Compliance & Regulation

The Mortgage Bankers Association is urging the Department of Housing and Urban Development to reconsider a scheduled premium hike on Federal Housing Administration multifamily mortgages."At a time when many families are losing their homes and turning to rental housing, HUD should not impose a new tax on rental housing," MBA chairman Kieran Quinn said. "This decision will slow the development and rehabilitation of affordable rental housing across the nation." HUD has published a Federal Register notice that it is planning to increase the annual mortgage insurance premium on its most popular multifamily program from 45 basis points to 61 bps on Dec. 1. The comment period ends Nov. 19. Over 100 representatives and 38 senators have signed letters opposing an increase in the MIP. The MBA can be found online at http://www.mortgagebankers.org.

Home sales, prices, and construction continued to decline in most areas of the country in September, and many lenders tightened their credit standards, according to the Federal Reserve Board's Beige Book."Lending for home mortgages, equity lines and refinancing continue to soften in most Federal Reserve Bank districts," the Beige Book says. Commercial real estate markets remain "solid." But some district banks are seeing a "move to more conservative financing." In a recent speech, Fed Chairman Ben Bernanke warned that tighter terms and standards on nonprime and jumbo mortgages appear "likely to intensify the correction in housing significantly with adverse implications for construction activity and house prices." The Fed can be found online at http://www.federalreserve.gov.

The Securities and Exchange Commission has opened an informal investigation into the stock sales of Countrywide Financial Corp. founder, chairman, and chief executive Angelo Mozilo, according to combined news reports.The company has declined to comment on the matter. Over the past three years Mr. Mozilo has exercised options and sold shares, but last fall he made changes in his stock selling program to accelerate sales. The stock sales have been made under a planned program referred to as 10b5-1. The North Carolina state treasurer -- on behalf of state pension funds that own Countrywide stock -- recently asked the SEC to investigate Mr. Mozilo's stock sales. This spring, in an interview with National Mortgage News, the Countrywide CEO addressed critics who had questioned his massive selling. He said if he kept all the shares, he'd have to pay taxes on them. "These critics expect me to hold my shares forever?" he said. Countrywide can be found online at http://www.countrywide.com.

State attorneys general are not going to take a back seat to the Treasury Department's Hope Now initiative when it comes to working with and monitoring the top 10 subprime servicers and their loan modification activities, despite the suggestions of one mortgage industry group."We think the Hope Now initiative and our initiative are very complementary," Iowa AG Tom Miller said. It is important to have people at the local as well as the federal level involved in the monitoring, he added. In a letter to the Iowa AG, the Consumer Mortgage Coalition said the Treasury is putting together a coordinated effort to prevent foreclosures and that requiring servicers to work with two initiatives will make them less effective. "We believe that by concentrating our efforts in the Hope Now Alliance, we will be able to maximize the benefit for the citizens of your state," CMC executive director Anne Canfield says in the letter. Mr. Miller told MortgageWire that the top 10 servicers have agreed to work closely with a group of state AGs and banking regulators. "None of them have indicated they are not going to honor their commitment," he said.

The liquidity provided by private-label mortgage-backed securities fueled aggressive lending practices that have contributed to rising defaults and foreclosures, according to a Government Accountability Office study.The GAO study indicates that underwriting standards deteriorated from 2000 to 2006 along with the increase of adjustable-rate mortgages and limited- or no-documentation loans. "Growth in the market for private-label MBS beginning in 2003 provided liquidity to some brokers and lenders to support these aggressive lending practices," the congressional watchdog agency says. The National Association of Mortgage Brokers said the GAO study shows that securitization and too much liquidity led to aggressive practices by banks and other lenders. "Mortgage brokers are not to blame for the meltdown in the subprime market," NAMB president George Hanzimanolis said. The study points out that mortgage brokers accounted for 60% of originations in the subprime market and 25% in the prime market in 2005.

Rep. Paul Kanjorski, D-Pa., has introduced a mortgage servicing and appraisal reform bill that he plans to attach to a comprehensive predatory lending bill the House Financial Services Committee is expected to mark up this fall."This bill helps to protect consumers by improving mortgage servicing, enhancing appraisal quality and standards, ensuring better appraisal oversight, and requiring escrows for those mortgages where borrowers are more likely to experience difficulty in budgeting for the often substantial cost of taxes and insurance," Rep. Kanjorski said. The second-ranking Democrat on the Financial Services Committee has been working on servicing and appraisal reforms for several years as a result of a major developer scam in his Pennsylvania district that led to scores of foreclosures. One aim of the bill (H.R. 3837) is to address the lack of escrow accounts on subprime loans. Lenders would be required to provide an estimate of taxes and insurance when borrowers apply for a mortgage so that they understand the annual costs if they opt out of establishing an escrow account at closing. The bill also attempts to shield appraisers from lender pressure and updates the Real Estate Settlement Procedures Act to create new servicing protections for consumers and increases penalties for violations.

The Senate Banking Committee has approved a five-year extension of the National Flood Insurance Program and a seven-year extension of the federal government's terrorism insurance program in strong bipartisan votes.By a 21-0 vote, the committee passed the NFIP extension bill that would forgive $21 billion in debt accumulated by the flood insurance program in the 2005 hurricane season and phases out subsidized premiums for vacation homes and properties with repetitive flood losses. The Senate bill does not expand coverage to include wind damage, as a House-passed flood bill did, because committee leaders are uncertain of the costs and concerned that it would sink the bill. By a 20-1 vote, the committee approved an extension of the Terrorism Risk Insurance Act that the Bush administration says it can support. The House is working on a 15-year extension of TRIA along with expanding coverage to include nuclear, biological, chemical, and radiological acts of terrorism. The Senate bill includes a study of such expanded coverage.

For the first time, Federal Housing Administration lenders now have the option of using the one-year London interbank offered rate as an index for FHA adjustable-rate and reverse mortgages, according to a final rule.The final rule, which has an Oct. 12 effective date, also allows reverse mortgage lenders to use the one-month LIBOR or the one-month constant maturity Treasury index for monthly adjustments of FHA Home Equity Conversion Mortgages. "While FHA expects that the market will determine the degree of usage of the LIBOR indices, the existing constant maturity Treasury indices will remain acceptable for 1-, 3-, 5-, 7-, and 10-year forward ARMs and for HECM ARMs," according to a mortgagee letter. LIBOR is commonly used on several conventional and subprime ARM products.

Fairway Independent Mortgage Co., a mortgage broker/banker with over 100 branches nationwide, has announced a transition from operating as an FHA nonsupervised loan correspondent to a Department of Housing and Urban Development direct endorsement lender.Fairway said the transition enables it to originate and underwrite its own loans, and to increase its Federal Housing Administration originations and get more control of the underwriting process. Fairway had been operating as an FHA nonsupervised loan correspondent, and has been originating FHA loans since its inception in 1996, but until now did not have the power to underwrite these loans. Fairway said it has had a strong quality-control plan in place for the last several years. The company can be found on the Web at http://www.fairwayindependentmc.com.

With the gravitational pull of the subprime meltdown continuing to act as a drag on the housing market, Housing Secretary Alphonso Jackson went to the Mortgage Bankers Association's annual convention in Boston to remind financiers that "placing keys in the hands of new homeowners" is still the "real bottom line."Secretary Jackson told the convention that he hasn't been hearing enough lately about what is not only the American Dream but the dream of billions of people throughout the world. "A home represents empowerment, respect, pride, equality, financial security, and a stake in the community," he said. "It is where we live and grow up and grow old together." The HUD secretary also used his MBA appearance to stump for legislation that would reform the Federal Housing Administration, saying that it will "help break the cycle of foreclosure and price depreciation, and bring much-needed liquidity to the mortgage market." Noting that the Bush administration has exhausted its administrative ability to help people buy and keep their houses, he called on lawmakers to act quickly. "Each day of delay unnecessarily places thousands of families at risk of foreclosure," Secretary Jackson said.