Compliance & Regulation

The Chicago metropolitan area led the nation in high-cost loans in 2006, according to an analysis of federal data by The Chicago Reporter, a bimonthly publication focused on race- and poverty-related issues.The analysis was based on Home Mortgage Disclosure Act data recently released by the Federal Financial Institutions Examination Council. The Chicago-Naperville-Joliet metro area ranked highest in the nation with 88,315 high-cost loans last year, the Reporter said. "High-cost loans have become a national problem, and if you want to understand more about high-cost loans, the first place you should look is Chicago," said Alden Loury, senior editor of the publication. "For three years running, Chicago has led the nation in high-cost loans." Ranking just behind Chicago were the metro areas of Los Angeles-Long Beach-Glendale, Riverside-San Bernardino-Ontario (Calif.), Phoenix, and Washington, D.C., according to the Reporter. The publication can be found online at http://www.chicagoreporter.com, and the FFIEC, which sets uniform standards for the examination of financial institutions by federal regulators, can be found at http://www.ffiec.gov.

The Federal Housing Administration would be able to charge risk-based premiums based on a borrower's credit score and downpayment under a proposed rule the Department of Housing and Urban Development will publish soon in the Federal Register.The FHA mortgage insurance program currently charges a 150-basis-point upfront premium and a 50-bp annual premium for most borrowers. Under the proposal, which is being issued for a 30-day comment period, the FHA can charge a maximum upfront premium of 2.25% and a 55-bp annual premium for loans with only 3% down. With these limits, the FHA could provide mortgage insurance for borrowers with credit scores above 499. Discounted premiums would be available for first-time homebuyers who complete pre-purchase homeownership counseling. Creditworthy borrowers with credit scores above 679 and 10% down would pay only a 75-bp upfront premium and a 50-bp annual premium. HUD plans to establish this RBP system if Congress does not pass an FHA bill by Jan. 1.

The National Association of Hispanic Real Estate Professionals has announced the adoption of En Confianza: The NAHREP Code of Trust, a set of ethical principles that its members are required to abide by.The code sets requirements for four groups of professionals: mortgage originators; licensees and Realtors; builders; and providers of title, escrow, home inspection, and closing services. The principles call for stronger licensing and industry education requirements; quality controls such as net-benefit tests to ensure that all qualifying consumers are offered a prime loan; increased disclosures; development of a bilingual guide; protections against conflicts of interests; and full compliance with all state and federal laws. "Our industry's image is tainted by the actions of a few bad actors," said NAHREP chair Felix DeHerrera. "En Confianza solidifies NAHREP's position as an industry leader, and its members as trustworthy and reliable professionals." The organization said its first steps to enforce the code include joining forces with the Conference of State Bank Regulators and supporting the establishment of a "whistleblower hotline." The group can be found online at http://nahrep.org.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has scheduled a mark-up of a Federal Housing Administration reform bill on Sept. 19, and the House is expected to vote on passage of an FHA bill this week.The FHA reform bill "can be an important component in addressing the tidal wave of foreclosures" and provide troubled homeowners with "safe, affordable home loans," Sen. Dodd said. When the House takes up the FHA bill (H.R. 1852), Financial Services Committee Chairman Barney Frank, D-Mass., will offer a manager's amendment that specifically authorizes the FHA to refinance homeowners who are in default and have mortgages with "adverse terms or rates." Rep. Frank also plans to offer an amendment that boosts FHA loan limits to 125% of the median house price or $730,000 (175% of the conforming loan limit), whichever is lower. The Senate FHA reform bill is expected to raise the FHA loan limit to the $417,000 conforming loan limit in high-cost areas.

Hispanic and low- and moderate-income borrowers are having trouble getting mortgage financing, according to the National Association of Hispanic Real Estate Professionals, which is urging Congress to pass a Federal Housing Administration reform bill to help alleviate the credit crunch."Our members overwhelming favor reform and believe a majority of their customers could benefit from an FHA loan," NAHREP chairman Felix DeHerrera said. The House is expected to vote on an FHA reform bill (H.R. 1852) during the week of Sept. 17. Nearly 67% of the NAHREP members surveyed by the trade group and Wells Fargo Home Mortgage said they have turned away one-third of their customers because they could not qualify for conventional mortgage products. "However, 77% of respondents said that more than half of their customers could be helped if proposed changes in FHA programs are enacted," NAHREP said. About 58% of NAHREP's 14,000 members are real estate agents and 34% are mortgage brokers and lenders.

Mortgage company stocks should react positively to a rate cut by the Federal Reserve, but it will be short-lived because rising credit costs and a "tougher origination environment" will be drag on earnings, according to a Friedman Billings Ramsey report."It will be tough going for mortgage banking companies for the next 12 to 24 months," FBR analyst Paul Miller Jr. says in the Sept. 14 report. And it will be a particularly tough adjustment for companies that generated most of their earnings from gain-on-sale income or hold a large percentage of nonagency products in their portfolios. But banks and thrifts that took a cautious approach to credit risk should benefit from the current environment, according to the FBR analyst. "Additionally, a Fed rate cut should help improve margins as funding costs move lower," Mr. Miller said. The Federal Open Market Committee meets Sept. 18 to consider a cut in the Fed Funds rate.

Subprime and piggyback lending constituted a slightly higher percentage of mortgage originations in 2006 than in 2005, according to Home Mortgage Disclosure Act data released by the Federal Reserve Board.The HMDA data show that 28.7% of mortgages originated last year were "higher-priced," or subprime, up from 26.2% in 2005. The Fed also said piggybacks, in which a first mortgage and a second lien are originated simultaneously, were used in 22% of home purchase transactions, about the same as in 2005, but that more second liens were reported. "In 2006, lenders covered by HMDA reported about 1.43 million junior liens to purchase homes, almost all conventional loans, and a number about 4% greater than in 2005," the Fed said.

The Senate has passed a Department of Housing and Urban Development appropriations bill that provides $100 million for counseling for homeowners facing foreclosure."Across the country too many families are facing the nightmare threat of foreclosure," said Sen. Christopher S. Bond, R-Mo. "This is a good step to help stem the tide of foreclosures without bailing out risky lenders and speculators in the market." Sen. Christopher J. Dodd, D-Conn., co-sponsored the counseling amendment with Sen. Bond. The $100 million can go to public, private, and nonprofit entities (including the Neighborhood Reinvestment Corp. and state housing finance agencies) that provide foreclosure counseling. No federal funds can go directly to lenders or homeowners, according to the Bond/Dodd amendment. The Senate has passed the Transportation/HUD appropriations bill by an 88-7 vote. The HUD bill also increases Federal Housing Administration multifamily loan limits in high-cost areas and suspends for one year a cap on the number of reverse mortgages the FHA can insure. The bill does not include any funding for President Bush's downpayment assistance program.

The Senate Banking Committee is tentatively scheduled to mark up a Federal Housing Administration reform bill Sept. 19, sources say, but committee members are still trying to reach agreement on key provisions of the bill.The Senate bill is expected to raise the FHA loan limits to $417,000 in high-cost areas and limit the ability of the mortgage insurance agency to charge risk-based premiums based on credit scores. Just before the August recess, it appeared that the senators were near agreement to give the FHA the green light to set premiums based on loan-to-value ratios as well as loan or property type -- but not on credit scores. Separately, the FHA is expected to issue a proposed rule soon to establish an RBP system that the agency plans to implement if Congress does not pass an FHA bill by Jan. 1. In the other chamber of Congress, the House is expected to vote on passage of an FHA reform bill (H.R. 1852) the week of Sept. 16.

The Mortgage Asset Research Institute, a Reston, Va.-based service of ChoicePoint, has announced the release of what it calls the first phase of a series of enhancements to its Mortgage Industry Data Exchange antifraud database.The redesigned MIDEX 2.5 offers new features to assist the mortgage industry in identifying individuals associated with mortgage fraud. "A new user interface has been developed to help users access and categorize information more quickly," MARI said. "Additionally, the search logic has been improved to return results that are most relevant to queries." MARI can be found on the Web at http://www.mari-inc.com.