Compliance & Regulation

Countrywide Home Loans chief Angelo Mozilo on Wednesday defended payment-option adjustable-rate mortgages, saying the product is performing well but that he fears new regulatory guidance on the loans will create an "unlevel" playing field that favors lenders owned by Wall Street.Speaking before the National Association of Home Builders, Mr. Mozilo said regulatory guidance that requires lenders to consider potential negative amortization when qualifying option ARM borrowers, favors unregulated mortgage bankers owned by investment bankers such as Bear Stearns and Lehman Brothers. "It has created a terribly unlevel playing field," Mr. Mozilo said, adding that unregulated institutions are not putting the product on the balance sheets of their depositories, which are regulated. (For the full story, see the Oct. 30 issue of National Mortgage News.)

Street Resource Group Inc., an Atlanta-based provider of technology and software for mortgage warehouse lending, has announced that its clients will now have access to DataVerify Corp.'s data integrity verification and fraud prevention platform product.The product -- DRIVE, for data risk integrity verification engine -- provides automated tools designed to replace manual verifications of such information as employment and income while "dramatically" reducing loan default costs, DataVerify said. "In an environment in which most lenders are tightening their budgets while suffering significant increases in fraud-related losses, we strongly believe that the combination of our online credit and collateral fraud-prevention solutions and SRG's online automated mortgage warehouse solution adds value to both our clients' bottom lines by both streamlining their internal processes and increasing the quality of their loans," said Steve Halper, founder and chief executive officer of DataVerify. The companies can be found online at http://www.streetresource.com and http://www.dataverify.com.

Fannie Mae and Freddie Mac must create and maintain a record retention program that provides examiners with ready access to complete and accurate records, according to a final rule approved by the Office of Federal Housing Enterprise Oversight."With this regulation, the enterprises will have an obligation to maintain and promptly produce records needed for regulatory examinations and other proceedings -- an essential element of safe and sound operations," OFHEO Director James Lockhart said. OFHEO is giving the two government-sponsored enterprises 120 days to implement their record retention programs before taking enforcement actions for noncompliance. The regulator acknowledged that the GSEs are in the process of developing and upgrading their record management systems. 'To that end, both during the 120-day implementation period and afterwards, OFHEO encourages each enterprise to submit relevant materials to and confer with its examiner-in-charge as needed to ensure that its record retention program is compliant," the final rule says.

Agoura Hills, Calif.-based Interthinx, a provider of fraud prevention, compliance, and decision support tools, has launched an online testing mechanism in conjunction with its fraud detection training film, FSI: Fraud Scheme Investigation.The FSI video is a mortgage fraud detection training tool produced by Interthinx. The film parodies CSI: Crime Scene Investigation, the popular prime-time television series, to demonstrate the characteristics and "red flags" of a complicated property-flipping scheme, the company said. FSI was inspired by actual events and is free to the mortgage industry. The free online FSI Exam Program will provide a means to measure learning achieved by watching the FSI film. The announcement of the online testing mechanism was made at the Mortgage Bankers Association's 93rd Annual Convention. The company can be found on the Web at http://www.interthinx.com.

CoreLogic, a Sacramento, Calif.-based provider of mortgage risk assessment and fraud prevention systems, has released findings from its broker management database indicating that 7% of brokers account for 63% of early payment defaults, with the riskiest 0.5% of brokers accounting for 70% of all losses.CoreLogic said its broker database tracks more than 38 million loans and 190,000 brokers and is the engine powering ThirdParty Scorecard, a Web-based software tool that helps residential mortgage lenders evaluate and manage the risk associated with their broker network. The most recent statistics illustrate the key role brokers play in the risk management chain and why broker monitoring and management tools are critical to the financial prospects of wholesale originators, the company said. Core Logic made the announcement at the Mortgage Bankers Association's 93rd Annual Conference & Expo in Chicago. The company can be found on the Web at http://www.corelogic.com.

Doral Financial Corp., the troubled mortgage lender based in San Juan, Puerto Rico, has reported a net loss of $33.8 million ($0.47 per share) for the first six months of 2006.Noting that it has filed its Form 10-Q for the period with the Securities and Exchange Commission, Doral said the loss reflects "significant" restatement- and re-engineering-related expenses; an $8.2 million charge related to the restructuring of certain prior transfers of mortgage loans to local financial institutions; and a $12.3 million charge related to the transfer of some mortgage loans held for sale to its loan receivables portfolio. In September, Doral announced an agreement with the SEC under which the mortgage lender will pay a $25 million civil penalty in connection with the SEC's probe of Doral's restatement of financial results for 2000-2004. Doral said it had agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of certain provisions of the securities laws. Doral's restatement slashed $694.4 million from its retained earnings through the end of 2004 to correct the accounting for certain mortgage loan sales and the valuation of its interest-only strips. In March, the company signed consent orders with banking regulators that restrict its payment of dividends and require it to review its mortgage portfolio and submit plans on maintaining capital adequacy and liquidity. Doral can be found online at http://www.doralfinancial.com.

Mortgage Builder Software Inc., Southfield, Mich., has announced an interface with ComplianceEase that it says will enable its customers to determine whether their loans comply with federal, state, and local regulations.ComplianceEase's flagship product, ComplianceAnalyzer, reviews loans for a variety of multijurisdictional compliance regulations. "Mortgage Builder provides the required data, allowing ComplianceEase to perform the testing procedures ensuring the loan is compliant, and then ComplianceEase returns the results via HTML, where they can be viewed and stored for future reference," said Keven Smith, president of Mortgage Builder. The announcement was made at the Mortgage Bankers Association annual convention in Chicago. The companies can be found online at http://www.mortgagebuilder.com and http://www.complianceease.com.

Fannie Mae and Freddie Mac intend to win back some of the market share they have ceded to private-label conduits while laboring through their respective accounting scandals.A large part of how well the two government-sponsored enterprises will be able to duke it out with totally private entities remains to be seen, as lawmakers continue to argue whether the agencies need a new regulator and under what kind of rules they will have to operate. But whatever happens on Capitol Hill, Freddie Mac chairman Richard Syron told the Mortgage Bankers Association's annual convention in Chicago that his company is "determined to be as competitive as it can be." Mr. Syron said that for the last several years, both Fannie Mae and Freddie Mac have "been in the penalty box" and have been playing mostly defense. Private-label issuers now control an estimated 55%-60% of the mortgage-backed securities market. Fannie Mae chairman Daniel Mudd conceded that his company hasn't been innovative enough, especially while it has been dealing with its accounting irregularities. The company has also been too slow and bureaucratic, he said. But while Fannie has "been working to get our house in order," the company has also been "rethinking a lot of things, including how we do business," Mr. Mudd said. Both executives maintained that their respective companies were designed for the turbulent and changing market that lies ahead.

Experian Group Ltd., Costa Mesa, Calif., has brought its Hunter fraud detection product to the United States, the company announced at the Mortgage Bankers Association annual convention in Chicago.The product has been available in the United Kingdom for the past 10 years. It was originally developed to combat mortgage fraud, but has expanded to other credit applications as well, KC Akerman, senior product manager of Experian Fraud Solutions, told MortgageWire. It has not been introduced in the United States until now because Experian redesigned it from a client-based application, and it is now available as a hosted application. Its primary use is to catch application fraud in the prefunding stage by looking for red flags using a customized rules engine. It can use both shared and third-party data that the user has access to, Ms. Akerman said. In the U.K., she noted, users of Hunter share data findings with each other as part of their fraud prevention efforts.

The new chairman of the Mortgage Bankers Association is calling for an "industrywide commitment to personal responsibility."Taking over the reins of the MBA at the group's annual convention in Chicago, John Robbins said the "industry must take a leadership role so our customers receive the best information possible, allowing them to make an educated decision on the mortgage program they have selected." If the business chooses to abdicate that responsibility, Mr. Robbins warned in opening the three-day conference, "then we deserve to be subjected to the unending stream of punitive legislation and regulation [that's] sure to follow." The chairman of American Mortgage Network, San Diego, said lenders should have the borrower's best interest at heart, not their own. The "simple litmus test" should be to "always make sure borrowers have what they need to make the right choice," he said. Unlike those who blame the news media for the black eye lenders have received from news stories about predatory lenders, the new MBA leader said the real culprits are those who wrote the loans. "They obviously put their personal compensation ahead of their borrowers' well being," he told the convention. Mr. Robbins also said the MBA could lose its well-earned credibility with news organizations, lawmakers, and regulators if its members don't hold themselves to a higher standard. There should be laws to punish the "few bad apples ... that will always exist in any group, no matter the profession." he said. The MBA can be found online at http://www.mortgagebankers.org.