Compliance & Regulation

House Financial Services Committee chairman Barney Frank, D-Mass., is urging the Department of Housing and Urban Development to drop its initiative to start charging risk based premiums on FHA-insured 1-4 family loans next year.Congress is close to passing a Federal Housing Administration reform bill that authorizes risk-based pricing, Reps. Frank and Maxine Waters, D-Calif., say in a letter to HUD secretary Alphonso Jackson. "We are particularly surprised to see HUD acting unilaterally to implement risk-based pricing before waiting for Congress to complete action on this legislation -- especially since your proposal differs from the bill passed by the House," the Nov. 2 letter says. The Democrats sent the letter the same day that chairman Frank engaged FHA commissioner Brian Montgomery in a sharp exchange over risk-based pricing. The commissioner indicated that FHA needs RBP to avoid increasing mortgage insurance premiums on all borrowers, Mr. Montgomery said. The FHA is "perilously close" to raising premiums, mainly due to defaults on loans with downpayment assistance, Mr. the commissioner said.

The Federal Housing Administration is reaching out to nearly "1.2 million at-risk American homebuyers" to inform them about the new FHA Secure refinancing program.FHA commissioner Brian Montgomery told a congressional panel that his agency is using a direct-mail database to contact subprime borrowers with 2/28 and 3/27 ARMs that are due to reset by 0ctober 2008. Over 1,500 delinquent borrowers have already filed applications to refinance into a FHA Secure mortgage since the agency launched the new program Sept. 5. "Though still a very new program, 575 FHA-approved lenders are already using FHA Secure to rescue delinquent borrowers from the potential loss of their homes," Mr. Montgomery testified. Meanwhile, FHA has received 74,000 applications by current conventional borrowers who want to refinance into a FHA loan since Sept. 5. FHA received 37,500 of these applications in September and another 36,500 in October.

Democrats on the House Financial Services Committee have secured the support of Rep. Spencer Bachus, R-Ala., after making significant changes to a predatory lending bill that is scheduled for mark up on Tuesday (Nov. 6)."The most important fact about this compromise is that it has significant new safeguards to protect families from abusive lending," Rep. Bachus said. He noted the assignee liability provision has "carefully crafted assurances that frivolous lawsuits will not disrupt" the securitization of mortgages. The ranking Republican has been working with Democrats on the predatory lending bill for the past two years. And he has agreed to co-sponsor the manager's amendment that committee chairman Barney Frank, D-Mass., will offer at the beginning of the markup.

Meanwhile, Washington Mutual has announced the suspension of its relationship with eAppraiseIT until WaMu can investigate the allegations in the lawsuit filed by the New York attorney general.New York AG Andrew Cuomo sued First American Corp. and its eAppraiseIT unit for allegedly colluding with WaMu to use a list of preferred appraisers to inflate mortgage appraisals. The lawsuit said the state attorney general's investigation uncovered a series of e-mails between executives at eAppraiseIT, First American, and WaMu that allegedly show eAppraiseIT officials were willingly violating state and federal appraisal independence regulations to comply with WaMu demands to inflate appraisals. "We are surprised and disappointed by the allegations in the complaint related to eAppraiseIT," WaMu said in a news release. "We have absolutely no incentive to have appraisers inflate home values. In fact, inflated appraisals are contrary to our interests. We use third-party appraisal companies to make sure that appraisals are objective and accurate." WaMu can be found online at http://www.wamu.com.

The lawsuit by New York Attorney General Andrew Cuomo alleging collusion to inflate mortgage appraisals between First American Corp., its subsidiary eAppraiseIT, and Washington Mutual has no basis in fact or law, First American said in a statement issued Nov. 1."We are dismayed by any impact these specious allegations may have on our company, on our many employees, and on our valued customer, Washington Mutual," First American said. "The Attorney General's allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law." The program challenged by the attorney general "has been vetted and approved by the federal regulator responsible for oversight of such programs," the company said. First American said it will demonstrate to the court "the appropriateness of our appraisal practices in the state of New York, and we will vigorously defend the reputation of Washington Mutual and the reputation we have labored more than 100 years to build." First American can be found online at http://www.firstam.com.

Democrats on the House Judiciary Committee plan to try Nov. 7 to mark up a bill that allows bankruptcy judges to restructure mortgages, and they are hoping to get some Republican support.Committee Chairman John Conyers, D-Mich., acknowledged at a Nov. 1 hearing that it will be "very tough" to get the bankruptcy bill through the House and the Senate without Republican support. But it appears that the Democrats will be lucky to get support for the bankruptcy bill (H.R. 3609) from Rep. Steve Chabot, R-Ohio, who has introduced his own bankruptcy restructuring bill. Mortgage industry lobbyists are fairly confident that opposition from Republicans and a group of conservative Democrats will make it difficult to bring H.R. 3609 to the House floor for a vote. Separately, the House Financial Services Committee is planning to start the mark-up of a predatory lending bill (H.R. 3915) on Nov. 6, which could take several days to complete.

The Office of Thrift Supervision has issued the final Basel II risk-based capital rule, and the other banking regulators are expected to follow soon.The long-awaited capital rule is designed for the largest U.S. banks with international exposure. But large regional banks that want to use an internal ratings-based approach to calculate their RBC requirements can also adopt it. The OTS noted that the regulators are working on the "standardized approach," which is an upgrade of the current Basel I RBC standard, and they expect to issue a notice of proposed rulemaking in the first quarter. The American Bankers Association urged the regulators to act quickly on the standardized RBC approach so that the majority of U.S. banks are not left at a competitive disadvantage to the large Basel II banks. "We look forward to working with the regulators on the prompt development of the standardized approach," ABA executive director Wayne Abernathy said.

Fannie Mae and Freddie Mac have the existing capability to buy or securitize over $125 billion in subprime rescue mortgages without congressional legislation temporarily increasing the caps on their investment portfolios, according to the director of the Office of Federal Housing Enterprise Oversight."In my view, the legislation is unnecessary, unsafe and unsound, and could have the unfortunate effect to set a target for subprime purchases that the enterprises may not be able to meet safely," OFHEO Director James Lockhart says in a letter to Rep. Paul Kanjorski, D-Pa. Sen. Charles E. Schumer, D-N.Y., and Rep. Barney Frank, D-Mass., have introduced a bill to lift the cap for six months -- provided that 85% of the GSEs' purchases involve subprime loans that have been refinanced. OFHEO recently provided the two government-sponsored enterprises with additional cap flexibility. However, Fannie and Freddie responded by reducing the size of their portfolios in September. Rep. Kanjorski said he agrees with the OFHEO director's "informed assessment."

Saying that mortgage brokers are facing "extinction," the National Association of Mortgage Brokers is urging its members to learn about pending legislation that would "outlaw" yield-spread premiums and then call their members of Congress to complain.The trade group has set up two conference calls -- one scheduled Nov. 2 -- to inform its members about Rep. Barney Frank's Mortgage Reform and Anti-Predatory Lending Act of 2007, which, among other things, would require all brokers to have a minimum net worth or a bond requirement of $100,000. A Democrat from Massachusetts, Rep. Frank is chairman of the House Financial Services Committee. NAMB government affairs chair Denise Leonard sent an e-mail message to members saying that if the bill passes, "all subprime lending will cease to exist." The association can be found online at http://www.namb.org.

The House Financial Services Committee has approved by voice vote a bill that would increase flood insurance premiums for purchasers of expensive homes that are located in flood zones and currently enjoy subsidized rates.The bill (H.R. 3959), sponsored by Rep. Scott Garrett, R-N.J., is aimed at phasing out subsidized premiums on newly purchased $600,000-plus beach homes so the subsidy is not passed on to buyers who know the property is located in a flood zone. The House has already passed the Flood Insurance Reform bill (H.R. 3121), which phases out subsidized premiums for commercial properties, vacation homes, and second homes built before 1974. House and Senate banking committee members are likely to consider the Garrett bill when they meet in conference to reconcile their respective flood bills.