint rulemaking effort with the Federal Reserve Board to improve mortgage disclosures. The 243 lawmakers signed a letter circulated by Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., that says HUD's Real Estate Settlement Procedures Act proposal fails to improve and simplify disclosures of mortgage terms and settlement costs. "We are profoundly concerned that HUD's proposed RESPA rule will hinder rather than help the recovery of the housing market," says the letter to HUD Secretary Steve Preston. Over a dozen housing groups lobbied members of Congress to sign the letter, which was circulated a few weeks ago. "When an overwhelming bipartisan majority in the U.S. House of Representatives asks you to withdraw your rule, it's time to listen to your critics and go back to the drawing board," said Kurt Pfotenhauer, executive vice president of the American Land Title Association. Earlier this year, when HUD first issued the RESPA proposal, the industry groups succeeded in getting 140 members of Congress to sign a petition requesting a 60-day extension of the public comment period. HUD agreed to a 30-day extension.

LIUNA is calling on Fannie Mae and Freddie Mac to exercise greater scrutiny of mortgages originated by corporate homebuilders, saying the economy faces a ticking time bomb set to go off in 2010 when five-year adjustable-rate mortgages start resetting. In a new report, the Laborers' International Union of North America said over a third of all mortgages originated by lending subsidiaries of Richmond American, Lennar, and KB Home in 2005 and 2006 in Maricopa County, Ariz., are five-year ARMs that will reset in 2010 and 2011. The report says many homeowners will be unable to refinance before the rates reset due to high loan amounts and falling home values. According to the report, home values in the area have declined an average of over $50,000 in the past year. "We need real and immediate action to help struggling homeowners, to bring the creation of good jobs back to the construction industry, to protect our retirement security from tainted investments, and to stabilize the mortgage and housing industry," said Terence M. O'Sullivan, LIUNA's general president. ".... Congress and regulators must scrutinize those who helped cause this crisis -- including corporate homebuilders -- and consider action to both defuse this ticking time bomb and prevent a recurrence." The construction union can be found online at http://www.liuna.org.

The National Association of Realtors is urging the Securities Industry and Financial Markets Association to reconsider its policies excluding Fannie Mae and Freddie Mac jumbo loans from "to-be-announced" pools so the two GSEs can obtain better pricing and securitize jumbo mortgages. Now that Congress has permanently raised the government-sponsored enterprise loan limits, "it is time to treat all GSE-eligible mortgages the same and permit pooling in TBA securities so all qualified borrowers may receive the full benefit of GSE mortgages," the NAR says in a letter to SIFMA. Fannie and Freddie mortgages at below the conforming loan limit (currently $417,000) are eligible for TBA pooling. But when Congress temporarily increased the maximum GSE loan limit to $729,750 as part of an economic stimulus package, SIFMA banned the higher-balance loans from TBA pooling. This exclusion has forced Fannie and Freddie to purchase and portfolio jumbo loans. With the GSEs trying to conserve capital, the NAR wants SIFMA to open the securitization spigot. The NAR can be found online at http://www.realtor.org, and SIFMA can be found at http://www.sifma.org.

Connecticut Attorney General Richard Blumenthal is the latest state AG to file suit against Countrywide Financial Corp. for allegedly pushing consumers into deceptive, unaffordable loans and workouts, and allegedly charging homeowners in default unjustified and excessive legal fees. Mr. Blumenthal's lawsuit, filed in Superior Court in Hartford, seeks restitution of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws. "Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American Dream of homeownership into a nightmare," Mr. Blumenthal said in a statement. "When consumers defaulted, the company bullied them into workouts doomed to fail. Countrywide crammed unconscionable legal fees into renegotiated loans, digging consumers deeper into debt." A spokeswoman for Bank of America, which now owns Countrywide, said in a statement: "While we cannot comment on pending litigation, we will respond to the AG in due course."

The National Association of Realtors estimates that 2.5 million first-time homebuyers will take advantage of a temporary homebuyer tax credit recently passed by Congress and help push up sales of existing homes in the second half of this year and stabilize house prices. "Home prices are projected to increase 3% to 6% in 2009," NAR chief economist Lawrence Yun said. The Realtors' latest forecast calls for sales of previously owned homes to increase from an annual rate of 4.9 million in the second quarter to a 5.6 million rate in the fourth quarter. The NAR also reported that its pending home sales index rose from 84.5% in May to 89.0% in June as sharply discounted houses in distressed markets attracted multiple buyers. "The pickup in contract signings appears to be broadening, with many affordable markets in mid-America showing year-over-year gains," the NAR said. The NAR can be found online at http://www.realtor.org.

Nearly 7% of alternative-A mortgages originated in the first half of 2007 are already 90 days or more delinquent or in foreclosure, according to the Federal Deposit Insurance Corp. The early default rate for alt-A mortgages originated in 2006 was only 3.59%, according to an analysis by FDIC using LoanPerformance data on private-label securities. FDIC researchers suspect that the deterioration in the performance of the 2007 vintage largely reflects conditions in housing markets rather than underwriting. Meanwhile, investors will be looking to see how the $300 billion in alt-A mortgages guaranteed by Fannie Mae performed in the second quarter when the mortgage giant reports its earnings Friday morning. These stated-income loans, which are generally made to self-employed borrowers with high credit scores, constituted 12% of Fannie's single-family book of businesses in the first quarter and were responsible for 43% of its credit losses. Fannie executives maintain that the default rate on their alt-A loans is "approximately one half" the default rate on the overall private-label alt-A market.