Compliance & Regulation

The National Community Reinvestment Coalition has filed fair-housing complaints against four lenders alleging that their policies of not providing mortgage financing on group homes for the elderly and people with disabilities are discriminatory.NCRC filed the complaints -- against Franklin Bank Corp., Houston; ComUnity, Morgan Hill, Calif.; Guaranteed Rate, Chicago; and Hyperion Capital, Lake Oswego, Ore. -- with the Department of Housing and Urban Development for investigation. "This type of discrimination should no longer be tolerated in any form or fashion," said NCRC president and chief executive John Taylor. The complaint against Hyperion also alleges that the company's policies against financing housing on Indian reservations are discriminatory. Aegis Mortgage Corp., Houston, recently paid $475,000 in settling an NCRC complaint and agreed to change its lending policies with respect to row houses, properties on Indian reservations, and group homes.

A Federal Housing Administration reform bill would reduce origination fees on government-insured home equity conversion mortgages, and some reverse mortgage lenders don't like it.The bill (H.R. 1852) recently approved by the House Financial Services Committee keeps a 2% cap on HECM origination fees, but bases the fee on the initial principal amount of the loan. This fee structure is employed in the jumbo reverse mortgage market, but it does not provide enough compensation for lenders making lower-balance HECM loans, according to Peter Bell, president of the National Reverse Mortgage Lenders Association. In addition, the initial loan amount is determined by the age of the senior borrower and the interest rate on the loan. "It would make the origination fee smaller for a younger borrower than an older HECM borrower, which doesn't make a lot of sense," Mr. Bell said. The current 2% limit is based on the maximum claim amount. But AARP supports the committee's decision as a way to reduce borrowing costs for seniors.

The House has passed a bill that prohibits commercial firms, such as WalMart and Home Depot, from gaining control of state-chartered industrial loan companies and entering the banking business.The bill (H.R. 698), passed by a 371-16 vote, also restricts ILCs currently owned by commercial firms from branching across state lines. "This bill will preserve the distinction between banking and commerce that is necessary to protect the integrity of the banking system," said House Financial Services Committee Chairman Barney Frank, D-Mass. "I hope to work with the Senate to forge a compromise bill that the president can sign." But it does not appear that the Senate Banking Committee will act on an ILC bill soon. The Federal Deposit Insurance Corp. has imposed a moratorium on ILC applications to give Congress time to address the issue.

Ellie Mae, a Dublin, Calif.-based provider of software and services for the mortgage industry, has released Dynamic Loan Screening, which it touts as the industry's first virtual inter-operable platform that matches loan applications with the products and services of lenders, investors, and settlement service providers.The platform automatically identifies matches between borrower data and products, services, and promotions of participating lenders, investors, and service providers as an originator enters data into Encompass, Ellie Mae's mortgage management system. "As the originator inputs loan data into Encompass, that data is continuously monitored, and when a 'match' occurs, an offer is automatically displayed on the originator's loan origination system screen," said Jonathan Corr, Ellie Mae’s chief strategy officer. "For lenders and service providers, it's like having an account executive sitting on the originator's desktop." Dynamic Loan Screening can also screen for compliance and fraud as well as prepayment and early delinquency risks. Ellie Mae can be found online at http://www.elliemae.com.

Addressing pain points currently haunting the mortgage industry, Fort Worth, Texas-based Rapid Reporting has announced major initiatives addressing fraud prevention and buybacks.Rapid Reporting has partnered with collateral valuation and fraud specialist Magellan Lender Services, San Francisco, to give mortgage lenders a complete solution that checks the validity of both borrower and collateral-related data used to evaluate and approve mortgage loan applications. Rapid Reporting will provide borrower-related verifications and Magellan will provide collateral-based verifications to deliver one-stop coverage. Rapid Reporting said it is also offering a Stated Doc Report providing additional IRS-verified information to determine whether information on stated-income loan applications is corroborated by Internal Revenue Service data. No actual numerical data are released in Rapid Reporting's Stated Doc Report, so the integrity of stated-income loans can be maintained.

Originators who made loans knowing that borrowers would not be able to pay were called out by an MBA official in the opening general session of the Mortgage Bankers Association National Secondary Market Convention as among the factors responsible for the subprime sector's woes.Loans that go wrong "after the fact, we can live with," said MBA chairman-elect Kieran Quinn, calling out "people who only care about their commission" and make loans without regard for the borrower's ability to repay. He said the regulatory response to subprime concerns has been "measured" so far, in part due to productive industry dialogue with officials and market participants. But he also noted that while underwriting has tightened, loan performance concerns in general are not over. Early indicators such as statistics in the economically troubled Midwest and California's short-term delinquencies "do not bode well," Mr. Quinn said.

Senate Banking Committee Democrats are prodding the Federal Reserve Board and the other banking regulators to issue subprime guidance on adjustable-rate 2/28 and 3/27 mortgages as quickly as possible.In a May 17 letter, Banking Committee Chairman Christopher J. Dodd, D-Conn., and four other senators urge the regulators to put aside their concerns that tighter underwriting standards will make it difficult for trapped subprime borrowers to refinance. "Frankly, we find this objection as an admission that the original subprime ARM was inappropriate," the letter says. "It stretches credulity to argue that the path out of a poorly underwritten loan is another unaffordable loan underwritten on the same faulty basis." The proposed guidance requires lenders to underwrite subprime ARMs at the fully indexed and fully amortizing rate. The senators note that the Mortgage Bankers Association, along with major lenders and servicers, has adopted principles to pursue loan modifications if borrowers cannot afford their payment after the ARM resets. "These kinds of modifications offer a real alternative to foreclosure for borrowers, and we urge you to encourage servicers to pursue this course of action," the senators say.

Mortgage lenders support the efforts of federal regulators to strengthen underwriting standards on subprime loans and will help troubled borrowers avoid foreclosure, according to a joint statement issued by five industry groups.The trade groups have been very wary of proposed subprime guidance the banking regulators are expected to finalize soon, and they are very concerned about proposed legislation aimed at providing relief for subprime borrowers facing foreclosure. "We believe the efforts of our members, together with the actions of the regulators, will be effective in dealing with current problems in subprime mortgage lending," the joint statement on responsible subprime lending says. "We urge the federal regulators to ensure that the proposed statement on subprime lending strikes a careful balance that provides enhanced consumer protections without unintentionally limiting the availability of home ownership to creditworthy borrowers." The Financial Services Roundtable, the American Bankers Association, the Mortgage Bankers Association, the Consumer Bankers Association, and America's Community Bankers signed the statement.

Aegis Mortgage Corp. has agreed to change its underwriting restrictions on row houses and eliminate a $60,000 minimum property value requirement in settling a fair housing complaint filed by the National Community Reinvestment Coalition.The complaint alleged that the Houston-based mortgage lender and wholesaler engaged in a pattern and practice of discriminating against African-Americans and Latinos by not making loans on homes worth less than $60,000 or on row houses. "We have agreed to clarify our underwriting guidelines to remove any perceived barriers to equal access to credit for all eligible borrowers," AMC executive vice president Michael Balog said. He noted that the guidelines in question affected only a few of the company's loan products. The settlement agreement will ensure that residents of row houses in cities on the East Coast and in the Midwest "enjoy equal access to credit," NCRC president John Taylor said. "We trust that other lenders and securitizers with similar policies will follow the lead of Aegis."

Despite objections by the Bush administration, the House has approved an amendment by voice vote that restricts a new GSE regulator from using systemic risk as a reason for scaling back the size of Fannie Mae's and Freddie Mac's mortgage portfolios.The adoption of the portfolio amendment, sponsored by Reps. Randy Neugebauer, R-Texas, and Melissa Bean, D-Ill., is considered a significant victory for supporters of the two government-sponsored enterprises. But proponents of a strong GSE regulatory reform bill (H.R. 1427) don't expect the administration to turn its back on the bill at this point. "I would not think it is a deal-breaker," said Mike House, executive director of FM Policy Focus. During the debate Thursday evening, House Financial Services Committee Chairman Barney Frank, D-Mass., said he will continue to work with administration officials to address their concerns about the portfolios. "I don't consider this the last word on the subject," Rep. Frank said. A final vote on H.R. 1427 is scheduled for May 22.