Compliance & Regulation

Rep. Bob Ney, R-Ohio, a housing subcommittee chairman who has been tainted by the congressional lobbying scandal, has dropped his re-election bid for a seventh term and plans to step down in January."After much consideration and thought, I have decided to no longer seek re-election," Rep. Ney said. His ties to lobbyist Jack Abramoff, who pleaded guilty to conspiring to bribe congressmen, have dogged Rep. Ney for the past year. It is understood that federal prosecutors are considering bringing possible charges against the Ohio congressman. "Congressman Ney's decision is a political and practical one and not a legal one," his attorney said. "Congressman Ney has done nothing wrong, and there is no credible basis to charge him with a violation of law." Rep. Ney chairs the housing subcommittee of the House Financial Services Committee.

A recent survey found that mortgage lenders believe that the Department of Housing and Urban Development is "too quick" to require indemnification on FHA loans that go bad, but the chief auditor at HUD's Office of Inspector General says the agency has "backed off" and modified its policies."We are doing less and less indemnifications now," Deputy Assistant IG Robert Gwin told MortgageWire. In the past eight months, the HUD IG has reached numerous agreements with Federal Housing Administration officials regarding what underwriting and compliance issues trigger indemnification -- where the lender has to cover any losses on a loan. "Things we were asking for indemnification a year ago, we are not doing now," Mr. Gwin said in an interview. A Mortgage Bankers Association survey found that two-thirds of lenders felt they were more likely to have to indemnify an FHA loan than to repurchase a non-FHA loan.

The Consumer Mortgage Coalition is raising a red flag about a HUD proposal to prevent Fannie Mae and Freddie Mac from getting affordable housing credit for loans with predatory features.The Department of Housing and Urban Development has proposed an expedited process for listing new terms and practices that it considers abusive. But the CMC says it is very concerned that the lack of checks and balances could hurt all affordable housing lending. "Any expansion of the list of unacceptable terms or required practices requires careful consideration," CMC executive director Anne Canfield says in a comment letter. Ms. Canfield noted that federal banking regulators considered but decided against creating a list of loan terms and practices that could lead to the denial of Community Reinvestment Act credit. If HUD moves ahead with its rule, the CMA recommends the creation of a "safe harbor" so Fannie and Freddie are not penalized for purchasing CRA loans.

Freddie Mac nearly stopped purchasing mortgages on small apartment buildings in 2005 after the Department of Housing and Urban Development stopped providing bonuses under its affordable housing rules.HUD affordable housing data show that Freddie Mac's loan purchases in 2005 included only 14,000 units that qualified as small multifamily (5-50 units) loans. Freddie purchased small multifamily loans with 181,000 units in 2003 -- the last year HUD provided a bonus. In 2001, HUD started giving Freddie and Fannie Mae double credit for each unit financed to get the two government-sponsored enterprises more involved in serving the small apartment market. Fannie's purchases of small multifamily loans fell from 231,000 units in 2003 to 91,000 units in 2005. The 2005 AH data appeared in a research paper presented by a HUD economist at an American Real Estate and Urban Economics Association conference. Freddie could not be reached for comment by MortgageWire's deadline.

Fraud "comes in many forms and has been around for some time," National Association of Mortgage Brokers president Harry Dinham told attendees Aug. 3 at the California Association of Mortgage Brokers annual convention.In his speech in San Jose, Mr. Dinham referred to someone at the recent Florida Association of Mortgage Brokers convention who said it is a lot easier to commit mortgage fraud the second time than the first. "I agree. And his words have been replaying in my mind since then," Mr. Dinham said. "So how do we stop fraud from happening the first time? The only way to combat mortgage fraud is to strengthen and enforce existing laws and educate our broker members and consumers on the best ways to avoid this serious problem." The last thing the industry needs is more regulation, he said, given that enforcement of current laws is underfunded.

Despite tremendous growth in the number of real estate licensees in California, the staff for the state Department of Real Estate has dropped dramatically, according to Real Estate Commissioner Jeff Davi.Speaking at the California Association of Mortgage Brokers annual convention in San Jose, Mr. Davi said there are now 510,000 real estate licensees in the state. Under the current regulatory scheme, many mortgage brokers are licensed as real estate agents. With the turn in the real estate market, the department is expecting to deal with an increase in phone calls and complaints, Mr. Davi said. The department does not do random audits -- any audits it conducts are based on complaints from consumers or competitors. Right now the DRE has 303 employees, but the department has persuaded the legislature and the governor to allow it to hire 38 more, he said. All the new employees will be dedicated to enforcement.

The addition of zero-downpayment mortgages to the Federal Housing Administration's product line would result in a major boost in single-family originations, according to a survey of 61 lenders commissioned by the Mortgage Bankers Association.The survey by the Hollister Group found that 69% of lenders expect the introduction of a zero-down product would result in a "significant" or "major" increase in FHA originations. Only 5% of lenders said it would have no impact on FHA business. Congress is considering FHA reform legislation that would allow the agency to insure zero-down loans and charge risk-based premiums. The report -- "Lender Perspectives on FHA's Declining Market Share" -- also found that lenders view FHA single-family loans as a "good option" for many homebuyers with marginal credit. However, lenders noted that the FHA has higher origination costs and longer processing times than conventional loans purchased by Fannie Mae and Freddie Mac. In addition, lenders don't feel they are adequately compensated for the indemnification risk they incur with FHA loans. The association can be found online at http://www.mortgagebankers.org.

Former Mortgage Bankers Association staffer Timothy Doyle has moved to the Conference of State Bank Supervision to work on a new registry and licensing system for mortgage companies, loan officers, and mortgage brokers."Tim's experience with the mortgage industry and his background in government will yield great benefits as CSBS develops its national licensing system for mortgage lenders and regulated financial services professionals," said Neil Milner, president and chief executive officer of the CSBS. Before joining the MBA as a senior director in 2002, Mr. Doyle worked at the Agriculture Department's rural development program and the Federal Housing Administration. The CSBS wants the new licensing database to be up and running in early 2008.

Two Louisiana senators are blocking Senate passage of a flood insurance reform bill because they are concerned that proposed increases in flood insurance premiums would be too expensive for their constituents.Sen. Mary Landrieu, a Democrat, and Sen. David Vitter, a Republican, placed the hold on the flood bill that Senate leaders wanted to pass this week by unanimous consent. Adam Sharp, a spokesman for Sen. Landrieu, said, "One of the main goals is to make the program more affordable for our constituents." The flood insurance bill (S. 3589), which was approved by the Senate Banking Committee by a 20-0 vote, could raise premiums by up to 25% a year. Committee spokesman Andrew Gray said efforts are being made to address the senators' concerns. But he noted that time is short. The Senate is expected to adjourn at the end of this week for its August recess. The flood insurance program is "broken," Mr. Gray said. "We need to have strong reforms and put the program on a more actuarially sound basis."

Stephen Blumenthal, who ran the special examinations of Fannie Mae and Freddie Mac for the Office of Federal Housing Enterprise Oversight, says he intends to resign and return to the private sector this fall."The confirmation of Jim Lockhart as OFHEO's director makes it possible for me to leave knowing that the agency is well led and will continue to accomplish its important mission," said Mr. Blumenthal, OFHEO's deputy director. As deputy director and acting director, he headed the special examination of Fannie that discovered fraudulent accounting, earnings manipulation, and corruption at the government-sponsored enterprise. He also conducted a special examination of Freddie Mac after an internal investigation by the GSE's board of directors uncovered an accounting scandal. Former OFHEO Director Armando Falcon hired Mr. Blumenthal from Schwab Capital Markets in 2002 to be his counsel. After Mr. Falcon stepped down in May 2005, he served as acting director until Mr. Lockhart was appointed in April.