Compliance & Regulation

To stem losses to the FHA insurance fund, the Department of Housing and Urban Development is reissuing a proposed rule that would ban seller-funded downpayment assistance on Federal Housing Administration-insured mortgages. HUD has been tangling for several years with nonprofit groups that arrange for low-income homebuyers to receive downpayment assistance from home sellers. HUD maintains that foreclosures on these FHA loans are three times higher than for other loans because the seller jacks up the price to recoup the downpayment "gift." In March, a federal district court judge ruled that HUD violated the Administrative Procedures Act in issuing a similar rule to stop seller-funded DPA programs. FHA Commissioner Brian Montgomery said the judge provided HUD with a "roadmap" to modify the proposed rule and reissue it for a new 60-day comment period. The FHA commissioner also told the National Press Club Monday that the FHA has booked $4.6 billion in "unanticipated long-term losses" mostly due to seller-funded DPA loans. He stressed that the FHA is solvent but may need a congressional appropriation if such losses continue. Meanwhile, downpayment assistance providers are ready to block the rule again. "We will not watch Commissioner Montgomery or HUD sever the only lifeline available to the low- to moderate-income families," said Scott Syphax, president and chief executive of Nehemiah Corporation of America.

Increasing demand for Federal Housing Administration-insured loans has pushed the FHA's market share above 10%, and loan endorsements in the first eight months of fiscal year 2008 already exceed the total for all of fiscal 2007. "Since September 2007, FHA has helped pump more than $76.1 billion in mortgage activity into the housing market," FHA Commissioner Brian Montgomery said, and $30.3 billion of those loans have helped conventional borrowers refinance into FHA loans. The FHA endorsed 424,700 mortgages totaling $59.8 billion in fiscal 2007 when subprime lenders were still taking customers away from the agency. Since the subprime meltdown last year, the FHA's market share has risen from 3% to 10%-12%, Mr. Montgomery told the National Press Club. The latest FHA activity report shows mortgage applications running at a 2.1 million annual rate during the last two weeks of May, compared with an annual rate of 777,900 in the same period of fiscal 2007. FHA loan endorsements are running at a 1.36 million annual rate, up 130% from that of a year ago.

Despite a weak housing market and tight credit conditions, one- to four-family loan originations by banks rose 14% in the first quarter, while federally chartered thrifts reported a decline in loan production. Single-family loan originations by commercial banks and savings banks totaled $288.6 billion in the first quarter, up 14% from the level of the previous quarter, according to the Federal Deposit Insurance Corp. Loan production matched the $286.4 billion in originations during the same period in 2007. In the first quarter, 673 commercial banks and savings banks reported origination data to the FDIC. Meanwhile, 831 federally chartered thrifts originated $115.2 billion in one- to four-family mortgages in the first quarter, down 20% from the level of fourth quarter and down 23% from that of the first quarter of 2007. The Office of Thrift Supervision reported that refinancings constituted 50% of thrift originations and adjustable-rate mortgages made up only 10% of loan volume.

The Federal Deposit Insurance Corp. is accelerating its on-site reviews of insured banks with high concentrations of construction and development loans, according to Sheila Bair, chairman of the Federal Deposit Insurance Corp. Targeted examinations of 27 FDIC-supervised banks earlier this year found that some institutions with C&D concentrations in formerly high-growth markets are "experiencing a rapid increase in problem loans that may translate into losses this year," Ms. Bair told the Senate Banking Committee. As of March 31, 2,535 insured institutions had C&D loan concentrations of 100% or greater to Tier One capital. Nearly 5% of the $632 billion in outstanding C&D loans are 89 days or more past due. Bank chargeoffs on C&D loans skyrocketed from $106 million in the fourth quarter to $1.6 billion in the first quarter.

The Mortgage Bankers Association has completed the purchase of its newly constructed 10-story office building in downtown Washington and is preparing to move into the new headquarters. "With construction virtually complete and financing in place, we are ready to transition our staff into a modern, state-of-the-art facility," said MBA president and chief executive Jonathan Kempner. The 160,000-square-foot building, located at 1331 L St. NW, is believed to cost $100 million. The MBA paid a premium for the developer to make it a "green" building with the highest environmental certification. The MBA said it plans to occupy four floors and rent the remaining space to tenants. "There are currently a number of inquiries being considered for office and retail space," the association said. The MBA can be found online at http://www.mortgagebankers.org.

Theodore Foster is leaving Ginnie Mae after 19 years, and his colleague Steve Ledbetter will become the new senior vice president for mortgage-backed securities, MortgageWire has learned. Mr. Foster is heading to Minneapolis to work for Wells Fargo Bank, an industry source said. Mr. Ledbetter is currently the director of securities policy and research at Ginnie Mae. Meanwhile, Michael Frenz returned to his post as Ginnie Mae's executive vice president about four weeks ago. He had been detailed by the Department of Housing and Urban Development to work in another section of the department. Ginnie's MBS business has picked up over the past four quarters, as issuance hit $15 billion in March and jumped to $21.5 billion in May.

Ginnie Mae guaranteed $22 billion in mortgage-backed securities in May, and the secondary-market agency will face "issues" such as possible understaffing as MBS issuance continues to increase, according to the president's nominee to head the agency. Joseph Murin told the Senate Banking Committee at his confirmation hearing that Ginnie Mae has only 65 full-time employees, and he indicated that the agency will have to face those issues as time goes on and issuance increases. The former president of Mortgage Settlement Network also testified that legislation "is needed" to expand the Federal Housing Administration program and help more struggling homeowners. He pledged that Ginnie Mae will "act diligently" to achieve the best execution of those securitizations. "If it is enacted, I think the investor community will embrace it, from what I am told and what I see," Mr. Murin said. President Bush nominated Mr. Murin to be the new Ginnie Mae president back in October. Ginnie can be found on the Web at http://www.ginniemae.gov.

Farmer Mac, the government-sponsored enterprise that buys and guarantees loans backed by rural housing and agricultural real estate, now can purchase and guaranty securities backed by rural utilities as well. Congress expanded Farmer Mac's authority in the recently passed Food, Conservation and Energy Act of 2008. The utility loans are made by cooperative lenders including the National Rural Utilities Cooperative and the Farm Credit System to finance electric and telecommunications systems in rural areas. The 2008 farm bill was enacted into law after Congress voted to override a veto from President Bush. Farmer Mac is officially named the Federal Agricultural Mortgage Corp.

Sales of new homes rose slightly in April from the previous month to 526,000 units but are still in the doldrums with foreclosures and delinquencies continuing to climb. The Commerce Department reported Tuesday that sales of new homes rose 3.3% in April (from March) but plunged 42% compared to the same month last year. New homes sales were the weakest in New England, declining 58% year over year. Even with the slight sequential gain, sales are near a 17-year low. Meanwhile, according to the just released Standard & Poor's/Case-Shiller index, home prices fell 14.4% in the first quarter compared to the same period last year. According to a recent report by Friedman Billings Ramsey, "We expect house prices to decline in a growing number of MSAs in 2008."

The Department of Housing and Urban Development announced it has launched a national public service announcement campaign that will educate the public, especially minorities, about their rights under the lending provisions of the federal Fair Housing Act. The centerpiece of the bilingual campaign is a television PSA featuring actor Dennis Haysbert, who is best known for his role as President Palmer in the television series "24." The campaign, which is being administered by Pacific News Service, also includes radio PSAs and newspaper ads. In addition, the campaign will include a series of fair lending forums designed to inform the general public about HUD resources and programs that can assist in eradicating unfair and discriminatory lending practices. "HUD studies confirm that African Americans and Hispanics trying to become homeowners are often given less information about loan terms, are quoted higher rates and fees, and are sometimes discouraged from applying for loans," said Kim Kendrick, assistant secretary for fair housing and equal opportunity. "Hopefully, this compelling campaign will empower existing and prospective minority homeowners to report these incidents so that they can receive help."