Compliance & Regulation

Prices of existing single-family homes continued their descent in February, falling to a level that was down 12.7% over the previous 12 months, according to a Standard & Poor's/Case-Shiller housing price index that tracks resales in 20 metropolitan statistical areas. Since its peak in July 2006, the 20-city HPI has fallen 14.8%. "There is no sign of a bottom in the numbers," said S&P economist David Blitzer. The Charlotte, N.C., market is the only MSA in the index still registering an annual increase (1.5%) in house prices. "The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months," Mr. Blitzer said. Separately, the Office of Federal Housing Enterprise Oversight reported that house prices are down 3.1% on a seasonally adjusted basis for the 12 months ended in February. However, prices rose 0.6% from January to February. OFHEO collects sales price data from Fannie Mae and Freddie Mac purchase mortgages.

Federal Housing Administration loans have become the fastest-growing product for an alliance of 110 local and regional mortgage bankers, constituting 35% of their loan volume in March, according to Lenders One chief executive president Scott Stern. Back in January 2007, FHA lending represented only 1% of their loan production. "Due to the tremendous growth, we refer to FHA as the 'Loan Product of the Year'," Mr. Stern said. The Lenders One CEO said he believes that FHA production could hit 40% of originations if Congress makes the increase in loan limits permanent and does not raise the FHA downpayment requirement. Alliance members originated $40.4 billion in residential mortgages in 2007, and they are currently originating $3.3 billion to $3.5 billion a month.

House Financial Services Committee Chairman Barney Frank, D-Mass., says it is "entirely possible" that Congress will send President Bush a legislative package by the Fourth of July that is responsive to the current housing crisis, reduces foreclosures, and increases confidence in the secondary-market agencies. The package would include two Federal Housing Administration bills and a GSE bill to strengthen regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the chairman told a Washington conference sponsored by the Independent Community Bankers of America. On Wednesday, Rep Frank expects to complete a committee mark-up of his FHA bill to refinance struggling homeowners with "underwater" mortgages. (The Senate Banking Committee is scheduled to mark up a government-sponsored enterprise bill on May 6.) The House has already passed a GSE regulatory reform bill. In addition, the House and Senate are close to an agreement on an FHA modernization bill that will make the FHA a safer alternative to subprime loans. "The crisis has generated some pressure" to act, Rep Frank told reporters. "We should have it done in June."

The Census Bureau has reported that the inventory of vacant homes listed for sale rose to 2.3 million in first quarter, up 4.6% from that of the previous quarter, and that the homeownership rate was unchanged. Listings of vacant homes rose dramatically in 2006 to 2.1 million, and this overhang on the real estate market continues to exert downward pressure on house prices. Since 2006 it has remained above the 2 million mark, and over the past two quarters there has been an uptick in listings -- probably reflecting bank sales of more foreclosed properties. The Census Bureau report also indicates that the homeownership rate held steady at 67.8% in the first quarter. However, the rate is down from 68.4% in the first quarter of 2007. The homeownership rate for blacks fell from 47.7% in the fourth quarter to 47.1% in the first quarter, while the rate for Hispanics rose from 48.5% to 48.9%.

The Department of Housing and Urban Development has determined that market conditions prevented Fannie Mae and Freddie Mac from reaching two affordable housing subgoals in 2007, and it will not require the two government-sponsored enterprises to take corrective action. The two home-purchase subgoals are supposed to measure the GSEs' efforts in financing low-and moderate-income homebuyers. Fannie and Freddie submitted market data to HUD showing that rising home prices reduced the availability of affordable housing. In addition, the subprime meltdown and tighter credit conditions made the barriers to achieving the subgoals "insurmountable," Freddie Mac said. In letters to the chief executives of the two mortgage companies, HUD Assistant Secretary Brian Montgomery reported that information provided by the GSEs is "consistent" with HUD's market research. HUD has determined that the achievement of the two subgoals was "not feasible," Mr. Montgomery says in the April 24 letters. He also notes that HUD also considered the "financial stability" of Fannie and Freddie in evaluating their affordable housing performance.

Rust Consulting Inc., Minneapolis, has announced the formation of a task force to deal with developments related to the subprime mortgage crisis. Rust said the task force is composed of experts from the company's antitrust, consumer finance, labor and employment, and securities practice areas. Jim Parks, a principal consultant with Rust, said the company's clients have been forming internal task groups to deal with the "many nuances" of subprime market litigation. This prompted Rust to form the task force "to work alongside those clients in tracking and monitoring case development in this area," he said. The company, which is part of the class action settlement administration industry, can be found online at http://www.rustconsulting.com.

The House Financial Services Committee has approved by voice vote a bill that would shield mortgage servicers from investor lawsuits so they can modify loans and help more troubled borrowers avoid foreclosure. The bill (H.R. 5579), sponsored by Reps. Michael Castle, R-Del., and Paul Kanjorski, D-Pa., would create a safe harbor for servicers who carefully consider loss mitigation options and decide to modify a mortgage. "Homeowners and investors alike benefit by finding terms and conditions that would allow at-risk homeowners to stay in their homes, while providing investors some rate of return for their investments," Rep. Castle said. Industry groups oppose the bill. But Rep. Castle said his bill would "eliminate some of the payoffs" required under a Federal Housing Administration refinancing bill the committee was scheduled to mark up on April 24. The FHA bill requires investors/servicers to write down the loan amount to refinance an "underwater" mortgage into an FHA-insured mortgage.

MRG Document Technologies, Dallas, has announced an alliance with Lydian Data Services, a Boca Raton, Fla.-based provider of end-to-end outsourcing services for mortgage operations. The alliance enables MRG to extend its Miracle document preparation system to customers of Lydian's origination fulfillment center who use Lydian's outsource capabilities to supplement or replace their own internal processes, MRG said. Through a custom interface created by MRG, Miracle upfront and interim disclosures and closing documentation can be accessed via the Lydian Exchange Network, which unites lenders and industry service providers. "By using MRG's customizable document preparation packages and Lydian Data Services' turnkey fulfillment capabilities, lenders can streamline their origination processes while maintaining full compliance with state and federal regulations," said Terry King, group chairman of MRG. The companies can be found online at http://www.mrgdocs.com and http://www.lydiandata.com.

The Mortgage Bankers Association and the Commercial Mortgage Securities Association have joined with the Real Estate Roundtable and the National Association of Realtors to oppose differentiation between the ratings of structured finance products and those of other asset classes. In a letter to Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., and the panel's ranking member, Sen. Richard C. Shelby, R-Ala., the groups warn that differentiating between ratings, as some are proposing, would further erode investor confidence and threaten a fragile economy. "At a time when we need to restore liquidity and confidence in the market, the last thing we ought to be doing is be making the ratings process more complicated," said Kieran P. Quinn, chairman of the MBA. "We recognize improving the ratings process is a key to getting players back in the market, and we want to work with Congress to find the best way to do that. This just isn't it." The letter recommends educating investors about the risk associated with all securities, as opposed to focusing exclusively on structured securities. The letter was sent in advance of a committee hearing on the role of credit rating agencies in U.S. credit market turmoil.

The Office of Federal Housing Enterprise Oversight wants to ensure that Fannie Mae's and Freddie Mac's application of fair-value accounting promotes transparency and consistency in financial reporting and will take corrective actions if the practice "distorts earnings or capital," according to newly issued examiner guidance. "It is important that Fannie Mae and Freddie Mac apply fair value in a sound and consistent manner," OFHEO Director James Lockhart said. OFHEO says it expects the government-sponsored enterprises to document their decisions for applying fair value to selected financial assets and liabilities and provide the regulator with a full fair-value balance sheet each quarter. "If OFHEO detects patterns of use of the fair value option that impair transparency or distort earnings or capital, OFHEO will evaluate whether such application of the FVO is unsafe and unsound," the examiner guidance says.