Compliance & Regulation

The Department of Housing and Urban Development estimates that the Federal Housing Administration could help about 240,000 homeowners facing resets on their adjustable-rate mortgages avoid foreclosure."Of the 2 million loans expected to reset by the end of 2008, we estimate about 500,000 will actually foreclose," HUD Secretary Alphonso Jackson told the House Financial Services Committee. "Through FHA, we estimate that we can help about half those homeowners." The secretary noted that HUD can help these homeowners under its new FHASecure refinancing program. However, the FHA could help even more struggling homeowners if Congress passes FHA reform legislation, he said. HUD can be found on the Web at http://www.hud.gov.

To help struggling borrowers with little or no equity in their homes, the Bush administration would support GSE legislation that relaxes the mortgage insurance requirements on the loans Fannie Mae and Freddie Mac purchase, Treasury Secretary Henry Paulson has told Congress.Such a change would significantly increase the credit risk the government-sponsored enterprises take on, the Treasury secretary said, so it should only be done as part of a comprehensive GSE regulatory reform bill. "It would be irresponsible to expand GSEs' business without addressing the fundamental problems of their regulatory structure," Secretary Paulson told the House Financial Services Committee. Currently, the GSEs are required to have private mortgage insurance on loans they purchase with loan-to-value ratios greater than 80%. The secretary also said the administration would support a temporary increase in GSE loan limits to provide more liquidity in the jumbo market. But he emphasized that such an increase should only be implemented once Congress passes comprehensive GSE reform legislation.

The Office of Thrift Supervision is suggesting to Congress that it is time to impose some level of federal supervision over independent mortgage banks and that the OTS has the "expertise" to do it."The OTS has extensive expertise in the oversight and supervision of mortgage banking operations that I believe would benefit the currently unregulated mortgage banking market," OTS Director John Reich told the Exchequer Club in Washington. Imposing federal regulations and minimum lending standards on mortgage banks would create a level playing field with federally chartered banks and thrifts and "reduce the competitive pressures to engage in practices that are misleading and otherwise not consumer-friendly," Mr. Reich said. The Mortgage Bankers Association supports the creation of a uniform national lending standard. But MBA senior vice president Kurt Pfotenhauer said the supervision or regulation of those lending standards will have to be worked out as part of the legislative process. The OTS can be found on the Web at http://www.ots.treas.gov.

The House has passed a 15-year extension of the federal government's terrorism insurance program that expands the lines of insurance that insurers will be required to offer their clients.The bill adds group life insurance to the lines of insurance for which terrorism coverage must be made available. It also expands insurance coverage for nuclear, biological, chemical, and radiological acts of terrorism. "This legislation is essential to the continued growth and development of American cities and to provide needed protections for those who work, live, and invest in downtown areas," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. White House officials have indicated that the president will veto the bill. But many financial services and real estate groups, including the Mortgage Bankers Association, support the bill (H.R. 2761), which extends the Terrorism Risk Insurance Act. "We remain committed to working with the Congress and the administration on this very important legislation," MBA chairman-elect Kieran Quinn said.

Ginnie Mae has granted an extension to R&G Mortgage Corp. allowing it to continue servicing Ginnie mortgage pools until Oct. 9, according to R&G Financial Corp., the San Juan, Puerto Rico-based parent company of R&G Mortgage.However, R&G Mortgage may not issue additional Ginnie Mae-guaranteed mortgage-backed securities. R&G Mortgage has also received notice from Fannie Mae placing conditions and limitations on the company's selling and servicing relationship with Fannie. Fannie Mae also said it will require R&G Mortgage to sell its servicing portfolio to another Fannie-approved servicer if Fannie Mae does not approve an application by R&G Financial's banking subsidiary, R-G Premier Bank of Puerto Rico, to be a Fannie Mae seller/servicer. R&G reported in July that it was no longer able to originate loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs because of the company's failure to submit timely audited financial statements. R&G can be found on the Web at http://www.rgonline.com.

The Department of Housing and Urban Development says Fannie Mae and Freddie Mac met or exceeded their affordable housing goals for 2006 even though Freddie missed one of the home purchase subgoals by a tiny fraction.The government-sponsored enterprise purchased 179,145 mortgages that qualified for the special affordable home purchase subgoal, but "missed by 634 loans," Freddie said in its annual affordable housing report to HUD. Freddie Mac's report also shows that its purchases of asset-backed securities accounted for 32.5% of single-family units qualifying for the low- and moderate-income housing goal, and its purchases of commercial mortgage-backed securities accounted for 56.4% of the qualifying multifamily units. Fannie noted that it started purchasing CMBS in 2006, but did not discuss its ABS purchases.

The House Financial Services Committee has unanimously approved a bill that would give all the federal banking regulators the authority to adopt consumer protection rules that prohibit depository institutions from engaging in unfair and deceptive practices.The committee chairman, Rep. Barney Frank, D-Mass., has complained that banking regulators do not have the explicit authority to use their enforcement powers to protect consumers and says his bill corrects that anomaly. He noted that the Federal Reserve Board and the Office of Thrift Supervision already have authority to issue unfair-practices rules, but that only the OTS has taken the initial step of issuing a proposal to spells out specific unfair and deceptive lending practices for public comment. The bill (H.R. 3526) directs all the agencies -- including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. -- to jointly or individually issue unfair-practices rules. "I think it is an important bill that really helps consumers and really helps regulation," said Rep. Carolyn Maloney, D-N.Y. Rep. Frank noted that all the banking agencies and the banking industry support the bill.

The Office of Federal Housing Enterprise Oversight says it will allow Fannie Mae and Freddie Mac added "flexibility" in managing their mortgage portfolios to assist troubled subprime borrowers, but that it would not be "prudent" to make major changes because the companies are not done fixing their accounting systems.OFHEO's reluctance to increase the government-sponsored enterprises' ability to portfolio loans in a greater amount met with immediate criticism from some top elected officials. OFHEO's added flexibility would allow the GSEs to increase their on-balance-sheet holdings by about 2% -- but over a shorter time frame. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., called the 2% figure "pretty timid," saying that at least 5% is needed. Sen. Charles E. Schumer, D-N.Y., wants a 10% increase. OFHEO said its changes will allow Fannie and Freddie "to purchase or securitize, over the next six months, up to $20 billion or more of subprime mortgages."

By a 20-1 vote, the Senate Banking Committee has approved a Federal Housing Administration reform bill that would lower the FHA downpayment requirement to 1.5% and raise the FHA loan limit to $417,000 in high-cost areas.Reforming the FHA is going to be a "big help" in dealing with the mortgage crisis, committee Chairman Christopher J. Dodd said after the mark-up of the bill. The chairman also thanked several senators for not offering government-sponsored enterprise amendments during the mark-up session that would raise Fannie Mae's and Freddie Mac's loan limits and the caps on their mortgage portfolios. The chairman told reporters he plans to mark up a GSE reform bill this fall and will "resist" any GSE amendments when the FHA bill goes to the Senate floor. The FHA reform is silent on the issue of FHA risk-based mortgage insurance premiums. But Sens. Dodd and Wayne Allard, R-Colo., raised concerns about Department of Housing and Urban Development moves to issue a risk-based premium proposal. "HUD seems to feel they have the authority to move forward on their own," Sen. Allard said. "At the very least, I think they need to consult with the Congress and seek out our consent."

The House has passed a Federal Housing Administration reform bill by a 348-72 vote that raises the FHA loan limit to over $700,000 in high-cost areas and allows the FHA to reach more subprime borrowers by charging risk-based premiums.FHA Commissioner Brian Montgomery welcomed the House action despite concerns that the House bill (H.R. 1852) raises the FHA loan limits too high. The Bush administration proposed raising the FHA loan limit from $362,790 to the $417,000 conforming-loan limit in high-cost areas. But the House approved a bipartisan amendment by voice vote that raises the maximum FHA loan limit to 175% of the conforming loan limit, or $730,000, to address problems in the jumbo loan market. Commissioner Montgomery noted that the administration strongly opposes such a loan limit hike but said he expects the Senate bill to be more compatible with the administration's position. "We look forward to seeing what the Senate does, and we will try to work out those differences in conference committee," Mr. Montgomery told reporters.