Compliance & Regulation

The Department of Housing and Urban Development is finding few supporters for its RESPA reform proposal, so three key players are recommending that HUD refocus its efforts on refining the good-faith estimate and add a summary page that highlights key loan terms and payment information. In a joint letter to HUD, the National Association of Realtors, the American Land Title Association, and the Center for Responsible Lending say they have reached an agreement on the summary page, which is attached to the June 12 letter. The CRL wants a more prominent disclosure of the mortgage broker's fee, however. "Our organizations also share the belief that a summarized GFE should be accompanied by a more detailed GFE with explanations of each subcategory of fees to help consumers understand more fully the services and accompanying fees for which they are being charged," the joint letter says. The comment period on HUD's Real Estate Settlement Procedures Act proposal ended June 12, and the NAR and ALTA have urged HUD to withdraw the proposal. The American Bankers Association and the Consumer Bankers Association also want HUD to withdraw it. The Independent Community Bankers of America has said it opposes the rule.

Credit standards for residential and commercial real estate loans got tighter in May, and housing markets "remained weak across most of the nation," according to the Federal Reserve's Beige Book. The New York and Chicago Federal Reserve district banks reported that potential homebuyers are having difficulty obtaining financing. And it is causing builders in the Chicago district to "suffer losses" on existing projects. "Inventory levels of new and existing homes remained high or were rising in New York, Philadelphia, Cleveland, Richmond and San Francisco," the Beige Book says. Meanwhile, the Boston, Atlanta, Kansas City, and San Francisco banks reported declining house prices in their districts. "Commercial real estate conditions varied in April and May," with the Boston, New York, Philadelphia, and San Francisco districts reporting that CRE activity had "softened."

An analysis of loan servicing data by the Office of the Comptroller of the Currency has found that loss mitigation actions exceeded new foreclosure starts by a nearly two-to-one margin among subprime borrowers in March. Starting in February, the nation's nine largest OCC-regulated mortgage servicers began submitting some historical and monthly servicing metrics to the agency. Those lenders account for 23 million loans, or about 40% of all outstanding mortgages, the OCC said. The agency said overall credit quality remained "relatively satisfactory and relatively stable" over the six-month period ended in March. While the percentage of loans in the foreclosure process crept upward to 1.23% during that period, the number of new foreclosures peaked in January and fell in March, the OCC said. The OCC can be found on the Web at http://www.occ.treas.gov.

With the resurgence in government-backed mortgage lending, Ginnie Mae is on course to issue some $200 billion in securities in fiscal year 2008, and might even surpass its previous record of $216 billion, according to Michael Frenz, Ginnie's executive vice president. In the first eight months of fiscal 2008, the agency has issued $112 billion in securities, including $21.5 billion worth in May alone, the Ginnie Mae official told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. This compares with $7.7 billion in May 2007, and a total of $85.1 billion in securities in all of fiscal 2007. The agency can be found on the Web at http://www.ginniemae.gov.

The Federal Housing Administration has added mortgage subsidiaries and outside vendors to its list of entities that are exempt from its 90-day "anti-flipping" rule. The FHA will not insure a mortgage on any property that was owned by the seller for fewer than 90 days before transferring it to a new owner. A waiver exempts properties owned by the FHA, Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions. But to satisfy the anti-flipping rule, many third-party vendors are forced to leave foreclosed properties vacant for 90 days. "This harms neighborhoods, frustrates homebuyers, and delays recovery," FHA Commissioner Brian Montgomery said at the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. The exemption allowed for vendors will last for one year, at which time "recovery should be under way," Mr. Montgomery said. The FHA can be found online at http://www.fha.gov.

Although the government's mortgage program for military veterans continues to be hampered by a $417,000 loan limit, it is still going like gangbusters, according to the head of the Department of Veterans Affairs' loan guaranty service. In May alone, the volume of loans backed by the VA was up more than 50% over that of a year earlier, Judith Caden told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. Ms. Caden also said that California, a state where practically no VA-guaranteed mortgages were written in fiscal year 2007, is now among the agency's 10 most active states. But despite the resurgence in activity, the agency is unable to help veterans who are looking to the VA as a way out of their subprime loans. Because of what Ms. Caden called "a glitch" in the law, VA borrowers who want to refinance must have a 10% equity stake in their properties and cannot borrow more than $144,000. Calling both requirements impractical at a time when many subprime borrowers in high-cost areas are "upside down" in their current loans, Ms. Caden said her agency favors their elimination. "We'd like to see the limit raised and the percentage go away," she said.

The new head of the Department of Housing and Urban Development says the short seven months he will have on the job is enough time to "make a profound, powerful difference" in what has become the "American nightmare." In his first public appearance since being sworn in, HUD Secretary Steve Preston told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington that "where there's urgency and commitment, there is terrific opportunity." What lawmakers, the administration, and the mortgage business do now to address the rising tide of defaults and foreclosures "can set the market on a firm foundation for future growth," said the former head of the Small Business Administration, who had been on the job at HUD for only four days. Calling on Congress to modernize the Federal Housing Administration and improve oversight of the housing government-sponsored enterprises, he said the "situation demands action now." And noting that the default situation will get worse before it gets better, Secretary Preston asked the industry to "continue to be aggressive" in reaching out to troubled borrowers.

The Office of Federal Housing Enterprise Oversight has corrected its risk-based capital rules so that Fannie Mae and Freddie Mac are no longer rewarded for loans that go into foreclosure. Under current rules, the loss-severity equations result in profits, not losses, for the government-sponsored enterprises on foreclosed properties. OFHEO identified this anomaly a few years ago and issued a proposed rule last December to fix it. Fannie presented evidence showing that the company has realized gains on 20% of mortgages with loan-to-value ratios of 60% or less and on 6% of loans with private mortgage insurance in certain markets with declining house prices. But OFHEO said it was unlikely that those gains would offset the losses on the 80% of the loans with low LTV ratios and the 94% with private MI. Freddie Mac and the Mortgage Insurance Companies of America "commented in favor" of the changes to the RBC rules, OFHEO said.

The Securities and Exchange Commission wants the credit rating agencies to publicly disclose the information they use in rating mortgage-backed securities (including information about the underlying mortgages) to provide more transparency for investors and other rating agencies. "That would permit broad market scrutiny, as well as competitive analysis by other rating agencies that are not paid by the issuer," SEC Chairman Christopher Cox said. The proposal approved by the commissioners for public comment would prohibit credit rating agencies from assisting MBS issuers in structuring their deals to get a certain rating. However, it would be acceptable to tell the issuer how much overcollateralization is needed to achieve a triple-A rating, an SEC staffer said. The rating agencies would also have to maintain a history of their rating actions, including default statistics for the initial rating and defaults that occur after a rating is withdrawn. The wide-ranging proposal addresses conflicts of interest, disclosures, internal practices, and business practices of the rating agencies and is designed to prevent another "subprime mess," Mr. Cox said.

Six attorneys general have stood out for their creative leadership and aggressive response to the nation's foreclosure crisis, according to a new report from ACORN. The organization said these AG's -- Connecticut's Richard Blumenthal, Massachusetts' Martha Coakley, New York's Andrew Cuomo, Illinois' Lisa Madigan, Iowa's Tom Miller, and Minnesota's Lisa Swanson -- earned A-plus grades for actively seeking real data from mortgage servicing companies, pursuing cutting-edge cases against the industry's bad actors, speaking out on matters of state and federal importance, and putting their offices to work for distressed borrowers. ACORN -- the Association of Community Organizations for Reform Now -- says these AGs are cracking down on rescue scams and pushing the industry to perform better. ACORN collected examples of the work done by all 51 attorneys general and has recommended best practices and strategies used by the AGs. The report lists 18 attorneys general who earned A's, six with B's, eight with C's, one with a D, 12 with F's, and six with Incompletes.