Compliance & Regulation

The Office of Federal Housing Oversight has issued proposed guidance that would allow for a reduction in the conforming loan limit if house prices decline by 1% or more this year.Despite a house price decline from October 2005 to October 2006 of 0.16%, OFHEO deferred an annual adjustment to the loan limit last year and allowed Fannie Mae and Freddie Mac to continue to purchase single-family loans with a principal amount of up to $417,000. Under the proposed guidance, OFHEO has served notice that a downward adjustment in the conforming loan limit could be in the cards for 2008 if a house price index maintained by the Federal Housing Finance Board declines by more than 1%, after adding in the 0.16% deferred from last year. The proposal guidance is designed to make sure things "run smoothly," an OFHEO official said, and all the mortgage industry players know what to expect. The public comment period ends July 19.

Homebuyers considering different mortgage products can now use an online mortgage calculator to compare the monthly payments and equity buildup of different loan products, thanks to the Federal Reserve Board."We have created a tool that will allow consumers to look ahead to see how much equity they will build and what their mortgage payments will be three, five, seven, or 10 years down the road with different mortgage products," Fed Governor Randall Kroszner said. The calculator can be used on 30-year and 15-year fixed-rate mortgages, interest-only fixed-rate mortgages, adjustable-rate mortgages, interest-only ARMs, and payment-option ARMs. "These comparisons should encourage more consumers to shop around and compare mortgage offers," the Fed governor said. The Mortgage Comparison Calculator is on the Fed's website at: http://www.federalreserve.gov/apps/mortcalc/

Members of the House Financial Services Committee are asking the Securities and Exchange Commission for guidance on restructuring troubled subprime loans in mortgage-backed securities so that servicers can prevent foreclosures.In a letter to the SEC, the committee members note that a lack of clarity is causing some servicers to refrain from making loan modifications for "fear" of violating the Financial Accounting Standard Board's servicing rule (FAS 140). "Does FAS 140 clearly address whether a loan held in trust can be modified when default is reasonably foreseeable or only once a delinquency or default has already occurred?" the June 15 letter inquires. "If not, can it be clarified in a way that will benefit both borrowers and investors?" Separately, the SEC, federal banking agencies, the Internal Revenue Service, the Big Four accounting firms, and mortgage industry officials are scheduled to meet with FASB members and staff on June 22 to discuss similar servicing issues involving loan modifications.

Industry lobbyists are trying to tone down a nonbinding resolution sponsored by Rep. Elijah Cummings, D-Md., that would put the House on record in support of tough predatory-lending legislation.The resolution points out that the subprime market has created opportunities for predatory lending and that irresponsible subprime lending has contributed to rising foreclosures rates. "It is the sense of the Congress that legislation should be enacted that protects buyers who have been victims of unscrupulous mortgage brokers and lenders," the resolution says, adding that such legislation should include "an anti-predatory lending provision that bans unfair and deceptive practices." Lobbyists expect the House Financial Services Committee to vote on the Cummings resolution during a June 26 mark-up session -- but the committee has not placed it on the agenda yet. Wright Andrews, executive director of the Coalition for Fair and Affordable Lending, said he expects the resolution to be refined before a mark-up. "The congressman's resolution is well-intentioned, but it could lead to unintended consequences for, not only industry, but the people he is interested in protecting," Mr. Andrews said.

Democrats on the House Financial Services Committee have introduced a bill to extend the federal government's terrorism insurance program by 10 years and expand insurance coverage for nuclear, biological, chemical, and radiological acts of terrorism.The bill also adds group life insurance to the lines of insurance for which terrorism coverage must be made available. "We need to keep in perspective that this bill is necessary for economic development and to protect property owners, building tenants, developers, and people who work or live in high-risk areas," said Financial Services Committee Chairman Barney Frank, D-Mass. The first House hearing on the terrorism insurance bill is scheduled for June 21. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said he supports an extension of the Terrorism Risk Insurance Act. "I will examine the House bill as part of this committee's ongoing work to find a more permanent solution to ensure that TRIA's proven economic protections are retained and extended," Sen. Dodd said.

The Office of Thrift Supervision and the Conference of State Bank Supervisors have agreed on a model for sharing consumer complaint information so complaints are routed to the appropriate federal or state regulator.This memorandum of understanding between the OTS and the CSBS provides an "opportunity for closer coordination and cooperation between the OTS and state banking departments," OTS Director John Reich said. Under the memorandum, the regulators will compile periodic reports of the number and nature of the complaints along with the disposition of those complaints. Separately, federal and state banking regulators told Congress they want to create a single telephone hotline and clearinghouse for consumer complaints.

Democratic Sens. Christopher J. Dodd (Conn.) and Mary L. Landrieu (La.) are co-sponsoring a comprehensive bill to speed up the recovery in the Gulf Coast that would allow Federal Housing Administration lenders to convey hurricane-damaged properties to HUD.Currently, the Department of Housing and Urban Development requires lenders to convey properties in habitable condition before they can be reimbursed for losses on an FHA single-family loan. But his policy has left damaged and empty residential properties scattered throughout the Gulf Coast, hindering redevelopment. Once HUD takes over ownership, the department can sell or transfer the properties to local governments or the private sector. The House has passed a similar FHA conveyance provision in its Gulf Coast housing recovery bill (H.R. 1227). The Senate bill also provides that Louisiana would have to put up $1 billion for its Road Home program before the federal government would cover any additional shortfall. The Road Home program, which provides grants of up to $150,000 to repair and rebuild homes damaged by hurricanes Katrina and Rita, has run into a $4 billion to $5 billion shortfall. The shortfall stems from the fact that the program covers wind and flood damage, not just flood damage as originally intended by Congress. In addition, 143,000 homeowners have qualified for grants -- 20,000 more than originally estimated.

Citing new survey findings, Housing and Urban Development Secretary Alphonso Jackson told a recent Wells Fargo housing symposium that there is an "urgent need for Congress to pass legislation that modernizes the FHA to help both promote and protect homeownership."The survey, released by Wells Fargo, indicates that nearly 80% support legislation that would promote and protect homeownership in America "by providing a safer, fairer and more affordable mortgage alternative to high-cost subprime loans," HUD said. Addressing the symposium in Washington, D.C., Mr. Jackson said the survey shows that a modernized Federal Housing Administration would help hundreds of thousands of subprime borrowers find an exit strategy. "Americans are in support of an FHA that could help even more first-time homebuyers and people with moderate incomes have access to safer mortgages," he said. The survey also found that about 79% of Americans in the Northeast and 75% in the West, where real estate costs are the highest in the nation, favored the FHA modernization legislation.

First-time homebuyers should be required to have escrow accounts on subprime loans, a top mortgage executive at Chase told a June 14 Federal Reserve Board hearing on abusive lending practices."Mandating it for first-time homebuyers is very important, because they generally don't understand how this stuff works," said Pablo Sanchez, national mortgage production executive at J.P. Morgan Chase. Otherwise, Mr. Sanchez and other lenders represented at the hearing urged the Fed to rely on guidance in encouraging escrows or to allow consumers to opt out. Consumer advocates, however, are urging the Fed to use its authority under the Home Ownership and Equity Protection Act to mandate escrows on subprime loans. Martin Eakes, chief executive of the Center for Responsible Lending, contends that a HOEPA regulation is needed to ensure that all lenders require escrows. "Guidance will not work," he warned.

The idea of providing borrowers with a simple one-page mortgage disclosure, first developed by American Enterprise Institute resident fellow Alex Pollock, is catching fire with state banking regulators, industry groups, and even members of Congress.Rep. Patrick McHenry, R-N.C., said he is working with Rep. Al Green, D-Texas, to draft legislation that would require mortgage lenders to provide a simple disclosure so that homebuyers understand the terms and even the costs relative to their income. "This will relieve some of the confusion in the process," Rep. McHenry told an AEI seminar. The Conference of State Bank Supervision had developed its own version, and the state regulators want the Federal Reserve Board to mandate a simple disclosure form as part its initiative to curb abusive lending practices. The Mortgage Bankers Association plans to roll out a simplified disclosure in the next few days. Loan officer trainer Christopher Cruise told the AEI seminar that Mr. Pollock's one-page form pulls together 80%-90% of the information a borrower needs to know. "Literally everybody that I have talked to in the industry strongly supports this form," Mr. Cruise said.