Compliance & Regulation

The Department of Housing and Urban Development has announced that it will speed disaster assistance to tornado-ravaged Kiowa County, Kan., and provide support to homeowners and low-income renters forced from their homes after the recent devastating storms.HUD said its Community Development Block Grant and HOME programs will give the state the flexibility to redirect millions of dollars to housing and services for tornado victims. HUD is in discussions with Kansas officials to waive certain requirements under both programs to expedite the repair and replacement of damaged housing. HUD said it is granting immediate foreclosure relief, including a 90-day moratorium on foreclosures and forbearance on foreclosures of homes insured by the Federal Housing Administration. It is providing temporary housing and shelter. HUD said it will work with the Federal Emergency Management Agency to identify vacant public housing and HUD-owned properties that can be used as temporary housing for those forced from their homes. It is also offering loan guarantee assistance and will offer state and local governments federally guaranteed loans for housing rehabilitation, economic development, and repair of public infrastructure.

The Shadow Financial Regulatory Committee has cautioned against federal intervention in the mortgage markets other than requiring "vastly simplified disclosures," arguing that market solutions to the subprime crisis are already under way.The committee, a panel sponsored by the Washington-based American Enterprise Institute, said subprime lenders with inadequate underwriting standards are already being forced to exit the industry. "If allowed to run their course, these market solutions will, on average, penalize unwise and careless lenders more severely than they will punish conscientious but delinquent borrowers," the committee says in its Statement No. 245, Subprime Mortgage Lending Remedies and Concerns. ".... Putting the mortgage-lending and mortgage-backed securities industries through these disciplines is the fairest and most efficient way to insure that subprime and other mortgage lenders upgrade and rationalize their underwriting activities in the future." Any assistance to borrowers in deteriorating local housing markets should be funded locally, and the "only reform that merits attention" is a regulatory requirement of "vastly simplified disclosures to borrowers on their applications," the panel says. It can be found online at http://www.aei.org/research/shadow.

The ranking Republican on the House Financial Services Committee says he does not believe secondary-market investors should be held liable for onerous subprime loans made to consumers.In a statement issued prior to a subcommittee hearing on Tuesday, Rep. Spencer Bachus, R-Ala., said assignee liability "should not be about going after those with deep pockets." He added that the assignee liability standard in current law (under the Home Ownership Equity Protection Act) "does not work." He said HOEPA loans are not being originated because of a lack of legal certainty for secondary-market players. "As we look for ways to address predatory-lending practices, any assignee liability standard must include safe-harbor" protections, he said. The Alabama congressman said "all participants" in the mortgage process need to share responsibility when it comes to predatory lending.

Regulations governing real estate mortgage investment conduits are outdated and should be amended, according to the Mortgage Bankers Association and other trade groups in the commercial real estate arena.In a comment letter to the Internal Revenue Service, the groups argue that the current regulations were adopted 15 years ago and don't address situations that now arise in the market for securitized commercial mortgage loans. The groups are urging the IRS to "amend the REMIC regulations to include additional types of permitted loan modifications that are responsive to situations that now arise regularly in the context of commercial loans." Some of the changes the groups want include additional flexibility in making changes in loan collateral, in the time a loan can be prepaid, and in the recourse/nonrecourse nature of a loan. The other signatories to the letter include the American Securitization Forum, the Commercial Mortgage Securities Association, and the National Association of Real Estate Investment Trusts.

The House Financial Services Committee, in a 45-19 vote, has approved a Federal Housing Administration reform bill that would encourage more mortgage brokers to market FHA loans and raise the loan limits on these federally insured mortgages.To achieve wider distribution of FHA single-family loans, the reform bill (H.R. 1852) would allow mortgage brokers to forgo an annual audit and post a $75,000 surety bond. The National Association of Mortgage Brokers maintains that the audit is an unnecessary expense that prevents many brokers from offering FHA loans to their customers. "This is a great day for consumers, as there will be broad access throughout the country for FHA loan products," NAMB president Harry Dinham said. But the Mortgage Bankers Association said it is "foolhardy" to weaken the standards for brokers at a time when mortgage defaults are rising. "Replacing the audited financial statement with a surety bond would not only remove an additional layer of protection for consumers but could also threaten the safety and soundness of FHA," MBA president John Robbins said.

The U.S. Treasury Department has decided to discontinue the three-year note that has been used to some extent as a reference point in the mortgage market.An interpolated three-year Treasury rate will likely be used in its place, and the note has not been a major focal point for the market. "Introduced and withdrawn at the whim of the Treasury, the note never regained the prominence it once had prior to the first cancellation in 1998," said Bear Stearns in a report. Anthony Ryan, Treasury assistant secretary for financial markets, said in a May 2 report that discontinuing the three-year note "will allow Treasury to ensure large liquid benchmark issuances, better balance its portfolio, and manage the improving fiscal outlook." The Treasury plans to discontinue the note after a final scheduled auction on May 7.

Mortgage brokers and other nonbank lenders would have a fiduciary duty to their borrowers under a bill introduced by Sen. Charles E. Schumer, D-N.Y., that also holds lenders accountable for the subprime loans they fund and purchase from brokers.The bill introduced by Sens. Schumer, Robert P. Casey Jr., D-Pa., and Sherrod Brown, D-Ohio, amends the Truth in Lending Act to prohibit all lenders from steering borrowers into loans they cannot afford or repay. It also requires all originators to underwrite loans at the fully indexed rate and mandates the establishment of escrow accounts. The subprime market has been the "Wild West" of the mortgage industry, and this bill "brings the sheriff back in town," Sen. Schumer said. The senators are also calling for a $300 million appropriation to fund foreclosure prevention counseling that could help 300,000 distressed subprime borrowers. The senators are also calling on mortgage companies to voluntarily match these federal funds.

Citigroup, JPMorgan Chase, Litton Loan Servicing, and HSBC have agreed to a set of principles espoused by Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., to take early action to help subprime borrowers through loan modifications to avoid foreclosure."I commend the organizations and companies that have joined me in formulating and agreeing to these principles, and I urge others to participate," Sen. Dodd said. Under the principles, lenders and servicers should contact subprime borrowers with adjustable-rate mortgage loans to make sure they can afford the payments once the loan resets. If not, loan modifications should be explored, including switching the loan to a fixed rate or making the introductory rate permanent. The principles also call for servicers to ramp up so that loan modifications can be done on a scale needed to address the foreclosure crisis. Chase Home Loan chief executive David Lowman said his company supports Sen. Dodd's efforts to help families who are struggling with their mortgage payments. "We believe we can develop the best solutions by working with the Senate committee, our regulators, borrowers, investors, and community representatives," Mr. Lowman said. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bear Stearns & Co., and Self-Help Credit Union also support the principles.

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 preliminary unaudited results show that the FHLBanks have $1.02 trillion in combined assets, and advances to member banks and thrifts totaled $624 billion as of March 31. The Office of Finance can be found online at http://www.fhlb-of.com.

The Colorado legislature is on track to pass some of the toughest laws in the country governing the conduct of state-licensed mortgage bankers, loan officers, and mortgage brokers in response to the state's foreclosure problems.Several bills coming up for a vote would require the state's 22,000 originators to have a surety bond and errors-and-omissions insurance. These measures would create a "duty of good faith and fair dealing" with borrowers and prohibit unconscionable acts, such as making a loan the borrower cannot afford to repay. A mortgage fraud bill creates a private right of action for borrowers to sue originators and other real estate professionals. There also are penalties for intimidating or coercing appraisers, along with criminal penalties against anyone who knowingly submits a false appraisal. "Colorado's aggressive response to our high foreclosure rate is really going to capture a lot of attention," said Erin Toll, director of Colorado's real estate division.