Compliance & Regulation

Concerned about "overreaching by the government," the House Financial Services Committee on Wednesday agreed by a voice vote to clarify the GSE regulator's powers to limit the size and growth of Fannie Mae and Freddie Mac portfolios.The amendment by committee chairman Barney Frank, D-Mass., and Rep. Gary Miller, R-Calif., prevents the regulator from considering "systemic risk" or other factors in regulating the portfolios without considering the housing mission of the GSEs. Rep Frank acknowledged that the clarification was sought by the National Association of Home Builders, saying Bush administration officials don't favor the change but it is not considered to be a deal breaker. Rep. Frank said he will work with the Treasury Department to further refine this language before the bill goes to the floor for a vote. As MortgageWire went to press, the committee was continuing to mark up the bill (H.R. 1427).

The Center for Responsible Lending said high foreclosure rates on subprime loans have resulted in a net loss of homeownership since 1998, directly contradicting claims by the mortgage industry about the benefits of subprime lending.Considering only 9% of subprime loans go to first-time homebuyers and projected foreclosure rates, "we see a net loss of homeownership every year since 1998 totaling almost 1 million families," CRL president Michael Calhoun told a House panel. Last year, an estimated 354,172 FT homebuyers used subprime loans, but the consumer group projects 624,631 subprime loans originated in 2006 will eventually end up in foreclosure -- resulting in a net loss of homeownership to 270,459 families. The Mortgage Bankers Association argues that CRL "invented" a set of assumptions and combined it with a worst-case scenario. "A more honest analysis, even using pessimistic numbers, would show that 85%-90% of subprime borrowers are ultimately successful on their loan," MBA said in a response to Mr. Calhoun's testimony.

The Federal Reserve Board is looking at incorporating proposed underwriting guidance on adjustable-rate 2/28 mortgages into its anti-predatory lending regulations, but it could open the door to private lawsuits against lenders and investors, a Fed staffer told a House panel."We are going to be looking at this authority," Federal Reserve director Sandra Braunstein told a House Financial Services subcommittee. Senate Banking Committee chairman Chris Dodd, D-Conn., is urging the Fed to use its authority under the Home Ownership and Equity Protection Act to require all lenders to underwrite subprime loans at the fully indexed rate. But the Fed has to be very careful in writing such a regulation, she warned, because HOEPA allows borrowers to file private lawsuits against lenders, as well as investors, under its assignee liability provision. "Anybody that touches the loan could be potentially sued," she warned. To avoid a credit crunch, the Fed will have to draft a regulation that creates a "clear bright line" so that lenders will continue to make "responsible loans," the Fed's director of consumer and community affairs said.

Beanstalk Networks LLC, the West Palm Beach, Fla.-based developer of OpenClose mortgage automation systems, has announced the release of License Cop, which allows lenders to electronically track the licenses of brokerage companies or loan originators.Beanstalk said administrators can configure License Cop in minutes to create rules that automatically "police" where loans can and can't be originated. License Cop verifies state origination authorization and license dates, then allows or denies origination accordingly. "The problem with some compliance functionality is that licensing isn't verified until after the loan has been originated," said OpenClose president Jason Regalbuto. ".... License Cop allows lenders to stop origination at the registration process. Once it's set up, it's completely automated." The company can be found online at http://www.openclose.com.

New Century Financial Corp., says it will realize a $46 million loss on a deal struck with Barclays Bank PLC to settle $900 million in buyback/financing claims.In a filing with the Securities and Exchange Commission, New Century said it will be relieved of an obligation to repurchase $900 million in loans and Barclays will accept the mortgages "as is." However, if New Century strikes a similar deal with better terms with other warehouse providers/investors, the subprime lender will compensate Barclays by offering the London bank the same terms. As part of the deal, the Irvine-based New Century has agreed to transfer the servicing of the mortgages to a third party approved by Barclays. New Century, which is no longer funding loans, has been delisted by the New York Stock Exchange. Investment banking sources told MortgageWire that the company is working on a pre-packaged bankruptcy and sale agreement but is in the very early stages of negotiations. (See the March 26 issue of National Mortgage News for more details.)

Hammered by the meltdown in the subprime sector, the General Electric-owned WMC Mortgage slashed 500 jobs -- including most of its junior account executive sales force -- on March 22 while its president testified before the Senate Banking Committee.A WMC spokeswoman confirmed that layoffs had occurred March 22 but would not provide a head count or job type. The jobs cuts were reported to MortgageWire by industry sources. A few weeks ago WMC laid off 460. One former employee told MW that president and chief executive Laurent Bossard said in a recent sales call with account executives that he wished the company would not receive any loan files for 90 days because Wall Street firms are not buying product. The former employee, requesting anonymity, was recently laid off. The WMC spokeswoman said she would not comment on what she called "second-hand information." The former employee also said WMC is now relying on financing from a GE unit. The spokeswoman declined to comment. Mr. Bossard testified before the Senate Banking Committee on conditions in the subprime market. (See the March 26 issue of National Mortgage News for complete details.)

The Connecticut Department of Labor has confirmed that it has applied for an arrest warrant for the former president of Mortgage Lenders Network, Mitch Heffernan.The agency would like Mr. Heffernan -- who founded the now-defunct subprime lender -- to be charged with 61 counts of failing to pay wages to employees of MLN, which filed for bankruptcy protection last month. Although the warrant was placed about 10 days ago, the labor department has yet to hear from authorities on whether the warrant was obtained, said Gary Pechie, director of the department's wage and workplace division. "Prosecutors are very sensitive about this stuff," he said. "We don't call them, they call us. We're all just waiting now." The department expects to hear an update within the next few days, he said. Mr. Heffernan could not be reached for comment. MLN closed its wholesale division in late December. Some former MLN account executives have complained that they were not paid commissions owed to them.

Servicers, community groups, investors, and investment banks should work together to help subprime borrowers who can't afford their current loans and can't find new financing, a major subprime servicer has told a congressional panel.Ocwen Financial Corp. vice president William Rinehart testified that the recent underwriting and product changes in the subprime market will be beneficial and will reduce early defaults on new loans. However, the changes dictated by investors and regulators will make it more difficult for existing subprime borrowers to "fix their current problems," he warned. "Ocwen and other servicers, [community groups], investors and investment banks must work together to help these homeowners already facing difficulties," Mr. Rinehart said. Ocwen, based in West Palm Beach, Fla., is the sixth-largest subprime servicer, according to NMN's Quarterly Data Report.

Congress should examine the causes of foreclosures before rushing to judgment and prescribing new restrictions on lenders that could "unfairly curtail access to credit," according to the president of the National Association of Mortgage Brokers.The NAMB has been pushing for the Government Accountability Office to conduct a study on foreclosures, and the chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., is expected to submit a request to the GAO. "No one questions the personal heartbreak of foreclosure or the serious effect this is having on America's cities," NAMB president Harry Dinham told a House Oversight and Government Reform subcommittee on March 21. However, there are a number of possible factors -- bankruptcy reform, credit card debt, low savings rates, and decreasing home values, as well as illness and other life events -- that could explain recent increases in foreclosures, he said.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is calling on lenders, investors, and other stakeholders to work together to provide relief for subprime borrowers facing foreclosure."The solution to this problem may not be legislative," Sen. Dodd said at a hearing on the turmoil in the subprime market. "Instead, I intend to ask leaders from all the stakeholders -- regulators, investors, lenders, GSEs, FHA, and consumer advocates -- to come together and try to work out an efficient process for providing relief to homeowners." The subcommittee chairman accused the regulators of being "spectators" as lenders pushed unaffordable subprime loans. He said he plans to introduce a bill that "attacks" predatory lending. "We need to put a stop to abusive and unsustainable lending," he said. Sen. Dodd acknowledged that it will be "tough" to pass a predatory lending bill, but added that "we must try."