Compliance & Regulation

While the supply of subprime credit has fallen, it has not "evaporated," says Federal Reserve Board Chairman Ben Bernanke, thanks to increased purchases by investment banks and hedge funds.Wall Street firms and other private pools of capital are "beginning to fill the void" left by the failure of many subprime lenders, the Fed chairman said in a major address about problems in the subprime market. He said there are some signs of a "self-correction" in the subprime market due to delinquency and foreclosure rates, which are expected to remain at high levels into 2008. But curbs on subprime lending will "restrain" home purchases and residential investment in coming quarters. "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime market will likely be limited," Mr. Bernanke said.

The 12 Federal Home Loan Banks posted $621 million in total earnings for the first quarter, up slightly from the $619 million recorded a year earlier, according to a report by the FHLBanks' Office of Finance.The unaudited results show that the FHLBanks have $1.020 trillion in combined assets, and advances to member banks and thrifts totaled $624 billion as of March 31, representing 61.2% of total assets. The chief investments of the FHLBanks are mortgage-backed securities, overnight and term federal funds sold, commercial paper, and securities issued by government-sponsored enterprises, the Office of Finance said. The agency can be found online at http://www.fhlb-of.com.

The White House has announced its support for a bill that would create a new regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, according to American Banker Online, a MortgageWire affiliate.The bill, sponsored by House Financial Services Committee Chairman Barney Frank, D-Mass., is slated for a vote this week. The White House said it opposes a provision that would require the government-sponsored enterprises to create an affordable housing fund, but otherwise generally supports the legislation. Rep. Frank has been a strong advocate of such a fund.

Ohio Attorney General Marc Dann says he is ready to sue subprime mortgage lenders and their secondary-market investors on Wall Street on behalf of borrowers and the Ohio Public Employees Retirement System (which invested in subprime mortgage-backed securities).Ohio has the highest "serious" delinquency rate in the nation -- 3.4%, according to figures compiled by the Mortgage Bankers Association. The Ohio AG is expected to file at least one lawsuit in the next few weeks, alleging violations of the state's Consumer Sales Protection Act. The law prohibits unfair or deceptive practices in regard to consumer sales, which covers mortgages.

A significant number of federally insured depositories are tightening up their subprime and "nontraditional mortgage" guidelines, according to the Federal Reserve's just-released April survey of senior loan officers.Of 16 depositories engaged in subprime lending, more than half indicated that they had tightened standards on such loans. (The Fed survey does not name the institutions.) The survey also found that of 44 banks engaged in nontraditional mortgage lending, 45% "noted a tightening of standards on such loans." However, the regulator said conventional lending standards at banks it surveyed over the past three months had remained "basically unchanged."

The Department of Housing and Urban Development wants to ban all downpayment "gift" assistance provided to homebuyers by sellers and, in some instances, nonprofits working with sellers.Under a proposed rule, the ban would apply only to mortgages insured by the government. A spokesman for the Federal Housing Administration said gifted downpayments from sellers represent one-third of its business, but a "higher percentage of defaults" at the agency. HUD would ban downpayment gifts before and after a sale if the money comes from the seller "or any other person or entity that financially benefits from the transaction" or from "any third party or entity that is reimbursed directly or indirectly by any of the parties" to the sale of the house. The ban, if approved, would affect nonprofits such as the Nehemiah Corp., Sacramento, Calif., which pioneered gifting programs a decade ago. HUD says it believes that in some cases, downpayment gifts wind up being added to the sale price of the home and covered by a larger mortgage amount. The rule was slated for publication on May 11. The industry and public have 60 days to comment.

The Conference of State Bank Supervisors has announced the addition of four new nondepository certifications for state examiners who specialize in mortgage examinations.The new certifications, which recognize "ascending skill levels" for examiners who specialize in mortgage supervision, are as follows: certified mortgage examiner, certified senior mortgage examiner, certified mortgage examination manager, and certified mortgage investigator. Candidates for the mortgage designations must meet certain training and experience requirements, as well as continuing education in the field, the CSBS said. The organization can be found online at http://www.csbs.org.

Farmer Mac, a secondary market agency for rural housing and agricultural real estate loans, achieved record volume in the first quarter, but its official earnings fell substantially from the first quarter of 2006.Farmer Mac reported GAAP income of $3.9 million for the first quarter of 2007, down from $15.1 million in the first quarter of 2006. But the company said its "core earnings," which excludes the impact of unrealized gains and losses on derivatives, were $6.2 million, unchanged from the year-earlier period. Farmer Mac's outstanding volume of guarantees and standby commitments totaled $8.3 billion at the end of the first quarter.

The National Community Reinvestment Coalition has filed a lawsuit against the subprime lender NovaStar, charging that the company discriminated against minorities wanting to buy row houses and individuals wanting to buy adult foster care for people with disabilities.Filed in U.S. District Court in Washington, the suit also charges that NovaStar refused to make loans to American Indians on reservations. While the lawsuit does not allege predatory lending by NovaStar, NCRC president and chief executive John Taylor said he found it "ironic that NovaStar was peddling loans with exploding interest rates and exorbitant fees to minorities in more traditional neighborhoods" while denying credit to other borrowers who qualified for loans. The NCRC says the suit represents the first time that the Federal Fair Housing Act has been used to bring charges of civil rights violations against lenders for refusing to make loans for row houses and adult foster care facilities. A media relations representative for NovaStar said the company had not received the lawsuit, but that "We believe the accusations in it are completely without merit, and we will defend against this lawsuit very vigorously."

The Department of Housing and Urban Development will sponsor a homeownership "security" conference May 14 offering industry officials advice on working with troubled borrowers who might be in danger of foreclosure.Speakers include: Richard Price, vice president of subprime servicer EMC Mortgage; Robin Stout Magala, senior delinquency resolution manager for Freddie Mac; and Federal Housing Commissioner Brian Montgomery, among others. (EMC is owned by Wall Street firm Bear Stearns & Co., which has been enforcing buyback agreements on lenders.) The conference, which starts at 9 a.m., will be held in Washington.