Compliance & Regulation

Sen. Charles E. Schumer, D-N.Y., wants to impose a fiduciary duty on mortgage brokers and the initial lender that funds a subprime loan under a bill he is trying to get through the Senate Banking Committee."We need a fiduciary duty" that applies to nonbank lenders that are not federally regulated, Sen. Schumer told reporters. "If we did that, the vast majority of abuses would be cleaned up without affecting the functioning of the subprime market." The National Association of Mortgage Brokers contends that there are many problems with this approach -- since relationships between businesses and consumers are usually addressed at the state level. "The idea that imposing a fiduciary/agency relationship is going to fix everything is a fallacy, and it is not well thought out," said NAMB executive vice president Roy DeLoach. The Schumer bill (S. 1299) also requires lenders to underwrite loans at the fully indexed rate and requires escrow accounts on all subprime loans. Sen. Schumer told reporters that he plans to talk to banking committee Chairman Christopher J. Dodd D-Conn., about holding a mark-up of the bill. "The sooner the better," he said.

Representatives at the U.S. Conference of Mayors in Los Angeles have passed a resolution in support of privately funded downpayment assistance programs pioneered by the Nehemiah Corporation of America.The USCM extended its support to call on Congress to disapprove a controversial effort by the Department of Housing and Urban Development to ban PDA programs. The organization noted that DPA-assisted loans originated through the Federal Housing Administration have helped hundreds of thousands of low- to moderate-income families become homeowners. In the past decade, over a half-million families have purchased a home using DPA.

Robert Couch has been sworn in as the new general counsel for the Department of Housing and Urban Development and has given up his post as president of Ginnie Mae.HUD Secretary Alphonso Jackson tapped Mr. Couch to be his general counsel in February after Keith Gottfried suddenly resigned. The former Mortgage Bankers Association chairman was the president and chief executive of New South Federal Savings Bank, Birmingham, Ala., and managing director of a mortgage banking company before his appointment to Ginnie Mae. Meanwhile, Ginnie executive vice president Michael Frenz will have day-to-day responsibility for running Ginnie Mae.

Fidelity National Title Group, Jacksonville, Fla., has announced the introduction of a new product offering (in partnership with Experian Consumer Direct) aimed at helping its customers protect themselves against mortgage fraud.Under the partnership, Experian will offer Fidelity customers one year of credit monitoring, fraud resolution assistance, and a credit report at no cost. "We recognize that mortgage fraud and identity theft are a growing concern not only for our industry, but for our customers as well," said Randy Quirk, co-president of Fidelity National Financial, the parent company of Fidelity National Title. ".... Now, when our customers purchase title insurance from participating locations of our companies -- Fidelity National Title, Chicago Title, Ticor Title, Security Union Title, or Alamo Title -- they will receive a one-year membership to Experian Consumer Direct's CreditCheck Basic at no cost." The companies can be found online at http://www.fnf.com and http://www.experian.com.

New York Attorney General Andrew Cuomo has initiated several investigations focused on lender relationships with mortgage brokers and appraisers, according to an attorney who specializes in fair-lending litigation."As expected, Attorney General Cuomo has commenced a number of active investigations related to various aspects of mortgage lending," Andrew Sandler told MortgageWire. "Specifically, he has a number of active investigations pending involving pricing and underwriting issues, as well as inquiries focused on predatory lending." The partner at Skadden Arps described the level of scrutiny the New York AG is applying to the mortgage industry as unprecedented. "There are currently more inquiries out of the New York AG than I have ever seen from any individual enforcement agency at any single point in time," Mr. Sandler said. The NY AG's office has not responded to inquiries about its mortgage industry initiatives.

Unlike in past downturns, mortgage lenders are trying to hold mortgage brokers responsible for buybacks, but there are ways that brokers can protect themselves, according to Douglas Lowell Davies, an attorney with Lane Powell Attorneys and Counselors.Speaking at the National Association of Mortgage Brokers annual conference in Seattle, Mr. Davies said he has successfully represented several mortgage brokers that have been sued by lenders to pay for buybacks that investors have pushed back to the lender. He predicted that this is a trend that is likely to escalate and force brokers out of business if they are held liable in some cases. Mr. Davies advised brokers to come up with a short, one-page disclosure detailing all of the pertinent loan terms in plain English for each of their borrowers to sign. For stated-income loans, Mr. Davies added that brokers should have borrowers sign a document swearing, under penalty of law, that the income provided in the application is accurate.

Despite what the National Association of Mortgage Brokers says are unnecessary barriers that keep some members from originating FHA-insured mortgages, brokers now account for a third of the Federal Housing Administration's production, according to FHA Commissioner Brian Montgomery.Speaking to the NAMB's delegate council June 22 at the group's annual convention in Seattle, Mr. Montgomery said there has been a 25% increase so far in fiscal year 2007 in the number of brokers approved to write FHA loans. He called the increase a "great sign" and a said it is a trend he hoped would continue. "We want to see broker participation grow," he told the council, which consists of the group's executive leadership plus two representatives from each state affiliate. To earn approval to make FHA loans, brokers must post a $75,000 bond plus agree to yearly audits. But the NAMB believes the audit requirement is too onerous and "too expensive" for small firms that don't do many loans. For the government's part, the FHA commissioner said his agency is "working hard" to expand its direct endorsement program "to allow highly qualified FHA-approved lenders to use non-FHA-approved mortgage brokers. That's "how it's done in the rest of the industry right now," he said.

A proposal by the Department of Housing and Urban Development to eliminate seller-financed downpayment assistance on FHA-insured loans has run into bipartisan opposition in the House.During a House Financial Services subcommittee hearing, Republicans and Democrats urged HUD to drop the proposed rule and improve its regulation and monitoring of downpayment assistance programs run by nonprofit organizations. Subcommittee Chairman Maxine Waters, D-Calif., suggested adding language to a Federal Housing Administration reform bill that would override HUD's proposed DPA rule. Rep. Waters also suggested that HUD extend the July 10 comment period deadline on the proposal for another 30 days. Rep. Gary Miller, R-Calif., urged the FHA to improve its underwriting standards on loans with DPA to improve their performance. The foreclosure rate on FHA loans with downpayment assistance provided by nonprofits is 16%.

The Bear Stearns hedge fund "debacle" strengthens the argument that issuers of subprime mortgage securities should have some liability for the underwriting of loans they securitize, according to House Financial Services Committee Chairman Barney Frank, D-Mass.This past week, Merrill Lynch liquidated roughly $850 million in subprime-related assets it had seized from at least one Bear hedge fund after the fund failed to meet its margin calls. Bear Stearns -- after being pressured by other creditors -- is moving to shore up the hedge fund (and a second fund) to prevent a liquidation. Industry groups contend that assignee liability would "kill" the subprime securitization market. In an interview on public television's Nightly Business Report, Rep. Frank said, "But that market is dying of its own right now." He added that including a reasonable assignee liability provision in a predatory-lending bill would provide purchasers of subprime securities a "degree of confidence" that the issuer has vetted the loans. The congressman said he hopes to complete a draft of his predatory-lending bill before the August recess and hold hearings on it in the fall.

Democrat-sponsored legislation that provides for a 10-year extension of the Terrorism Risk Insurance Act is unacceptable to the Bush administration, a Treasury official has told a House committee."The administration believes that three elements are critical if TRIA is to be reauthorized for a second time: the program remains temporary and short-term; private sector retentions are increased; and there is no expansion of the program," Treasury Assistant Secretary David Nason testified before the House Financial Services Committee. Democrats on the committee recently introduced a 10-year extension of the government program, which acts as a federal backstop to shield private insurers from catastrophic losses in the event of a terrorist attack. The Democrats' bill (H.R. 2761) also expands TRIA to cover nuclear, biological, chemical, and radiological acts of terrorism. "H.R. 2761 does not meet our objectives," Mr. Nason said. "In Treasury's view, from a market and economic perspective, it would be better to have no TRIA than a bad TRIA."