Compliance & Regulation

Ginnie Mae has set the stage for the launch of its reverse mortgage securitization program this September with the release of a guide for mortgage-backed securities issuers.The new guide for securitizing Federal Housing Administration-insured Home Equity Conversion Mortgages provides detailed issuer pooling and reporting specifications. "The HECM Mortgage Backed Securities Guide will be an essential source of information for issuers preparing to participate in the HMBS program," said Michael Frenz, executive vice president of Ginnie Mae. A Ginnie Mae HMBS pool must have a minimum outstanding balance of $1 million, and issuers must have a minimum net worth of $500,000, according to the HMBS guide.

R&G Financial Corp., San Juan, Puerto Rico, has reported that its status as a HUD/FHA-approved lender has been withdrawn by the Department of Housing and Urban Development because of R&G's failure to submit timely audited financial statements.As a result, R&G said it is currently unable to originate loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. The company said its subsidiary R&G Mortgage will file an appeal with HUD, and its subsidiary R-G Premier Bank will apply to be licensed as a HUD/FHA-approved lender. "As a licensed bank lender, R-G Premier would not be subject to the audited financial statement requirements applicable to R&G Mortgage," R&G said. The company also reported that it has received "notice of non-objection" from the Federal Reserve Bank of New York and the Federal Deposit Insurance Corp. to "engage in what amounts to the last of its 'unwinding' transactions with other Puerto Rican financial institutions resulting from the restatement of its audited consolidated financial statements." R&G can be found on the Web at http://www.rgonline.com.

The Federal Reserve Board is working "expeditiously" on crafting proposals to protect consumers from unfair subprime lending practices, but there is no timetable for the issuance of a Home Ownership and Equity Protection Act rule, according to a Fed governor."I can't give you a timetable," Fed Governor Randall Kroszner told a meeting of the New York Bankers Association in Washington. One of the bankers, New York Federal Home Loan Bank President Alfred DelliBovi, told the Fed governor that he senses a lot of "anger" in Congress about the subprime mortgage situation and rising foreclosures. Mr. Kroszner stressed that the board is "very sensitive" to the plight of subprime borrowers who have lost their homes and others that are facing resets on adjustable-rate mortgages. The Fed is devoting a lot of resources to the issue, he said. On July 11, the House passed a resolution (H. Res. 526) that calls for "government action" to protect homebuyers "from unscrupulous mortgage brokers and lenders."

The Department of Housing and Urban Development is creating a new fair-lending division to handle an increasing number of investigations into discriminatory mortgage lending practices."We have launched a record number of investigations this year," said HUD Assistant Secretary Kim Kendrick. It is understood that HUD is investigating several subprime lenders for pricing disparities based on Home Mortgage Disclosure Act reports. The new fair-lending division will also oversee Fannie Mae and Freddie Mac to ensure that their underwriting policies and practices comply with fair-lending laws.

Because the appropriations process is crowding out other legislation, House Financial Services Committee Chairman Barney Frank, D-Mass, says he believes passage of a Federal Housing Administration reform bill will have to wait until Congress returns from its August recess in September.During floor debate on a housing resolution, Rep. Frank said a dispute over origination fees on FHA-insured reverse mortgages held up action on the FHA bill until the July 4th recess. That has been resolved, he said, but added that "we then ran out of time because of the appropriation process." The House Financial Services Committee approved the FHA reform bill (H.R. 1852) on May 3. The reforms would increase the FHA single-family loan limits and allow the FHA to charge risk-based premiums and offer zero-downpayment loans. The Senate Banking Committee has scheduled its first FHA hearing for July 18, and FHA supporters are hoping it will lead to the introduction of an FHA reform bill in the Senate soon.

At the request of Congress, the Department of Housing and Urban Development has extended the comment period on a proposed rule to ban seller-funded downpayment assistance on FHA loans.HUD extended the comment period 30 days, till Aug. 10, at the request of Reps. Maxine Waters, D-Calif., and Gary Miller, R-Calif., who said they are "opposed to an expedited rulemaking process in the absence of further congressional review." The two House Financial Services Committee members also demanded that HUD turn over internal documents related to its efforts to improve the performance of Federal Housing Administration single-family loans with downpayment assistance provided by nonprofit groups. Scott Syphax, president and chief executive of Nehemiah Corp., welcomed the extension. "The additional 30 days ensures Congress will have the necessary time to properly review the role downpayment assistance programs play in providing access to homeownership for tens of thousands of low- and moderate-income borrowers each year," he said.

The Office of Thrift Supervision is in the very early stages of a rulemaking process that could lead to the issuance of a regulation that bans certain "unfair and deceptive" lending practices.An OTS spokesman said agency officials are preparing to solicit industry and consumer groups soon for input on certain abusive practices. After reviewing the responses, the OTS plans to issue a notice of proposed rulemaking for public comment. Federal banking regulators are under pressure from Congress to curb irresponsible subprime lending, and the Federal Reserve Board is considering significant changes to its Home Ownership and Equity Protection Act regulations. But the OTS also has the authority to define "unfair and deceptive" lending practices. One thrift industry official welcomed the agency's initiative, saying that the OTS has the experience to develop a rule that provides consumer protections without unnecessarily curbing the availability of credit.

Federal Deposit Insurance Corp. Chairman Sheila Bair said Wednesday that mortgage wholesalers "need to know" who they are doing business with and blamed the subprime crisis partly on unregulated loan brokers.Speaking before a New York Bankers Association meeting in Washington, Ms. Bair -- in response to a question from the audience -- said brokers "are a big chunk of the problem … but we don't regulate brokers." Of the three largest subprime wholesalers in the United States -- Countrywide Home Loans, HSBC Finance, and Option One -- two (Countrywide and HSBC) are depositories, but just HSBC is regulated by the FDIC. On July 16, the FDIC's Advisory Committee on Economic Inclusion will explore the subprime mortgage crisis. One panel will be devoted to the role loan brokers played in the mess.

The 11th Circuit Court of Appeals has reaffirmed its position in a 12-year-old legal battle that lender-paid fees to mortgage brokers are proper unless consumers can prove the amount is excessive."In summary, the borrowers bear the burden of demonstrating, with specific evidence, that the total remuneration that their brokers received was unreasonable … in light of market standards and the subjective facts of their mortgage transactions," the circuit judges ruled in Culpepper v. Irwin Mortgage Corp. The appeals court stressed that the courts should use the Department of Housing and Urban Development's two-part test in evaluating yield-spread premiums, which are paid by the wholesale lender to the broker at closing. This test requires a case-by-case inquiry into each mortgage transaction, the appeals court said in affirming a lower court decision to decertify class action status in the Culpepper case. The 11th Circuit Court had upheld class certification in 2001, and the mortgage industry was afraid it would be engulfed in class action lawsuits. But the appeals court reversed itself after HUD issued a clarification of its YSP test.

The Securities and Exchange Commission has initiated a formal investigation of New Century Financial Corp., according to the subprime mortgage company, which is in bankruptcy.Previously known as one of the nation's largest subprime lenders, New Century disclosed the existence of the SEC investigation in a July 5 securities filing and said it is cooperating with the commission. An internal investigation by the Irvine, Calif.-based company earlier this year discovered accounting errors relating to its loan repurchase losses and residual interests in securitizations. New Century has warned that its financial statements for 2005 and 2006 should not be relied on. New Century also disclosed in the SEC filing that it completed the sale of its servicing assets and servicing platform to Carrington Capital LLC for $177.4 million, including $5 million that is being held in escrow to indemnify Carrington for any possible claims. The company can be found on the Web at http://www.ncen.com.