Compliance & Regulation

Civil rights group are calling for an immediate six-month moratorium on foreclosures so that borrowers with subprime hybrid mortgages can transition to a more affordable loan product."If lenders, servicers, Wall Street, and policymakers allow the flood of subprime foreclosures to continue rising unchecked, years of economic progress in communities of color will be wiped out," NAACP Washington bureau director Hilary Shelton said. The Leadership Conference on Civil Rights, the National Fair Housing Alliance, the National Council of La Raza, and the Center for Responsible Lending joined the NAACP in calling for a moratorium. These groups contend that subprime lenders targeted minority communities with reckless and unaffordable adjustable-rate 2/28 mortgages, and now the borrowers are losing their homes on a massive scale. "Those responsible for these mortgages have a duty to fix the broken product they sold just like everyone else," CRL president Mike Calhoun said. "The industry must work quickly."

Fannie Mae says it will reduce its work force by several hundred full-time employees as part of an effort to cut operating expenses by $200 million in 2007."While determinations are still being made as we undertake this restructuring, we anticipate that the company will have several hundred fewer full-time employees at the end of this year," Fannie spokesman Brian Faith said. The publicly traded company has 6,500 full-time employees, and its operating expenses have ballooned in the aftermath of an accounting scandal that has forced it to restate earnings. Now the government-sponsored enterprise is trying to catch up and file timely financial reports with the Securities and Exchange Commission. Fannie's administrative expenses totaled $3.1 billion in 2006, including $850 million in costs associated with the restatement process and related regulatory examinations, investigations, and litigation defense, according to a Feb. 27 SEC filing. The GSE also wants to cut back on contractors who are working on the restatement process. Fannie Mae can be found online at http://www.fanniemae.com.

Only first-time homebuyers could get a zero-downpayment loan from the Federal Housing Administration or come to the closing table with less than 3% down under an FHA reform bill sponsored by House Democrats.Others seeking to purchase a home or refinance still have to meet the FHA's current 3% cash requirement under the reform bill (H.R. 1852) introduced by Rep. Maxine Waters, D-Calif., and Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. Nearly 80% of FHA purchase-mortgage originations financed first-time homebuyers in fiscal year 2006. The Bush administration supports an FHA reform bill (H.R. 1752) sponsored by Rep. Judy Biggert, R-Ill., that eliminates the 3% cash requirement and gives the agency more flexibility in setting mortgage insurance premiums. "While there are differences between the two bills," FHA Commissioner Brian Montgomery said, "I look forward to working with Chairman Frank, Congresswoman Biggert, and the other members of the Financial Services Committee as we try to achieve our common goal of increasing homeownership opportunities through a modernized FHA."

Democrats and Republicans on the House Financial Services Committee have introduced competing bills to reform the Federal Housing Administration single-family program.These bills differ mainly on the pricing of mortgage insurance premiums. The reform bill introduced by Judy Biggert, R-Ill., H.R. 1752, is the same bill the House passed by a 415-7 vote last fall. It authorizes the agency to charge risk-based premiums, which the Bush Administration supports. "My bill will give low- and moderate-income borrowers a safer alternative to the kinds of subprime loans that quickly go south," Rep. Biggert said. The FHA bill introduced by Rep. Maxine Waters, D-Calif., and committee chairman Barney Frank, D-Mass., also is directed at offering borrowers a safer and more affordable alternative to subprime loans. However, the Democrats bill essentially keeps the current FHA premium structure in place so everyone pays the same premium. To cover higher losses associated with subprime lending, Rep, Frank recently said he wants to tap revenues generated by changes to the profitable FHA reverse mortgage program to subsidize single-family premiums.

The House Financial Services Committee has approved GSE regulatory reform bill by a 45-19 vote. This legislation is expected to pass the full House later this spring by a wide margin. The bill creates a new regulatory regime for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It allows Fannie and Freddie to maintain sizeable investment portfolios, but imposes higher regulatory costs on the two mortgage giants along with an annual $600 million surcharge for a new affordable housing fund. The government sponsored enterprises bill, H.R. 1427, also raises Fannie and Freddie's conforming loan limit in high cost areas. If passed, it would also increase the Federal Housing Administration and Department of Veterans Affairs loan limits, which are tied to the conforming loan limit. GSE supporters and critics alike praised the bill that chairman Barney Frank, D-Mass., pushed through committee, which has garnered Treasury Department support. FM Policy Focus said the committee crafted a bill that will "prevent GSE misbehavior while providing the financing and stability the housing market requires." The National Association of Realtors, Mortgage Banker Association, America's Community Bankers, Independent Community Bankers, and other industry groups expressed support for the bill. "MBA hopes the Senate Banking Committee will soon consider GSE regulatory reform legislation," MBA chairman John Robbins said.

The Federal Deposit Insurance Corp and other regulators are looking for ways to help delinquent subprime borrowers avoid foreclosure and have invited Wall Street bond market officials to a forum on April 16 to help."We are inviting the participants in the subprime securitization market to join us in trying to come up with some constructive ideas," FDIC general counsel Sara Kelsey said. In taking an enforcement action against Fremont General Corp., FDIC directed the California subprime lender to develop a plan to work with its delinquent borrowers. "The goal is to restructure the loans so that the borrowers would be able to repay them," Ms. Kelsey said at a Women in Housing and Finance meeting.

Senator Chuck Schumer, D-N.Y., is drafting a predatory lending bill that would create suitability standards for mortgage lending and a national regulatory system for all mortgage brokers.Congress must respond to the "emerging crisis" in the subprime market," Sen. Schumer said. "When so many mortgage brokers are able to deceive our most vulnerable families into loans that they can never afford, without batting an eye -- the system is broken." The suitability standard will ensure mortgage lenders and brokers "never issue a loan that the borrower cannot afford," he said. The New York senator, who chairs the Senate Banking subcommittee on housing, said he will be introducing the bill "very shortly."

The U.S. attorney general has requested documents "generally relating" to builder Beazer Homes' mortgage business, the company said. "At this time, there have been no allegations of wrongdoing," Beazer said. "We are fully cooperating with this request and the U.S. attorney's office," the company added. Beazer said it believes the request "was fueled" by information published in the Charlotte Observer and BusinessWeek indicating that there is a federal investigation of the company in connection with alleged mortgage fraud. However, the company said that, based on its internal investigations to date, it has found "no evidence to support the allegations in these articles."

The Federal Housing Finance Board has finalized an appointment process for public interest directors that allows the individual Federal Home Loan Banks to nominate one or two candidates for the FHFB's approval.Previously, these independent directors were selected and appointed by the FHFB. But that process came to halt several years ago when the White House stopped all appointments as part of its approach to reforming the regulation of the government-sponsored enterprises. In finalizing the new process, the FHFB dropped a proposed requirement that the FHLBanks submit two candidates for each vacancy. The final rule allows the FHLBanks the option of nominating one candidate, as recommended by the America's Community Bankers and others. FHLBank stakeholders were concerned that some good candidates might refuse to go through the nominating process if they only had a 50% chance of being appointed.

Fannie Mae and Freddie Mac would have to submit loan pricing data to their new regulator under a manager's amendment Rep. Barney Frank, D-Mass., intends to offer during a House Financial Services Committee markup of a GSE reform.The 21-page manager's amendment drafted by committee Chairman Frank contains mostly technical changes to the bill (H.R. 1427), which is designed to strengthen regulation of the housing government-sponsored enterprises. However, one section allows the regulator to review Fannie and Freddie loan data to see if minorities are being charged higher interest rates than whites. If a pattern or practice of discrimination is discovered, the regulator can refer the lender to the appropriate enforcement agency. The regulator also can order the GSE to take remedial actions. Separately, America's Community Bankers said it opposes any amendment to weaken the GSE reform bill. "We urge passage of H.R. 1427 as introduced, and with the manager's amendment," ACB executive vice president Robert Davis said.