Compliance & Regulation

Housing sales remained sluggish in most parts of nation in late April and May, according to the Federal Reserve's latest report on economic conditions.Most of the 12 Federal Reserve district banks characterized their housing markets as "soft or weak," the Fed's Beige Book says. The San Francisco bank said new- and existing-home sales fell in most areas, with modest price declines in some parts of the district. The Atlanta bank said sales stabilized in parts of Florida but continued to decline in Georgia. "No district reported an increase in new home construction," the Fed said. In contrast, commercial real estate markets continued to strengthen, and all the district banks that mentioned commercial construction gave "positive reports," according to the Beige Book.

A reduction in the origination fee on Federal House Administration-insured reverse mortgages could discourage lenders from offering the product and crimp the program's growth, according to a Congressional Budget Office cost estimate of the FHA reform bill (H.R. 1852).The CBO estimates that the FHA would endorse about 110,000 home equity conversion mortgages in fiscal year 2008 if the reform bill is enacted, and HECM originations would grow at about 2%-4% annually. Last year, the CBO estimated that the FHA could see HECM originations jump to 160,000 loans in a few years. But that was before an amendment to reduce origination fees was attached to H.R. 1852 during a committee mark-up. "A lower origination fee could increase the program's attractiveness to some borrowers, assuming lenders do not increase interest rates significantly to compensate for lower origination fees," the CBO says.

Mortgage disclosures currently required by federal regulators fail to convey key mortgage costs and terms to consumers, leaving them susceptible to deceptive lending practices, according to a Federal Trade Commission study that tested 819 recent mortgage customers.The FTC study found that prime and subprime mortgage customers were confused by the standard good-faith estimate and would benefit from enhanced disclosures. The consumer protection agency tested a prototype GFE with enhanced disclosures that produced better results. "Eighty percent of the respondents viewing the prototype form were able to answer 70% or more of the questions correctly, compared to 29% of the respondents viewing the current form," the FTC said. The study also suggests that subprime borrowers "may benefit the most from improved disclosures," FTC Chairman Deborah Platt Majoras said.

AIG Federal Savings Bank, which recently signed a supervisory agreement with the Office of Thrift Supervision, originated $15.6 billion in one- to four-family loans in 2005 while working as a mortgage conduit for two subprime lending affiliates before the OTS intervened.Home Mortgage Disclosure Act data show that AIG FSB, Wilmington, Del., originated $15.6 billion in one- to four-family loans in 2005 and $10.0 billion of the loans were classified as higher priced, which generally implies subprime loans. As previously reported, the federally chartered thrift -- along with American International Group subsidiaries American General Finance, Evansville, Ind., and Wilmington Finance, Plymouth Meeting, Pa. -- agreed to establish a $128 million rescue fund to help borrowers avoid foreclosure. The OTS contended that the AIG thrift, which has $1.2 billion in assets, failed to monitor the mortgage lending activities it outsourced to Wilmington Finance to ensure consumer protections.

House appropriators have attached a provision to the Department of Housing and Urban Development budget bill that raises the Federal Housing Administration single-family loan limit to the conforming loan limit in high-cost areas.The conforming loan limit is currently $417,000. It is understood that the HUD appropriations bill for fiscal year 2008 also raises the FHA single-family loan limit to 65% of the CLL in low-cost areas. In all other areas, the FHA loan limit would be determined by the median house price. The HUD-Transportation appropriations subcommittee approved the HUD budget during a mark-up June 11. The House Finance Services Committee recently approved similar increases in the FHA loan limit as part of an FHA reform bill (H.R. 1852). The HUD fiscal 2008 appropriations bill also suspends for one year a cap on the number of reverse mortgages the FHA can insure.

Fannie Mae is hoping its regulator -- the Office of Federal House Enterprise Oversight -- will complete a review of its residential construction loan program soon, enabling the company to get back into the market again.OFHEO suspended Fannie's purchases of acquisition, development, and construction loans last summer, citing concerns about the program's controls and procedures. MortgageWire has learned that Fannie Mae has delivered all information that OFHEO requested on May 8, and now the government-sponsored enterprise is waiting for the regulator's decision. Fannie operated an ADC pilot program under the oversight of the Department of Housing and Urban Development for 12 years. But when Fannie wanted to expand the ADC program last year, OFHEO intervened. Fannie Mae can be found online at http://www.fanniemae.com.

Lender Technologies Corp., a subsidiary of the Mortgage Bankers Association, has issued a Request for Information regarding the creation of a national database to help prevent fraud against lenders.LTC said it is requesting information to determine the availability of contractors that have the experience, expertise, and staffing to develop and operate such a database. "MBA believes that further innovation is required in order to adequately protect the industry, as well as consumers, taxpayers, and communities, from the costs of mortgage fraud, and that is why we are lending our support to efforts to develop a national fraud prevention database," said MBA chairman John M. Robbins. LTC said the primary focus of the project is to develop a database and a process to facilitate the sharing of data that would improve the ability of mortgage lenders to identify and stop fraud at the point of origination. LTC can be found online at http://www.lendertechnologies.com.

Freddie Mac plans to release its first quarterly financial report since mid-2003 on June 14 when it reports the company's first quarter results."We are very proud that next week for the first time in five years we will return to quarterly reporting," Freddie chairman and chief executive Richard Syron said at the company's annual shareholders meeting. Freddie suspended its quarterly reporting in 2003 when massive accounting problems were uncovered and the publicly traded company had to restate earnings. Separately, Fannie Mae, which is behind Freddie in repairing its accounting systems, said its 2006 annual financial report will be released in the third quarter of this year. Fannie also has scheduled its annual shareholders meeting for Dec. 14. Freddie reported its 2006 annual results in March.

The Federal Housing Administration is experiencing a major surge in business from homeowners with conventional loans refinancing into FHA products and the agency suspects a large majority of these borrowers are escaping high cost subprime loans.FHA refinanced 60,400 conventional loans in fiscal year 2006, up 80% from FY 2005 and this trend is accelerating. During the first seven months of FY 2007, FHA refinancings of conventional loans jumped 84% compared to the same period in the last fiscal year. As of April 30, FHA had refinanced 51,349 conventional loans. "In today's mortgage environment, it is safe to say that a significant portion -- we conservatively estimated 60% -- are subprime loans," FHA commissioner told a mortgage conference recently. The commissioner has been meeting with housing counselors and lenders to promote FHA as an affordable option for subprime borrowers. The Bush administration also is urging Congress to pass FHA reform legislation that would allow more subprime borrowers to qualify for FHA-insured single-family loans.

Senate Banking Committee chairman Chris Dodd, D-Conn., said he will try to pass a Federal Housing Administration reform bill before Congress breaks for its August recess.Sen. Dodd told reporters that he would try to get FHA reform done in the "next month or so." Congress has been looking for ways to address rising delinquencies and foreclosures on subprime loans and FHA reform would give many distressed borrowers an option to refinance into safer and more affordable government-insured mortgages. The House Financial Services Committee has passed an FHA reform bill and some observers expect the House of Representatives will pass it later this month.