Compliance & Regulation

In a big win for lenders, the Louisiana Recovery Authority has decided that assistance grants going to homeowners with hurricane-damaged properties should be placed in escrow accounts."Compensation to the homeowners with mortgages will be disbursed at closing directly to an escrow account with the homeowner's lender," LRA spokeswoman Catherine Heitman told MortgageWire. Mortgage lenders and servicers have urged Louisiana and Mississippi to require escrow accounts as a way to ensure that the Community Development Block Grant funds appropriated by Congress are used for repairs and rebuilding. Mississippi decided to disburse the grant assistance directly to homeowners. Louisiana is going with escrow accounts. "We want the money to be used to rebuild and repair homes," Ms. Heitman said. LRA officials are still discussing whether homeowners who own their homes outright and don't have a mortgage should be required to have escrow accounts. About 120,000 Louisiana residents are expected to receive assistance grants.

Louisiana has hired a consulting firm, ICF International, to assist nearly 120,000 homeowners in applying for state grants to rebuild their hurricane-damaged and flooded properties.Louisiana has $4.2 billion in Community Development Block Grant funds lined up to fund the "Road Home" grant assistance program, which is designed to cover the costs of repairing or rebuilding homes damaged in hurricanes Katrina and Rita. Eligible homeowners can receive grants of up to $150,000. "The ICF team is committed to combining our deep program expertise in housing and community development, disaster recovery, and grants management to help restore the vitality of this great state," said ICF senior vice president Michael Byrne. Over the next four months, the Fairfax, Va.-based consulting firm will set up centers to process grant applications and provide housing counseling. Over 90,000 residents have signed up for Road Home grants, and it is estimated that another 30,000 homeowners could qualify.

Mississippi has cleared all the regulatory hurdles for its Katrina homeowner grant assistance program, and it will soon be sending the closing documents for the grants to the hurricane victims and their lenders, according to a Mississippi Development Authority spokesman.MDA spokesman Scott Hamilton said the closing documents will be sent to mortgage lenders that signed up to help homeowners fill out the closing documents. Over 16,000 Mississippians have applied for the grants, which are designed to cover up to $150,000 of the costs of repairing or rebuilding a home that was damaged in Hurricane Katrina last August. However, industry groups are concerned that homeowners receiving the grants are under no obligation to rebuild their homes. Lenders wanted the state to require escrow accounts to ensure that the grants are used for rebuilding. But Mississippi officials insisted on a program that gave the homeowners direct control of the funds, and the Department of Housing and Urban Development approved it.

Fannie Mae does not appear to be chafing under regulatory restrictions that limit the size of its giant mortgage portfolio, according to remarks by the company's chief executive, Daniel Mudd.Mr. Mudd indicated that investor demand for mortgages is still strong and that Fannie Mae is not missing out on any buying opportunities for its $730 billion investment portfolio. "Right now others want to hold mortgages," Mr. Mudd said during a conference call sponsored by UBS Securities. He also noted that Fannie has some wiggle room under the regulatory cap, with $12 billion to $14 billion in portfolio liquidations per month. "That very movement within the portfolio gives us an opportunity to buy and sell," he said. The Fannie CEO also reported that he has had "productive" discussions with the company's regulator -- the Office of Federal Housing Enterprise Oversight -- about the portfolio cap. "It is fair to say that the enterprises, as well as the regulator, are mindful that a dislocation in the market could change the picture," Mr. Mudd said. OFHEO Director James Lockhart recently stated that Fannie and Freddie Mac should have the capacity to increase the portfolios when there is an emergency in the marketplace to provide liquidity. Fannie Mae can be found online at http://www.fanniemae.com.

A recent proposal by the regulator of the Federal Home Loan Banks has created uncertainty for the FHLBanks' members about whether the current level of funding and services will remain available, according to a report by A.M. Best Co., Oldwick, N.J.The financial information provider noted that the proposal by the Federal Housing Finance Board would require the FHLBanks to maintain a minimum level of retained earnings, restrict the timing of dividend payments, limit the amount of "excess" stock in any district bank to 1% of that bank's total assets, and bar the issuance of stock dividends. The proposal has generated opposition from all 12 FHLBanks. "The limitation on the amount of excess stock that a bank may have outstanding will be an issue to watch, especially in the Chicago district bank, which has one of the highest levels of excess stock, at an estimated $2.4 billion," A.M. Best said. ".... The limitations on the amount of excess stock and the issuance of stock dividends both create tax implications that member institutions would likely view as unfavorable." The company can be found online at http://www.ambest.com.

Fannie Mae's and Freddie Mac's portfolios should be reduced, but the two government-sponsored enterprises need to remain a market force so they can provide liquidity during market upheavals, according to Office of Federal Housing Enterprise Oversight Director James Lockhart."What they really need in my mind is a capacity to increase the portfolios when there is an emergency in the marketplace to provide liquidity," Mr. Lockhart said on a Nightly Business Report television interview on PBS. Both GSEs have a $730 billion mortgage portfolio, and they could operate with "significantly less" assets, the OFHEO director said. However, Mr. Lockhart said he is not ready to suggest what the optimum size should be. Congress is deadlocked over the issue of portfolio limits and has stalled passage of a GSE regulatory reform bill. The Bush administration wants a bill that substantially reduces the GSEs' portfolios, which Fannie and Freddie oppose. The OFHEO director may be trying to find some middle ground. "They don't need these large portfolios to provide the stability the market needs today," Mr. Lockhart said. "What they need to do is to have the ability to grow when they really need to -- to provide liquidity and stability to the market."

State and local government agencies have put less than half of the downpayment assistance fund provided by Congress to work in moving low-income renters into new homes, according to an audit requested by Congress.The Government Accountability Office found that only $98.5 million of the $211 million appropriated for President Bush's signature American Dream Downpayment Initiative has been tapped to help low-income homebuyers. "Officials from many jurisdictions said the combination of high housing prices, the low incomes of eligible families, and the program's per-household assistance limits made it challenging to expend the funds," the GAO report says. The data system that the Department of Housing and Urban Development uses to track the ADDI shows that half the ADDI recipients are minorities and one-third of assisted households earned less than 50% of median income. However, the GAO faulted HUD for providing inconsistent guidance on data entry to local jurisdictions. As a result, HUD's figures include an "unknown" number of non-ADDI projects that provided downpayment assistance to first-time homeowners, the GAO said.

W Holding Co., Mayaguez, Puerto Rico, has reported that its bank subsidiary, Westernbank Puerto Rico, recently bought additional rights from San Juan, Puerto Rico-based Doral Financial Corp. and its affiliates to perfect the acquisition of mortgage loan pools purchased since 1995.The pools have an aggregate unpaid principal balance of $937.3 billion, the holding company said. The purchases of the loan pools were originally accounted for as sales of the loans by both parties, but Westernbank later determined that it had to recharacterize the transactions on its balance sheet as commercial loans secured by mortgages. Westernbank and Doral then agreed to restructure the transactions. "As a result of this transaction, the bank will record the loan acquisitions as 'true sales'," said Freddy Maldonado, W Holding Co.'s president and chief investment officer. "Thus, the bank will record the mortgage loans as its own, rather than a financing transaction with Doral." Under the terms of the restructuring, the bank received a net compensation of $42.8 million, he said. Westernbank can be found online at http://www.wbpr.com.

House Financial Services Committee Chairman Michael Oxley, R-Ohio, says proposed capital changes could "actually harm" the Federal Home Loan Banks, and he has announced plans to hold a hearing on the Federal Housing Finance Board proposal in September.The committee's ranking Democrat, Rep. Barney Frank (Mass.), joined Rep. Oxley in raising concerns about the proposed rule, which would require the FHLBanks to increase their retained earnings and buy back excess stock. "We are concerned that the proposed changes may go too far and actually harm the FHLBank System more than protect it," Reps. Oxley and Frank say in a letter to Finance Board Chairman Ronald Rosenfeld. The June 30 letter poses seven questions the congressmen expect the regulator to answer when the committee holds the hearing. "The fact that the proposal has been criticized by the leadership of all 12 FHLBanks and key industry trade groups indicates to us a need for a pause," the two ranking committee members say.

Fannie Mae director Donald Marron has resigned from the GSE's board, effective July 31, according to a filing with the Securities and Exchange Commission.As of MortgageWire's deadline, a Fannie Mae spokeswoman had not returned a telephone call about the matter. Mr. Marron, an investment banking veteran, has been a board member since 2001. About two weeks ago Fannie also revealed that longtime director Ann Korologos would step down on July 31. Both directors are defendants in a shareholder lawsuit that accuses board members (and current and former executives) of profiting from the government-sponsored enterprise's accounting manipulations "via huge bonuses, improper stock sales and/or a web of lucrative personal and financial interrelationships…." Mr. Marron currently chairs Lightyear Capital, a private equity fund that controls DeepGreen Financial of Ohio, an online home equity lender.