Compliance & Regulation

The Senate Banking Committee has canceled a mark-up of a Federal Housing Administration reform bill after key Republicans complained about the process and wanted more time to work on the bill.A sudden push by committee Chairman Christopher J. Dodd, D-Conn., to mark up an FHA bill on Wednesday did not sit well with several Republican members, according to sources. They said the objections centered "more on process than substance" regarding the FHA bill Sen. Dodd put together with Sen. Mel Martinez, R-Fla. FHA reform supporters say they expect the senators to return from their August recess and approve a bill in September. The House Financial Services Committee has already approved an FHA reform bill.

Senate Banking Committee leaders have drafted a Federal Housing Administration reform bill that cuts the FHA downpayment requirement to 1.5% and raises FHA loan limits, according to a copy obtained by MortgageWire.However, negotiations are still under way over several provisions, and it is unclear whether committee members can reach an agreement in time to mark up and pass an FHA bill on Wednesday. The draft bill gives the FHA the green light to vary premiums based on loan or property type, loan-to-value ratios, and other factors, and to charge upfront premiums of up to 3%. The current limit is 2.25%. However, the bill stops short of allowing the federal mortgage insurance program to charge premiums based on credit scores -- a major reform objective of the Bush administration. In lowering the downpayment requirement from 3% to 1.5%, the bill prohibits seller-funded downpayment assistance on FHA loans.

The number of vacant single-family homes with "For Sale" signs in the front yard fell to 2.04 million in the second quarter, down 6.5% from that of the first quarter, registering the first quarterly decline since home sales started to slow in early 2006, according to a Census Bureau report.However, vacancies were up 17.8% since the second quarter of 2006, and it appears the spring sales season only put a dent in the huge inventory of empty homes, which exerts downward pressure on home prices. The number of vacant homes on the market rose by 600,000 in 2006 as homebuilders, homeowners, and speculators got caught in the slowdown last year. The Census Bureau report also shows that the homeownership rate declined to 68.2% in the second quarter, down from 68.7% a year earlier. The homeownership rate for blacks fell to 46.3% in the second quarter from 48.0% in the first quarter, while the homeownership rare for Hispanics was unchanged at 50.0%.

Street Resource Group Inc., a provider of technology and consulting services for mortgage warehouse lenders, has announced the formation of the Closing Agent Risk Committee, an industry group focused on risks associated with the loan closing process.The committee, a response to "the growing incidence of mortgage fraud and the pivotal role closing agents play in that process," stemmed from discussions at SRG's annual Warehouse Lenders Forum in New York City, where Scott Broshears of the Federal Bureau of Investigation presented mortgage fraud data, SRG said. Tom Holland, senior vice president of Regions Funding, led a discussion on closing agent risk and argued for the formation of a committee of executives from leading warehouse lenders to address the issue. Mr. Holland now heads the committee. Citing the growth of the recently formed Warehouse Information Network, SRG president Stanley Street promised that WIN will form committees on regulatory issues and industry standards and practices.

Earlier this year, the Federal Reserve Board referred three banks to the Department of Justice for further legal action after concluding that they engaged in a pattern of discrimination in mortgage lending."The Fed has conducted target reviews of institutions for pricing discrimination" based on Home Mortgage Disclosure Act data, Fed staffer Sandra Braunstein told a House Financial Services subcommittee. "As result of these reviews, we referred two nationwide lenders to the DOJ for mortgage pricing discrimination," she testified. Ms. Braunstein is the director of the Fed's Consumer and Community Affairs Division. The third referral involved an institution with loan policies that prohibited lending on Native American lands and on row houses in African-American neighborhoods.

A House Financial Services subcommittee has approved a 10-year extension of the federal government's terrorism insurance program along with changes to expand the coverage to include nuclear, biological, chemical, and radiological acts of terrorism.The Terrorism Risk Insurance Act extension bill also provides a federal backup for insurers providing group life insurance. Republican amendments to shorten the extension period to two years and then to five years failed, and the subcommittee members approve the bill by a voice vote. The full committee is expected to mark up the TRIA extension bill (H.R. 2761) soon. The Bush administration opposes a 10-year extension and efforts to expand the terror insurance program.

The House has passed a Department of Housing and Urban Development appropriations bill after inserting language that prohibits the department from implementing a rule that would block seller-funded downpayment assistance on Federal Housing Administration-insured mortgages.Reps. Maxine Waters, D-Calif., and Gary Miller, R-Calif., offered the amendment, approved by voice vote, so that downpayment assistance providers like Nehemiah and AmeriDream can continue to assistance low-income families to become homeowners. "With passage of this amendment and the overwhelming support of the House of Representatives, the dream of homeownership for millions of Americans in need of downpayment assistance is alive and well," said Scott Syphax, president and chief executive of Nehemiah Corporation of America, Oakland, Calif. HUD recently proposed to ban seller-funded downpayment assistance, maintaining that it leads to inflated appraisals and high foreclosure rates on FHA loans. The HUD appropriations bill also increases FHA 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 Securities and Exchange Commission has ruled that servicers of mortgage-backed securities can take the lead in restructuring or modifying subprime loans that are headed for default without running into adverse accounting consequences.The agency's professional staff believe that "modifications undertaken when loan default is reasonably foreseeable should be consistent with the nature of modification activities undertaken that would be permitted if a default had occurred," SEC Chairman Christopher Cox says in a letter to House Finance Services Committee Chairman Barney Frank, D-Mass. The SEC letter also clarifies that such loan modifications would not trigger a Financial Accounting Standard 140 requirement and force the lender to repurchase the loan. Rep. Frank thanked the SEC chairman for such a quick response to the issue. "This is a constructive approach that will allow mortgage lenders to provide help at the earliest possible moment to people who might otherwise be trapped in bad loans or forced into foreclosure," the committee chairman said. A few months ago, the Mortgage Bankers Association circulated a position paper concluding that servicers have a lot of latitude in helping borrowers avoid foreclosure. MBA senior director Alison Utermohlen said the SEC letter is good news. "We thought we were on firm ground," she said.

Clayton Holdings Inc., a provider of information and analytics to the banking and fixed-income securities markets, has introduced an analytic tool to help large lenders and Wall Street conduits determine whether closed loans they are buying meet prevalent "suitability" standards.The first release of the product focuses on payment shock and recalculates ability-to-pay using a fully indexed, fully amortized schedule, the company said. The suitability issue -- the contention that lenders are responsible for ensuring that a loan is suitable for a specific borrower -- has gained momentum as subprime loan defaults and foreclosures have mounted, Clayton noted. "There are layers to the debate -- and the definitions -- around suitability and nontraditional mortgages," said Keith Johnson, Clayton's chief operating officer. "Rather than wait for it to be fully defined and legislated, we assessed the issues currently being debated, spoke with our clients, and determined what is immediately needed to address this issue." Clayton, based in Shelton, Conn., can be found online at http://www.clayton.com.

ECC Capital Corp., a real estate investment trust based in Irvine, Calif., has announced that it plans to deregister its common stock because of the costs of compliance with the Sarbanes-Oxley Act and other reporting requirements.The REIT said it will file a Form 15 with the Securities and Exchange Commission to deregister the stock on or about July 30. ECC Capital is eligible to deregister because it has fewer than 300 common stockholders of record, the company said. "ECC Capital is deregistering because it believes that the incremental cost of compliance with the Sarbanes-Oxley Act of 2002 and other public company reporting requirements does not provide a discernible benefit to ECC Capital and is not in the best interest of its shareholders," the company said. The mortgage finance REIT can be found online at http://www.ecccapital.com.