Compliance & Regulation

Revenue raising provisions, such as removing a cap on FHA reverse mortgages and raising the FHA loan limits, should be used to cover the cost of a Federal Housing Administration foreclosure rescue program, according to House Financial Services Committee chairman Barney Frank, D-Mass. "We will find other sources," Rep. Frank told attendees at the American Bar Association affordable housing conference. The House FHA bill is expected to refinance 500,000 struggling homeowners at a cost of $1.7 billion over four years. Removing the cap on the FHA reverse mortgage program would provide $300 million per year. There is a disagreement between the House and Senate on how high to raise the loan limits, but Rep. Frank said it could raise tens of millions of dollars. Meanwhile, the Senate Banking Committee has approved a GSE regulatory reform bill that taps Fannie Mae and Freddie Mac to contribute to a new affordable housing fund. During the first three years, the Senate wants to use the AH funds to pay for the FHA refinancing program. In 2006 and 2007, the House passed GSE regulatory reform bills that directs the affordable housing funds to the Gulf Coast states for rebuilding housing destroyed in Hurricane Katrina. Rep Frank maintains it is unfair to divert that assistance away from Katrina victims.

Triad Guaranty Inc., Winston-Salem, N.C., said it has been suspended by Freddie Mac as an approved mortgage insurer. The company had previously fallen out of Freddie Mac and Fannie Mae Type I mortgage insurer eligibility requirements due to downgrades by the rating agencies. Triad said it will appeal the decision and that Freddie Mac will continue to purchase loans to be insured or committed to by insured by Triad during appeals process. Mark K. Tonnesen, president and chief executive of Triad, said, "Freddie Mac and Fannie Mae are both continuing to accept new insurance written or committed by Triad. We welcome the opportunity to provide both the GSEs and our regulators with more details concerning our anticipated voluntary run-off plan and the benefits we believe can be achieved by completing the proposed transaction with Lightyear." Triad added it is still in negotiations with Lightyear Capital LLC, New York, over the creation of a new mortgage insurance company.

Both Fannie Mae and Freddie Mac have started retaining more mortgage assets in their own portfolios, with Freddie's portfolio growth sharply outpacing Fannie's in April. Freddie Mac's retained mortgage portfolio totaled $737.5 billion at the end of April, a net increase of $25.1 billion from March. Fannie Mae ended April with a retained portfolio of $728.4 billion, a $5.6 billion increase. Including their guarantee businesses, Fannie's total book of business grew at a 6.7% annualized rate in April, and Freddie Mac's book of business increased grew at a 4.7% rate. Both saw higher delinquency rates as well. Fannie Mae's overall single-family serious delinquency rate rose five basis points to 1.15% in April. Freddie Mac's rose three basis points to 77 basis points.

Existing home sales took it on the chin again in April with consumers purchasing homes at an annualized rate of 4.34 million units, a slight decline from March but a 16% falloff from the same period last year. The largest declines (year-over-year) were in the Midwest and South, down 16.5% and 16.2%, respectively. The sales figures were compiled by the National Association of Realtors which blamed the poor performance, in part, on "restrictive lending practices" by mortgage companies. According to NAR, there is now a 10.7 month supply of existing homes for sale compared to 8.3 in April 2007. Stephen Stanley, a housing analyst for RBS Greenwich Capital, noted that the only geographic region to post an advance was the West. "Anecdotal reports and local data indicate that prices have taken a beating in California, Las Vegas, and Phoenix, and foreclosures and sales of foreclosed properties seem to be much heavier in California than anywhere else in the country." He said this suggests "the intense downdraft in prices in troubled markets, some of which is being dictated by foreclosure activity, is beginning to draw in buyers."

National City Mortgage has agreed to pay $4.6 million to settle claims by the U.S. Department of Justice that it submitted mortgages to the Federal Housing Administration for mortgage insurance that were already in default. The Miamisburg, Ohio, lender allegedly submitted 58 loans for FHA endorsement where the borrowers had already missed a payment. FHA requires lenders that submit mortgages 60 days after origination to certify that the payments are current. "Lenders must follow the Department of Housing and Urban Development's rules and be held accountable if they knowingly submit loans that are not eligible for insurance," acting assistant attorney general Gregory Katsas said. National City Mortgage is one of the largest FHA lenders and it has "a long history as a responsible lender," a spokesman said. "As stated in the settlement agreement, National City refuted the government's allegations and denied any liability." The HUD Inspector General referred the National City case to the Justice Department. In 2006, IG auditors found that NCM had originated 34,838 FHA mortgages between Feb. 1, 2004 and Aug. 31, 2005 and 1,476 of those loans were in default within the first six payments.

More than 11,000 loan officers have already registered with the five-month-old Nationwide Mortgage Licensing System. Add more than 8,700 principals, owners, and branch managers who also have joined the system, and the tally is nearly 20,000, according to figures released at the Conference of State Bank Supervisors' annual conference in Amelia Island Plantation, Fla. The CSBS operates the licensing system, which went live in January in eight states. Created in conjunction with the American Association of Residential Mortgage Regulators, the system is designed to bring greater accountability and transparency to the mortgage business. The system now contains more than 6,100 company, branch, and individual licensees, and nearly 11,200 more applications are pending. Some 330 licenses have been "terminated" since the NMLS went live Jan. 2, most likely because they were voluntarily surrendered but possibly because some were revoked. A total of 18 states are scheduled to participate in the NMLS by the end of the year, and 42 agencies in 40 states have signed letters of intent to join the system eventually.

The chief economist at Moody's Economy.com says the housing market has a long way to go before it turns the corner. "The housing downturn is now comparable to the Great Depression," Mark Zandi told the Conference of State Bank Supervisors' annual meeting at the Amelia Island Plantation in Florida. "And it is evident across the country." The "most fundamental problem" with housing is excess capacity, "and it's getting worse," Mr. Zandi said. Citing Census Bureau data, the economist said the number of "completely vacant" unsold houses now totals 2.25 million units. That's twice the number of houses that were sitting on the shelves in 2004, and the current situation "won't stabilize soon," he told the state regulators. The economist also said most places are now experiencing price declines. Not so long ago, he was predicting that prices would fall 20% or so from peak to trough. But he told the CSBS that the 20% figure "doesn't cut it anymore." Now, he's looking for a 20%-25% drop in prices by the time the free-fall is over, and perhaps 30% in some places in California, Florida, Nevada, and Arizona.

Fannie Mae and Freddie Mac have been criticized somewhat for how few jumbo loans they have bought since being granted the authority in February, but officials from the GSEs told Congress Thursday that their companies are beginning to see significant increases in loan submissions. Thomas Lund, executive vice president of Fannie Mae's single-family business, said the government-sponsored enterprise's top 10 seller/servicers now have $3 billion worth of jumbo loans in their pipelines. "We've done $80 million through the end of May," he said. Patti Cook, EVP and chief business officer for Freddie Mac, held onto an earlier prediction that Freddie might buy $15 billion worth of GSE jumbos by year's end. (Under the new authority, Fannie and Freddie can purchase mortgages with balances of up to $729,750 in certain high-cost areas.) The executives told elected officials that their ability to buy jumbos has been hurt because the mortgages cannot be sold forward into TBA (to-be-announced) securities. However, since changing their pricing on jumbos, loan submissions have risen, and rates charged have fallen to the point where they are comparable to those of conventional loans. (For the full story, see the May 26 issue of National Mortgage News.)

Reinforcing their position as the cornerstones of the American housing market, Fannie Mae and Freddie Mac now have enough capital on hand to purchase all $2 trillion worth of mortgages that are expected to be originated this year, their safety-and-soundness regulator said at the Conference of State Bank Supervisors' annual meeting. Two years ago, the two GSEs touched less than 40% of the mortgages that were written. Now that figure is up to 70% of all home loans and 80% of all securitizations, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told the meeting. "They have become the secondary market, and they are being asked to do a lot more," Mr. Lockhart said. While Fannie and Freddie have been slow to purchase so-called jumbo conforming loans, they are now quickening their pace, the OFHEO director said. In the first two weeks of May, their volume in mortgages ranging from $417,000 to $729,250 was four times what it was in all of April, he reported. "They started out pretty cautiously," Mr. Lockhart said, "but now they are starting to ramp up." He also said he was "satisfied overall" with the Senate housing bill, which was voted out of committee Tuesday, because it "underscores the importance" of a single, world-class regulator for the GSEs. "It checks off all the boxes," he said.

The Federal Deposit Insurance Corp. will issues guidelines next week on managing third-party risks, FDIC Chairman Sheila Bair has told the Conference of State Bank Supervisors' annual meeting. The guidelines will deal, in part, with compensation of mortgage brokers. Until now, the FDIC has been dealing with the issue on a case-by-case basis, Ms. Bair said at the meeting at Amelia Island Plantation in Florida. But in that loan brokers "could steer" consumers into dangerous loans or mortgages they don't fully understand, how state-chartered banks pay third-party originators "deserves closer scrutiny," she added. Ms. Bair also held out hope for her plan to prevent a million foreclosures by reworking "underwater" mortgages. While expansion of the Federal Housing Administration's loan programs will be "extremely helpful" in the long term, her rescue plan would "give borrowers a breather" in the short term, she said. "It's for people who want to stay in their homes and ride out the housing crisis," she told the state banking regulators. Ms. Bair said it's possible that a floor amendment incorporating her proposal would be added to the Senate housing bill as a "nice complement" to FHA expansion. The FDIC chair also urged lenders and regulators to move back to common-sense underwriting. "If I'm going to point to two culprits" for the mortgage market calamity, she said, it would be the failure to underwrite at the fully indexed rate and the ability of borrowers to repay.