Compliance & Regulation

During the current instability in the subprime market, the Federal Housing Administration program has remained a stable force, Federal Housing Commissioner Brian Montgomery told a panel on the future of the subprime market at the Mortgage Bankers Association annual convention in Boston.Loans being made through the FHASecure initiative, he said, are performing very well, better even than its purchase business. The program will serve some 80,000 borrowers who are in default on their current mortgages as well as 160,000 who are not in default. Regarding FHA reform, Mr. Montgomery addressed the risk-based pricing portion of the proposal, noting that it would allow the FHA to expand its services to borrowers who have a weaker credit profile. As a result, those with better credit will not have to subsidize those with weaker credit. Risk-based pricing will allow more families to qualify for FHA-insured loans and qualify easier.

Ginnie Mae has finally decided that the new Federal Housing Administration Secure mortgages should be placed into new multiple-issuer pools under the Ginnie Mae II mortgage-backed securities program.These special Ginnie II pools will consist of mortgages that are available to delinquent homeowners who want to refinance into a fixed-rate FHA loan. It will also include FHASecure loans in which a conventional borrower refinances into an FHA mortgage and the lender takes out a "silent" second mortgage to cover closing costs or reduce the principal amount to meet FHA requirements. Ginnie Mae officials have been wrestling with the issue of how to deal with new mortgages since President Bush announced the FHASecure program just before Labor Day. Bond traders opposed placing FHASecure mortgages in Ginnie I MBS or even putting them into a standard Ginnie Mae II pool and limiting them to 5% or 10% of the pool. Ginnie Mae said in a notice to MBS issuers that it would start guaranteeing FHASecure pools Dec. 1.

Treasury Secretary Henry Paulson is tasking mortgage servicers that are part of the new "Hope Now" alliance with finding a way to measure their success in loan modifications.In a speech Tuesday, he said servicers could be more effective in seeking out struggling homeowners who need help and counseling. "I expect to see results," the Treasury secretary said. He asked alliance members -- who currently service about 60% of all U.S. mortgages -- to quickly develop "standardized metrics" for measuring results and evaluating the performance of servicers. "The current process is not working very well," Secretary Paulson said. He expects members of the recently formed Hope Now to be more effective by taking an aggressive approach to loan modifications. "I expect Hope Now to develop and begin reporting these metrics to investors, policymakers, and homeowners," Mr. Paulson said. "It is important that we all be able to measure results."

Even though home values are sinking in many housing markets, the Office of Federal Housing Enterprise Oversight said Tuesday that "under no circumstance" will it decrease the Fannie Mae/Freddie Mac loan limit in 2008.Currently, the loan limit for the government-sponsored enterprises is $417,000. Politicians and lenders alike have been asking for an emergency increase in the limit as a way to improve liquidity in the secondary market. OFHEO also said it is seeking additional public comment on how it calculates and implements the conforming loan limit each year. (In the past, the loan limit was based on the sales price of homes across the United States. Historically, home prices rise each year, causing the cap to increase. However, in 2007 there was no increase in the GSE loan limit.)

LoanToolbox, Westlake Village, Calif., has signed an alliance agreement with Carson, Calif.-based Document Systems Inc., a developer of mortgage technology for compliant loan document preparation and customer contact management solutions.Under the agreement, LoanToolbox will make DSI's LoanMagic broker point-of-sale software available free for one year to new LoanToolbox subscribers. LoanMagic, developed in 2000, is the first fully integrated mortgage customer contact management system designed to meet the needs of loan officers, LoanToolbox said. The built-in loan program analysis tools allow loan officers to instantly create and e-mail side-by-side comparisons of any of the 10,000 loan programs already built into the system. Connections embedded in LoanMagic allow easy access to Fannie Mae's Desktop Underwriter, Freddie Mac's Loan Prospector, and over 190 of the nation's credit report suppliers, LoanToolbox said. LoanToolbox can be found online at http://www.loantoolbox.com, and Document Systems can be found at http://www.docmagic.com.

Clayton Holdings Inc., a provider of information-based analytics and consulting based in Shelton, Conn., has announced the introduction of Clarity, a new system that it terms "the next generation in due diligence."The system gives loan buyers/securitizers "greater insight into the risk profile of portfolios" at the time of purchase, a projection of losses, and new options to reduce potential losses, the company said. Clarity uses a predictive approach that incorporates Clayton's proprietary risk-filter technology built on data collected in its surveillance of more than $1.5 trillion of subprime and alternative-A mortgage-backed securities. Unlike traditional due diligence, which reports on whether loans meet an acquirer’s guidelines, Clarity scores individual loans and the overall portfolio for credit, compliance, collateral, and estimated loss risk, Clayton said. Third-party data and technology can also be integrated into the process to assess collateral and fraud risk. "Clarity can help issuers identify the riskiest loans, better target due diligence efforts, and project and reduce prospective losses," said Keith Johnson, president and chief operating officer of Clayton. The company can be found online at http://www.clayton.com.

Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and other financial institutions have been working with the U.S. Treasury on a plan they believe may help mitigate the global credit crunch sparked by U.S. mortgage woes.The companies say they plan to create a single "master liquidity enhancement conduit" within the next 90 days that will agree, for a set period of time, to purchase "qualifying highly rated assets" from certain existing structured investment vehicles that choose to tap the new liquidity source. This may restore some liquidity by helping SIVs -- which borrow short-term and invest long-term -- refinance their asset-backed commercial paper borrowings. ABCP rollovers have been difficult during the credit crunch because many market participants have considered the trading value of mortgages and other assets to be uncertain, even if they have had strong credit.

ValuFinders Inc., a provider of valuation services based in Culver City, Calif., has introduced a service that helps originators comply with a Department of Housing and Urban Development Mortgagee Letter regarding accountability and fraudulent appraisal reports.The service, called Appraisal Concierge, was unveiled at the Mortgage Bankers Association convention in Boston. Under HUD Mortgagee Letter 2007-11, dated Sept. 6, 2007, lenders will share responsibility with the appraiser if a poor or fraudulent appraisal leads the FHA to insure a loan at an inflated amount. "Lenders and brokers will soon be just as responsible for fraudulent and deficient appraisals as the appraiser," said Joe Williams, chief executive of ValuFinders. "Our system is an independent portal that acts as a 'middle man' in accepting orders and facilitating the deliverables back to the lender." Appraisal Concierge is described as an outsourcing database that lets lenders and brokers order appraisals through the Web. The system randomly selects an appraiser from a pool. "This service bypasses communications between lenders or brokers and appraisers," assuring appraiser independence, Mr. Williams said.

Did John Robbins pick "the wrong year" to chair the Mortgage Bankers Association? Not by his account."It was a terrific year," in every sense of the word, Mr. Robbins said in his final address to the MBA at the group's annual conference in Boston. Noting that the word means "intense" and "frightening" as well as "marvelous," the 2007 chair said that if anything was accomplished during his year at the association's helm, it was that the MBA was heard, loud and clear. "The MBA leadership made more appearances before Congress, gave more interviews to the press, and had more one-on-one meetings with legislators and regulators than in any other year in the MBA's 94-year history," he said. As a result, he added, no onerous predatory lending laws were passed, at least on the federal level, and progress was made on good legislation that would reform the Federal Housing Administration and simplify the lending process.

The Office of Federal Housing Enterprise Oversight is proposing to correct its loss severity calculations for mortgage defaults, which could substantially increase Fannie Mae's and Freddie Mac's risk-based capital requirements.Under the current equations, the government-sponsored enterprises record profits, instead of losses, on foreclosures of government-guaranteed loans and loans with low loan-to-value ratios. These changes would have increased Fannie's RBC requirement by $7.5 billion to $9.8 billion in the fourth quarter of 2006 and Freddie's by $4.5 billion to $5.4 billion. Fannie exceeded its RBC requirements by $16.1 billion that quarter and Freddie exceeded it by $21.4 billion. If finalized, this rule would negate any benefits the two GSEs expect when OFHEO releases them from the requirement to maintain a 30% capital surplus, according to Federal Financial Analytics, a Washington consulting firm. The regulator is expected to roll back the capital surcharge when the GSEs return to timely financial reporting next year. There is a 90-day comment period on the proposal.