Compliance & Regulation

Ginnie Mae has announced that pools backed by the Federal Housing Administration's temporary high-balance loans will be ready for issuance on April 1. Ginnie Mae said it will create a new multiple-issuer security under the Ginnie Mae II mortgage-backed securities program to accommodate the loans. "We believe it's important that Ginnie Mae support the stimulus package and create a vehicle that will improve market liquidity as soon as possible," said Thomas R. Weakland, Ginnie Mae's acting vice president. "This new security will enable more borrowers to qualify for safe, affordable FHA-insured loans, which is critically important as the mortgage industry continues to navigate the ongoing market upheaval." All single-family loans higher than the FHA's current loan limit of $362,790 will be eligible for inclusion in the new pools. The agency can be found on the Web at http://www.ginniemae.gov.

In late 2006 Countrywide Financial Corp. chairman and chief executive Angelo Mozilo accelerated his insider stock sales just as the company had decided to spend $2.5 billion of its own money to buy back stock, according to the House Oversight Committee. At a congressional hearing on Friday, committee chairman Henry Waxman, D-Calif., questioned Mr. Mozilo about the buyback plan and his decision to exercise options and sell $150 million worth of stock just as Countrywide's share price was peaking. "Countrywide's stock has fallen almost 85% since February [2007, when it was $45 a share]," Rep. Waxman noted. "Why was the buyback plan in the best interests of the shareholders?" Mr. Mozilo defended his sales, saying there was "no relationship" between Countrywide's stock buyback plan and his exercising of options. Instead of selling his shares through a planned schedule, Mr. Mozilo said, "I could have sold them all at once." Countrywide's shares were trading at just over $5 on Friday, compared with a 52-week high of $42 and a low of $4. Bank of America is buying the company for about $7 a share. The company can be found online at http://www.countrywide.com.

Lower interest rates prompted an increase in refinancings even as residential loan demand "remained sluggish or declined" during January and February, according to the Federal Reserve's Beige Book. The periodic survey of economic activity in the 12 Federal Reserve districts reported that home sales "were low in every district with very few local exceptions." Inventories of unsold homes remain "high," and "districts that reported home prices all saw overall declines." Meanwhile, markets for office and retail space "showed signs of a slowdown" in several districts. "Office vacancies were reported up and leasing volumes down in Manhattan, Baltimore, Washington D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas," the Beige Book says.

If Bank of America's planned purchase of Countrywide Financial Corp. falls through, Countrywide will have to pay the banking giant a termination fee of $160 million, according to new documents filed with the Securities and Exchange Commission. In the filing, the nation's largest lender notes that 71% of its payment-option ARM borrowers are making only the minimum payment allowed -- and that 80% of those adjustable-rate mortgages were originated as "stated-income loans" in which borrowers were not required to verify their income prior to closing. Countrywide warns that if it loses the investment-grade rating on its debt, the bank will be forced to disgorge $4.2 billion in custodial deposits. It also warns that if Fannie Mae and Freddie Mac reduce the volume of mortgages they buy from the lender, it "could have a material adverse effect on our results of operation and financial condition." Countrywide, based in Calabasas, Calif., can be found on the Web at http://www.countrywide.com.

The Federal Bureau of Investigation is working on 1,200 mortgage fraud investigations, a 50% increase from the level recorded in fiscal year 2006, FBI Director Robert Mueller told a Senate panel. "Roughly half of these cases have losses in excess of $1 million, and several have losses greater than $10 million," Mr. Mueller testified. The FBI director also told the Senate Judiciary Committee that the FBI is working with the Department of Justice and several law enforcement and regulatory agencies to target "systematic" mortgage fraud. "Together, we will build on existing FBI intelligence databases to identify large-scale industry insiders and criminal enterprises conducting systematic mortgage fraud," the FBI director said.

The Department of Housing and Urban Development has issued the new loan limits for Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages in high-cost counties of California and will soon release the loan limits for the rest of the country. Congress has temporarily increased the loan limits in high-cost areas to 125% of median home prices, up to a maximum of $729,750, until Dec. 30. Under this authority, lenders will be able to originate mortgages with a principal balance of $729,750 in the counties of Los Angeles, San Francisco, Orange, and Santa Barbara. HUD is also issuing a mortgagee letter that gives FHA lenders the green light to make the higher-balance loans. Lenders can check the new loan limits in their state by going to the FHA website, looking under "Hot Topics," and clicking on "Stay Informed of FHA Mortgage Limits." The FHA can be found online at http://www.fha.gov.

House Financial Services Committee Chairman Barney Frank, D-Mass., plans to circulate a bill next week that would create a government program to buy distressed mortgages that have been written down to an affordable level and meet Federal Housing Administration eligibility standards. Chairman Frank said he expects the mortgages to be purchased in an auction and that "we will buy the cheapest ones." He noted that his foreclosure prevention proposal is similar to one by the Office of Thrift Supervision, except that the government would take a "soft second" mortgage and share in any appreciation in the property. Rep. Frank has the backing of House Democratic leaders for the new program, which will require an initial $10 billion to $12 billion investment to start. He also told reporters that the bill might include a provision to shield servicers from investor lawsuits. Many servicers are reluctant to write down loans because of disgruntled investors. In related news, the committee chairman said a House/Senate conference on the FHA reform bill is going well and he expects to send the bill to the president in April.

FDIC Chairman Sheila Bair says she expects loan modifications to increase, but she is still concerned that servicers continue to rely too heavily on repayment plans. Repayment plans may be "unsustainable for borrowers and lead to delinquencies down the road and ongoing borrower distress," the Federal Deposit Insurance Corp. chairman told the Senate Banking Committee. Hope Now servicers reported that they modified 45,320 subprime loans in January and placed 48,155 subprime borrowers in repayment plans. The FDIC chairman testified that additional approaches may be needed to reduce foreclosures, including writedowns of the principal amount of the "underwater" mortgages. Meanwhile, Federal Reserve Board Chairman Ben S. Bernanke spoke favorably about an Office of Thrift Supervision proposal that would encourage writedowns by giving investors a share in future appreciation. "A writedown that is sufficient to make borrowers eligible for a new loan would remove downsize risk to investors of additional writedowns or a re-default," the Fed chairman told the annual convention of the Independent Community Bankers of America.

Hope Now servicers modified 45,000 subprime loans in January, up 16% from December's level, and Treasury Secretary Henry Paulson said he expects the numbers to increase now that all the servicers have adopted the American Securitization Forum's protocol for fast-tracking subprime borrowers into loan modifications and refinancings. "I am pleased to announce that as of today, all of the Hope Now members that service subprime mortgages have the protocol in place, ahead of the rising volume of resets in the coming months," Secretary Paulson told the National Association of Business Economists. The Treasury secretary stressed that government-led efforts to prevent foreclosures should be focused on borrowers struggling to make their payments or facing a reset they cannot afford. And he threw cold water on a proposal to restructure "underwater" mortgages so the borrowers have an incentive to stay in their homes. "Any homeowner who can afford their mortgage payments but chooses to walk away from the underwater property is simply a speculator -- and one who is not honoring his obligation," Mr. Paulson said.

The Office of the Comptroller of the Currency will require large national banks that service mortgage loans to provide comprehensive monthly data about their portfolios. The OCC said the reporting requirement will build upon the efforts of the Hope Now alliance, a cooperative initiative among investors, mortgage servicers, and counselors to help distressed homeowners. In a letter to nine large national banks that account for the overwhelming majority of mortgages serviced by national banks, Comptroller John Dugan said the data will help the OCC assess the banks' servicing activities in light of rising loan defaults and foreclosures. The OCC said its data collection includes all mortgage loans, not just subprime loans.