Compliance & Regulation

Sen. Robert F. Bennett, R-Utah, says there is a "pretty good" chance the Senate will pass a bill to strengthen regulation of Fannie Mae and Freddie Mac during the first half of next year."It is very clear the GSEs need a robust, well-staffed, well-financed regulator," Sen. Bennett told a Women in Housing and Finance luncheon in Washington. "And they do not have one now." The Senate Banking Committee member noted that the "ideological gap" between the Bush administration and Congress has narrowed and the principals have a more realistic view of what needs to be done to enhance the regulation of the government-sponsored enterprises. He said he expects the committee chairman, Sen. Christopher J. Dodd, D-Conn., to get the ball rolling on GSE reform "fairly early" next year. The House passed a GSE reform bill in May.

General Growth Properties Inc. says it plans to appeal a recent $74 million verdict and $15 million punitive damage award by a California jury in a lawsuit alleging intimidation by the real estate investment trust.A Superior Court jury in Los Angeles awarded the compensatory damages in a suit filed against General Growth Properties by Caruso Affiliated Holdings LLC involving Glendale Galleria, a California mall. The suit alleged that the company intimidated The Cheesecake Factory while it was exploring leasing at The Americana at Brand and interfered with Caruso's business using unfair business practices. General Growth owns the Glendale Galleria adjacent to Caruso's Americana at Brand, a $369 million retail building in downtown Glendale. "The company emphatically disagrees with the jury's verdict and will pursue review and reversal through every available means," General Growth said. The case has been in court for over three years. Rick J. Caruso, chief executive of Caruso Affiliated, said he hopes that "by fighting this case we will have set a precedent throughout the retail industry that the giant REITs can no longer use intimidation to squash competition. They will have to play fair on a level playing field with the rest of us."

Federal Housing Administration Commissioner Brian Montgomery chided the Senate at the National Association of Realtors' convention in Las Vegas for moving too slowly on legislation that would modernize his agency.The Senate Banking Committee cleared its version of FHA reform legislation in mid-September -- a day after the full House approved its bill -- but the committee chairman and presidential candidate, Sen. Christopher J. Dodd, D-Conn., didn't place the measure into the Senate hopper until Nov 13. "The time to move [FHA reform legislation] was last year," Mr. Montgomery said, "but we can still have a profound impact if we act this year." Noting that the Department of Housing and Urban Development has been asking Congress to revamp and revitalize some of the FHA's key programs for nearly two years, the commissioner said lawmakers could have spared a lot of homeowners "a lot of misery" had they already acted to lower FHA downpayment requirements and raise loan limits. The NAR and other advocates of FHA reform are hoping the full Senate will act before Congress quits for the holiday season in early December. And if it does, NAR lobbyists may try to persuade lawmakers to attach a rider that would enhance regulatory oversight of Fannie Mae and Freddie Mac. GSE reform legislation is also stalled in the Senate.

Fannie Mae and Freddie Mac should be focused on rescuing subprime borrowers as opposed to developing a new line of products to serve the jumbo market, according to the regulator of the two government-sponsored enterprises.The chairman of the Federal Reserve Board recently suggested to Congress that the two GSEs could play a role in securitizing jumbo mortgages. But James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told MortgageWire that the GSEs have no expertise in the jumbo market. "Our view is that at the moment, Fannie and Freddie have their hands full in the conforming loan market -- and in particular the lower-credit-quality portion of the conforming loan market," Mr. Lockhart said in the interview. "That is where they should be concentrating their firepower." The OFHEO director said Fannie and Freddie are doing a reasonably good job in refinancing subprime borrowers that are current on their payments. However, they need to make more of an effort to help borrowers that need loan modifications or partial writedowns. "We will be discussing this with the Fed," he said.

The National Association of Mortgage Brokers has succeeded in getting a clarification on the treatment of yield-spread premiums included in a predatory lending bill that the House is expected to pass on Thursday.Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Rep. Spencer Bachus, R-Ala., agreed to insert language in the manager's amendment that allows the financing of the broker's fee, provided that the fee is "fully and clearly disclosed to the consumer early in the application process." The manager's amendment also includes a new "absent" creditor provision, sponsored by Rep. Mel Watt, D-N.C., that would hold securitizers accountable, if the lender or assignee goes out of business, for fixing subprime mortgages that violate the lending standards in the bill. The National Community Reinvestment Coalition board member said holding Wall Street accountable is essential to prevent "irresponsible" lending and investing. Without a strong assignee liability provision, NCRC president John Taylor said, the investment banks will have no incentive to do loan modifications.

Louisiana's "Road Home" program for rebuilding hurricane-damaged homes is slated to get another $3 billion from Congress thanks to an "emergency" spending provision tucked into a $471 billion defense appropriations bill that President Bush is expected to sign.The emergency appropriation is aimed at covering a $3.0 billion to $4.3 billion shortfall in Louisiana's housing recovery program, which has already received over $10 billion in Community Development Block Grant funds. Senate Appropriations Committee member Mary Landrieu, D-La., pushed for the additional funds so all eligible homeowners who filed claims before Aug. 1 could receive grants of up to $150,000. "Congress made a $3 billion pledge to Louisiana homeowners to ensure they receive their Road Home grants to rebuild and recover," Sen. Landrieu said. Congress initially approved $6.2 billion in CDBG funds for Louisiana and $5.1 billion for Mississippi in response to hurricanes Katrina and Rita.

Ginnie Mae has announced the issuance of its first Home Equity Conversion Mortgage mortgage-backed security, a $116 million transaction that is the first-ever government-guaranteed MBS collateralized by Federal Housing Administration-insured reverse mortgages.The so-called HMBS offers "the only full-faith-and-credit vehicle and the only standardized structure" for securitizing FHA-insured HECM loans, Ginnie Mae said. HMBS issuers will be able to securitize all HECM loan draws, mortgage insurance premiums, and servicing and guarantee fees and then pass through payments to investors as homeowners pay off the loan. "Currently, reverse mortgage originators generally get a premium on the initial loan draw and are reimbursed by the investor dollar-for-dollar on subsequent draws," said Thomas R. Weakland, acting executive vice president of Ginnie Mae. "The ability to securitize successive draws means the originator can obtain market pricing on the entire loan amount -- not just the initial draw. That's a key value of the HMBS to lenders."

The House is on track to pass a Mortgage Reform and Anti-Predatory Lending bill Thursday, and the lawmakers will likely attach a separate bill that addresses escrow, appraisal, and servicing issues.The House Financial Services Committee approved the predatory-lending bill by a 45-19 vote Nov. 6. The next day the committee approved the servicing reform bill (H.R. 3837), sponsored by Rep. Paul Kanjorski, D-Pa., by voice vote. The Kanjorski bill establishes enforceable national appraisal independence standards with tough penalties for lenders who pressure appraisers to inflate property values. The bill also requires escrow accounts for taxes and insurance on most subprime mortgages and creates standards for force-placed insurance. New York Attorney General Andrew Cuomo endorsed the appraisal reforms at a news briefing arranged by Rep. Kanjorski last week. The New York AG has raised issues about major institutions that have allegedly been pressuring appraisers.

Federal Reserve Chairman Ben S. Bernanke said Thursday that Fannie Mae and Freddie Mac should be allowed to securitize loans of up to $1 million as a way to alleviate the mortgage credit crunch.Currently, Fannie and Freddie cannot purchase or securitize loans larger than $417,000 -- their loan limit "cap." The Fed chairman said the government could act as a guarantor to aid Fannie and Freddie in securitizing jumbos. "Suppose that the GSEs were to pay their usual mortgage insurance credit fee to the government, which then acted as guarantor so it would be taking away the credit risk from the GSEs," he told the Joint Economic Committee of Congress. "They could process these jumbo loans and sell them in the secondary market." Approval for the government-sponsored enterprises to securitize jumbos would need congressional approval.

The federal regulator of Fannie Mae and Freddie Mac has blasted New York Attorney General Andrew Cuomo for subpoenaing the two GSEs in connection with an appraisal fraud probe, arguing that "they have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals.""I am disappointed that your office did not contact OFHEO before or even after subpoenaing the GSEs and issuing certain threats regarding their future business activities," writes OFHEO Director James Lockhart in a Nov. 8 letter to AG Cuomo. Mr. Lockhart wants an explanation from Mr. Cuomo in regard to his demand that the government-sponsored enterprises cease doing business with Washington Mutual, a large seller of mortgages to the GSEs. Earlier this week the New York AG said his office would subpoena the GSEs as part of a wider probe into mortgage industry practices. OFHEO is the safety-and-soundness regulator of Fannie and Freddie.