Compliance & Regulation

Treasury Secretary Henry Paulson says efforts to reach a compromise on a GSE regulatory reform bill are progressing but there is still a long way to go."So far the conversations have been very constructive, but we've got a lot further to go," Secretary Paulson told the Senate Banking Committee during a hearing on China's currency policies. The secretary said he was "encouraged" by the progress that was made late last year in negotiations with Rep. Barney Frank, D-Mass., which involved key provisions to strengthen regulation of two government-sponsored enterprises -- Fannie Mae and Freddie Mac. It is understood that Treasury officials and Rep. Frank agreed on a proposal that would allow a new GSE supervisor to regulate the size and growth of Fannie's and Freddie's investment portfolios. The secretary did not comment on the details of the negotiations.

House and Senate appropriators have included a provision in a continuing funding resolution that should keep the Federal Housing Administration reverse mortgage program running until Sept. 30.The provision lifts a 275,000-loan limit on the number of reverse mortgages the FHA can insure under its home equity conversion mortgage program, and it is designed to prevent a shutdown. Reverse mortgage lenders are very concerned that originations could hit the loan limit before Congress approves the continuing resolution, which is supposed to fund the federal government for the rest of the 2007 fiscal year. The House has passed a separate bill (H.R. 391) that would temporarily suspend the 275,000-loan cap until Feb. 15. However, that bill has encountered resistance in the Senate.

The Government Accountability Office has removed the Federal Housing Administration single-family insurance program from its list of "high-risk" government programs, citing the FHA's improved oversight of lenders.The GAO also removed the Department of Housing and Urban Development's rental housing assistance programs from the high-risk list, and it is the first time since 1994 that a HUD program is not on the list. HUD officials noted that the GAO's announcement shows that the FHA is on a "sound footing" as the Bush administration seeks legislation to modernize the FHA single-family program. However, the GAO noted that allowing the FHA to set risk-based insurance premiums and reduce its downpayment requirements means that HUD has to "manage new risks and accurately estimate the cost of program changes." The GAO can be found online at http://www.gao.gov.

Fannie Mae president and chief executive officer Daniel Mudd received a 27.5% increase in take-home pay and bonuses in 2006 largely due to a $3.5 million bonus.Mr. Mudd received a $950,000 salary last year along with the bonus. The company's board of directors also awarded Mr. Mudd 176,506 shares of restricted common stock. He currently holds 492,206 restricted shares, according to a Jan. 25 Securities and Exchange Commission filing. In 2005, the Fannie Mae president and CEO received a $908,121 salary and a $2.6 million bonus. The board also increased his 2007 salary by $40,000, to $990,000. The government-sponsored enterprise can be found online at http://www.fanniemae.com.

The ranking Republican on the House Financial Services Committee says he will oppose a GSE regulatory reform bill if it requires Fannie Mae and Freddie Mac to make annual contributions toward an affordable housing fund."In my opinion, this fund represents, in essence, a tax on lower- and middle-class homeowners to finance a government housing program, the need for which is debatable," says Rep. Spencer Bachus, R-Ala, in a letter to the committee chairman, Rep. Barney Frank, D-Mass. (Rep. Frank strongly supports the creation of a GSE affordable housing fund.) Rep. Bachus warned that a substantial number of Republicans can be expected to oppose the AH provision, which would require the government-sponsored enterprises to ante up approximately $500 million a year to fund construction and rehabilitation of affordable housing. During the first year, all the funds would go toward rebuilding in the Gulf Coast areas hit by Hurricane Katrina in 2005. Without the AH fund provision, "an overwhelming majority of Republicans and I could enthusiastically support" the GSE legislation, Rep. Bachus says.

Adoption of a "suitability standard" would reverse long-standing efforts to increase homeownership and fairness in lending and put pressure on lenders to deny credit in order to protect themselves from liability, according to a position paper issued by the Mortgage Bankers Association."A subjective suitability standard, combined with a private right of action, would be a poison pill for the dream of homeownership for all except the most economically secure Americans," said MBA's top lobbyist, Kurt Pfotenhauer. The MBA has issued the 34-page position paper to marshal legal and economic arguments in an effort to warn Congress about the damage that could be done by inserting a suitability standard into a predatory-lending bill. (Under such a standard, brokers and lenders would be required to provide the loan most "suitable" for each borrower's circumstances.) Consumer groups are pushing for a suitability standard, and their efforts have gained traction on Capitol Hill. The position paper also takes issue with the notion that specific loan products, specifically adjustable-rate subprime loans, are driving foreclosures up. The MBA stresses that its data continue to show that job loss, divorce, medical problems, and other personal difficulties are the main reason for rising delinquencies and defaults. The MBA can be found online at http://www.mortgagebankers.org.

The number of vacant single-family homes for sale jumped to 2.1 million in the fourth quarter, a 10.5% increase from the level in the third quarter, according to the U.S. Census Bureau, showing that homeowners and investors continue to have trouble selling into a slow market.The National Association of Home Builders has been keeping an eye on vacancies in existing homes because they make it harder for builders to get rid of their inventories of unsold newly constructed homes. The Census Bureau report indicates that nearly half of the homes for sale are vacant. "There continues to be an overhang in the housing market that needs to be worked through," said NAHB senior economist Bernard Markstein, which is why the homebuilders don't see the downturn in the housing market bottoming out until the second quarter. The Census Bureau report also shows that homeownership rates have not changed much in the past four quarters. The national homeownership rate was 68.9% as of Dec. 31, and the homeownership rates for blacks and Hispanics were 48.2% and 49.5%, respectively.

Clayton Holdings, Shelton, Conn., has announced the introduction of fraud detection services designed to protect conduits, Wall Street issuers, and holders of mortgage-backed securities from losses due to origination fraud and breaches of representations and warranties.Clayton said the new services draw upon its "extensive" due diligence and credit risk surveillance experience. They include: high-risk loan identification; expanded fraud reviews; put-back reviews; and trend analysis. "We're drawing on the breadth and depth of our data, experience, and technology to spot issues prior to securitization, and we have the analytics and surveillance tools to identify exceptions that, when cured, enhance bond performance," said Keith Johnson, Clayton's president and chief operating officer. "Our new fraud services not only reduce fraud and early payment default exposure, but increase client efficiency and enhance understanding of this problem." The company can be found online at http://www.clayton.com.

A senior member of the Senate Banking Committee, Sen. Charles E. Schumer, D-N.Y., is expected to be the new housing subcommittee chairman, according to sources, although it has not been officially announced.The housing subcommittee has jurisdiction over the housing government-sponsored enterprises, and the New York senator has fiercely opposed Bush administration efforts to substantially cut the size of Fannie Mae's and Freddie Mac's mortgage portfolios. Sen. Jack Reed, D-R.I., was the ranking Democrat on the housing subcommittee last year, but he is going to chair the securities and investment subcommittee. Sen. Reed is the author of a proposal that would require Fannie and Freddie to contribute 5% of their profits toward an affordable housing fund.

Sen. Mary L. Landrieu, D-La., will conduct a field hearing Jan. 29 in New Orleans as she takes the helm of a newly created subcommittee to examine the federal government's response to Hurricane Katrina and ongoing recovery efforts.The House Financial Services Committee has also scheduled a Katrina hearing for Feb. 6. in Washington. Sen. Landrieu is the chair of the Homeland Security Committee's new disaster recovery subcommittee. "There are tremendous ongoing challenges to our recovery in Louisiana and the Gulf Coast, and I will use my new oversight authority to ensure that the Federal Emergency Management Agency and other federal agencies are supporting our efforts as effectively as possible," Sen. Landrieu said. ".... Rest assured, I will use this authority responsibly and work to craft solutions." The House panel will focus on the loss of public housing and efforts to provide affordable rental housing for working families. The committee members will focus on state grant programs to help homeowners rebuild and repair their homes.