Compliance & Regulation

Granting bankruptcy judges the authority to modify mortgage loans would provide relief to homeowners facing foreclosure who can't get the servicers of mortgage-backed securities to restructure their loans, a consumer bankruptcy attorney has told a House Judiciary subcommittee.Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys, testified that about half of the securitized trusts prohibit loan modifications. If Congress amends the bankruptcy code to allow loan modifications, it would "resolve that problem," he said. Steve Bartlett, president and chief executive of the Financial Services Roundtable, warned that giving bankruptcy judges a free hand to modify loans would make mortgage credit "much more expensive and less available to low- and moderate-income people." Rep. Melvin Watt, D-N.C., indicated he would consider changes to the bankruptcy code in putting together a predatory-lending bill.

Massachusetts Gov. Deval Patrick has ordered state banking regulators to seek delays of up to two months on foreclosures against homeowners who have filed complaints with the Division of Banks.The move makes the commonwealth the first state in the country to place a moratorium on repossession proceedings, but it is not unprecedented. Years ago, shortly before adjustable-rate mortgages were approved by federal authorities, states held sway over institutions in their jurisdictions that made what were then known an variable-rate mortgages. And one, Wisconsin, refused to allow lenders to reset loans to higher levels when the market rate moved into double-digit territory. This time around, housing advocates say they expect Gov. Patrick's action to set the pattern for other states. "We will bring the Massachusetts standard nationwide," Bruce Marks, head of Neighborhood Assistance of America, told the Boston Herald. The governor said in a statement that stays would be sought on a case-by-case basis, but Mr. Marks indicated that his group would assist owners who are struggling to make their payments in filing complaints with the state. "It is effectively a moratorium of foreclosures in Massachusetts," he is quoted as saying. "It is a very big deal."

Fannie Mae, which is still trying to get its financial books in order, says it earned $6.35 billion in 2005, a 28% increase from the profits recorded in the prior year.The congressionally chartered mortgage giant said it expects to release results for 2006 later this year. In a filing with the Securities and Exchange Commission May 2, Fannie revealed that its strongest profit growth came in the capital markets area, where it had net income of $2.99 billion, up 42% from that of 2004. Its two other main business segments -- the single-family credit business, and housing and community development -- earned $2.88 billion (up 15%), and $462 million (up 37%), respectively. Fannie Mae can be found on the Web at http://www.fanniemae.com.

The Federal Housing Administration may not be able to revive its single-family program unless the agency adopts private-sector policies and procedures in originating, insuring, and servicing mortgages, according to the Consumer Mortgage Coalition.So the trade group is working to add language to an FHA reform bill (H.R. 1852) that requires the FHA to swiftly align its processes and procedures with those of the conventional market. The CMC contends that the FHA's outdated underwriting processes and severe penalties for noncompliance force lenders to conduct their FHA business as separate operations. This is expensive and discourages lenders from participating in the FHA program, according to CMA executive director Anne Canfield. "It is really important for FHA to align their processes and procedures with the way the world works," she said. The House Financial Services Committee is scheduled to mark up H.R. 1852 on May 1.

Minority real estate groups are calling on House Financial Services Committee leaders to earmark a portion of a GSE affordable housing fund to support foreclosure prevention funds.Subprime loans are prevalent in minority and low-income neighborhoods, according to the Asian Real Estate Association of America, the National Association of Real Estate Brokers, and the National Association of Hispanic Real Estate Professionals. "The reality is that without real resources it will be extremely difficult to help many of these borrowers facing spikes in interest rates and increases in their monthly mortgage obligations," the three real estate groups say in a letter to the committee chairman, Rep. Barney Frank, D-Mass., and the ranking minority member, Rep. Spencer Bachus, R-Ala. The government-sponsored enterprise bill approved by the House committee on March 28 requires Fannie Mae and Freddie Mac to contribute annually an estimated $520 million to an affordable housing fund. During the first year, those AH funds are directed to the repair and rebuilding of affordable housing in Louisiana and Mississippi. The three groups want a portion of those contributions earmarked for loss mitigation, homeowner counseling, and foreclosure prevention.

Wells Fargo Financial Inc., the consumer finance subsidiary of San Francisco-based Wells Fargo & Co., has announced the settlement of a class action lawsuit involving its nonprime mortgage lending practices in California.Under the proposed settlement with law firms Cotchett, Pitre & McCarthy, Burlingame, Calif., and Miner, Barnhill & Galland PC, Madison, Wis., the company said it pledges to continue for three years certain improvements it had already put into practice and to enact a default relief program for qualifying class members. The relief program earmarks $2.4 million to provide relief to qualifying class members whose loans have become more than 60 days delinquent, and up to $4.4 million for cash payments to class members who submit claims. Class members are certain California customers who entered into real-estate-secured loans with Wells Fargo Financial between Dec. 18, 1999, and Nov. 20, 2005. The Association of Community Organizations for Reform Now, a party to the suit, had alleged that the company failed to adequately disclose points and prepayment penalties and inaccurately reported the loan balances of some California customers to credit reporting agencies. The settlement is subject to approval by the San Francisco Superior Court. The company can be found online at http://www.wellsfargofinancial.com.

The number of vacant single-family homes for sale rose 3.8% in the first quarter, leaving a huge overhang of 2.2 million vacant homes on the market in the middle of the spring selling session, according to a Census Bureau report.The report indicates that the number of single-family vacancies rose from 2.10 in the fourth quarter to 2.18 million in first quarter, after jumping 37.9% over the previous four quarters. Last year, new home construction combined with active selling by investors created a huge inventory of the unsold vacant homes. This spring, homebuilders have cut back on starts. But the National Association of Home Builders said it is concerned that rising foreclosures could increase the supply of vacant homes. NAHB senior economist Bernard Markstein said he expects the second-quarter report to show an increase in vacant homes, but not a significant increase. The Census Bureau report also shows that the homeownership rate dipped to 68.4% in the first quarter from 68.9% in the fourth quarter.

The Mortgage Bankers Association considers a GSE regulatory reform bill introduced by four Republican senators to be "well-crafted" but says it cannot go along with the limits on the Fannie Mae and Freddie Mac mortgage portfolios.In a letter to Senate Banking Committee leaders, the MBA says it "strongly supports" the regulatory regime contained in a government-sponsored enterprise bill (S. 1100) sponsored by Sens. John Sununu (N.H.), Chuck Hagel (Neb.), Elizabeth Dole (N.C.), and Mel Martinez (Fla.). But that support does not apply to the section that says Fannie and Freddie can only add affordable housing loans to their mortgage portfolios. "It is appropriate to encourage the GSEs to use their investment portfolios in furtherance of affordable housing; however, we believe the regulator should have broad authority and flexibility to determine the type and amount of assets the GSEs hold in portfolio," the MBA says. The association said it is more comfortable with the portfolio language in a GSE bill that the House is expected to pass in May and has the support of the Bush administration.

The Bush administration has developed a plan that extends rental assistance to victims of 2005 Gulf Coast hurricanes until March 2009 and transfers management of the disaster housing voucher program to the Department of Housing and Urban Development on Sept. 1.An estimated 40,000 families that were displaced by the hurricanes remain in public housing. "HUD will provide the time-tested principles of case management to assist the families and provide the community support and safety that these families need to get back home," Housing Secretary Alphonso Jackson said. Starting in March 2008, HUD will begin to reduce the rent subsidies in $50 increments. Meanwhile, the Federal Emergency Management Agency will continue to manage the 86,000 travel trailers and mobile homes in the Gulf Coast that hurricane victims continue to use for housing. They will have to start paying rent next March. But FEMA is giving those residents the option to buy the mobile units for a few hundred dollars. An estimated 80% of the mobile units are used by homeowners who are still rebuilding their homes.

Bank of America, Charlotte, N.C., has announced an agreement to acquire the reverse mortgage business of Seattle Mortgage Co., the third-ranked producer of federally backed reverse mortgages, for an undisclosed price.Approximately 400 associates from Seattle Mortgage, an indirect subsidiary of Seattle Financial Group Inc., will join Bank of America, including a retail sales force of more than 200 associates in 25 states and the District of Columbia, BoA said. John Nixon, executive vice president and chief operating officer of Reverse Mortgage of America (a division of Seattle Mortgage), and Charlie Jones, vice president of loan servicing at Reverse Mortgage of America, will join BoA. According to the Department of Housing and Urban Development, Seattle Mortgage is ranked third nationally among providers of Home Equity Conversion Mortgages, the reverse mortgage program of the Federal Housing Administration. BoA can be found online at http://www.bankofamerica.com.