Compliance & Regulation

Senate appropriators have put off a decision on FHA single-family reforms advocated by the Bush administration until they go to conference with the House on a Department of Housing and Urban Development appropriations bill."We will look at it in conference," a Senate staffer said. The senators don't want to go into conference with the Federal Housing Administration reforms "when there are significant issues that still need to be discussed," he said. Sen. Christopher Bond, R-Mo., the chairman of a Senate Appropriations subcommittee, and Senate Banking Committee Chairman Richard Shelby, R-Ala., harbor serious concerns about the FHA reforms, which would raise FHA loan limits and allow the FHA to charge risk-based insurance premiums and offer zero-downpayment loans. The House has already passed a HUD appropriations bill with the FHA reforms. But Sen. Bond's subcommittee approved a HUD appropriations bill July 18 that eliminates a loan cap on FHA reverse mortgages but does not include the FHA single-family reforms.

HUD General Counsel Keith Gottfried is working on a compliance assistance process that would allow lenders and settlement service providers to seek legal guidance on Real Estate Settlement Procedures Act issues."We want the industry to be innovative, and they can't be innovative if they have to worry about an enforcement action," Mr. Gottfried said in an interview. The general counsel is drafting a proposed rule that will allow the Department of Housing and Urban Development to issue no-action letters -- signaling that the department will not take enforcement actions against a company that is trying to make the homebuying process more transparent and less burdensome. "I have already drafted about 24 pages of this regulation," he said, and it is being circulated within the department. HUD has to start acting more like a regulatory agency, he said, by putting out guidance, staff bulletins, and interpretations on a timely basis. Besides RESPA, compliance assistance would be provided on fair housing, public housing, and other issues under HUD's jurisdiction.

A proposed rule by the Federal Housing Finance Board would not improve the current regulatory capital framework, and it would make Federal Home Loan Bank membership less attractive, according to Standard & Poor's.The capital proposal to restrict excess stock would "pose a severe limitation" on the FHLBanks' ability to deliver low-cost advances to their members and to provide them with an attractive dividend on their stock, S&P says in a research paper. The Finance Board's proposal would end the practice of paying dividends in the form of excess stock and would mandate a high level of retained earnings. "Should this proposed regulation be adopted as it is currently written, Standard & Poor's will have to monitor any negative impacts to the liquidity profile of the individual banks, core business dynamics, and membership trends," S&P says. The rating agency can be found online at http://www.standardandpoors.com.

The Mortgage Bankers Association is actively seeking input from its members on three RESPA reform options as it prepares for the Department of Housing and Urban Development to issue a RESPA proposal later this year.The trade group has scheduled a July 20 town hall teleconference with members to discuss the options and gauge their members' appetite for reform of the Real Estate Settlement Procedures Act. The first option would revise the good-faith estimate disclosure that borrowers receive shortly after applying for a mortgage so that it is comparable to the HUD-1 settlement sheet at closing. The revised GFE would disclose that the lender is making a yield-spread premium payment to the mortgage broker "in a manner that would inform the borrower of such payment but not confuse the borrower and undermine competition," a summary of Option 1 says. The second and third options build on Option 1 and would permit lenders to do average cost pricing for lender fees (Option 2) and permit volume-based discounts on third-party fees (Option 3). Many large lenders want the second and third options, but settlement service providers, title companies, and real estate agents are opposed to giving lenders that kind of pricing power.

Freddie Mac has announced that it is now in compliance with the Federal Reserve Board's revised Payments System Risk policy, ahead of the July 20 implementation deadline.In September 2004, the Fed revised its daylight credit policies for payments into the Fedwire system, effective July 20, 2006. (Fedwire handles all the interest and redemption payments on securities guaranteed by Freddie and Fannie Mae.) The revised policy requires Freddie Mac to fully fund its accounts in the system to the extent necessary to cover payments on its debt-and mortgage-related securities each day. Freddie said it began testing its new business practices in April 2006, and has implemented a strategy that aims to fully fund the company's daily payment obligations by 11 a.m. ET.

The Austin Board of Realtors has agreed to stop certain anti-competitive practices that prevented homesellers in Texas from getting their properties listed on important public websites if they use a discount broker, according to the Federal Trade Commission.The FTC charged that ABOR's website rules created significant roadblocks for real estate brokers who want to offer customers alternatives to full-service brokerage agreements. "We expect this action will put homesellers back in the driver's seat in deciding what sort of a brokerage agreement they chose to enter into in the Austin area, and enable homebuyers to enjoy the benefits of accessing MLS listings on the Internet," said Jeffrey Schmidt, director of the FTC's Bureau of Competition. Mr. Schmidt added that the FTC is conducting investigations of other multiple listing services.

Federal Housing Administration reform legislation is being criticized in the Senate for raising mortgage insurance premiums on the "backs of poor people" even though the increase would only amount to $12 a month, according to FHA Commissioner Brian Montgomery.The legislation would give the FHA the flexibility to charge risk-based premiums and reach more subprime borrowers with lower-cost and safer loans, the commissioner told a Women in Housing and Finance luncheon. "The family we can't reach today is paying $255 more a month," Mr. Montgomery said. "Where is the outrage on that? They are being taken to the cleaners today." (The $255 a month is based on a 9.5% subprime loan.) On paper, it looks as if the FHA would double the upfront premium from 1.5% to 3.0% for certain borrowers. However, it would increase the monthly cost of a $200,000 loan with a 6% interest rate by $12. "It is a far better deal," Mr. Montgomery said. The House has already approved an appropriations bill that includes risk-based premiums and other FHA reforms. Senate appropriators are mulling FHA reforms as they prepare for a subcommittee mark-up of the Department of Housing and Urban Development appropriations bill.

The Office of Federal Housing Enterprise Oversight has placed the expansion of Fannie Mae's acquisition, development, and construction lending program on hold, the company's chief executive has told MortgageWire.Fannie president and CEO Daniel Mudd said OFHEO raised concerns about the adequacy of the ADC program's controls and processes, and he agreed to make improvements. Once OFHEO is satisfied that Fannie Mae has "the right routines and controls in place, we will expand the ADC program," Mr. Mudd said in an interview. At a homebuilders' conference in January, Mr. Mudd announced plans to expand the ADC pilot program and purchase $10 billion in ADC loans over 10 years. Mr. Mudd characterized his company's relationship with OFHEO as "positive" and "challenging" during the interview. "I would put them in the tough-but-fair category," he said.

The Office of Thrift Supervision has approved Hudson City Bancorp's purchase of Sound Federal Bancorp, Mamaroneck, N.Y. The transaction is expected to be completed on July 14. In February, the Paramus, N.J.-based Hudson City agreed to acquire Sound Federal for $20.75 per share in cash, or $265 million. Hudson City ranks 53rd nationwide among residential lenders, according to the Quarterly Data Report, an affiliate of MortgageWire. Sound Federal, founded in 1891, has 14 branches in New York and Connecticut with assets totaling $1.15 billion. After the acquisition, Hudson City will have more than $29 billion in assets and 104 branches in New Jersey, New York, and Connecticut.

Treasury officials are starting direct talks with Fannie Mae, Freddie Mac, and the Federal Home Loan Banks regarding the Treasury Department's process for approving the issuance of debt by the three government-sponsored enterprises.Senior level meetings are scheduled for the weeks of July 10 and July 17 with executives of Fannie, Freddie, and the Office of Finance, which issues consolidated debt obligations for the 12 FHLBanks. The meetings were first reported by the Wall Street Journal. Treasury Under Secretary Randal Quarles served notice four weeks ago that the automatic approval of GSE debt issuance is under review in light of the accounting scandals at Fannie Mae and Freddie Mac and problems with their accounting systems, risk management, and internal controls. Fannie and Freddie issue corporate debt mainly to finance their giant mortgage portfolios, which have $1.45 trillion in assets combined. The Bush administration supports legislation to reduce those portfolios. Limiting their debt issuance could effectively reduce or cap the portfolios. The FHLBanks issue debt mainly to finance loans to their member banks and thrifts.