Compliance & Regulation

Expanding the Federal Housing Administration reverse mortgage program could double originations and increase government revenues by $230 million annually, according to a Congressional Budget Office analysis of an FHA reform bill.The main focus of the bill (H.R. 5121) is revitalizing the FHA single-family program. But the CBO estimates that the single-family portion of the bill would generate only $11 million in new revenues in the first year after enactment. H.R. 5121 removes a 250,000 loan cap on the FHA reverse mortgage program, creates a nationwide loan limit at $417,000, and allow seniors to purchase a new home and get a reverse mortgage in the same transaction. It appears that these legislative changes, along with "robust demand and limited competition," could push HECM endorsements -- the FHA's name for reverse mortgages is home equity conversion mortgages -- to more than 100,000 loans annually, the CBO says. The FHA endorsed 43,000 HECMs totaling $6.2 billion in fiscal year 2005. Meanwhile, HECM endorsements continue to increase at an astonishing rate, and industry representatives are concerned that they could bump up against the cap again in the next four to six months. The House has passed a bill that simply repeals the cap, and the National Reverse Mortgage Lenders Association is hoping the Senate will act soon. But the politics are getting more complex because of the revenues. The House included HECM provisions in a Department of Housing and Urban Development appropriations bill. "Higher loan limits are important, and we would like to see that happen," NRMLA president Peter Bell said. "However, eliminating the cap is critical."

Federal regulators have revised the Uniform Standards of Professional Appraisal Practice that banking institutions are required to follow in commercial and residential real estate transactions.The 2006 revisions place "greater emphasis on the appraiser's process of problem identification and development of an appropriate scope of work," the regulators say in a joint announcement. The 2006 USPAP also provides a set of minimum standards for all appraisal, appraisal review, and appraisal consulting assignments for the first time. "This simplifies understanding of the development process," according to the regulators. While the 2006 USPAP revisions go into effect July 1, regulators insist that appraisers can easily make the adjustment. "The Scope of Work Rule has no requirements that were not in USPAP before," they note in the announcement. "It's a matter of emphasis." In related news, the Appraisal Institute has released a new practice guide on using the Small Residential Income Property Appraisal Report that is required by Fannie Mae and Freddie Mac.

If there is a theme to Harry Dinham's term as the new president of the National Association of Mortgage Brokers, it is continuity.Elected at the NAMB's annual convention, the 39-year mortgage industry veteran from Plano, Texas, said he aims to maintain the good works of his predecessors. "I firmly believe in continuity from president to president," Mr. Dinham told the convention. One initiative planned by the new NAMB leader is a "serious effort to address the abuses that exist in some affiliated business arrangements." Such schemes "injure consumers because they inhibit and at times outright prevent them" from shopping for the best rates and terms, the soft-spoken Texan said. "We are against the use of affiliated business arrangements as a veil to coercive lending tactics," he said. On another front, the new president said he hopes to expand his group's educational efforts and certification initiatives. Along that line, it will soon pilot a new entry-level professional designation -- the General Mortgage Associate, or GMA.

Mortgage originations could take off again in 2008, according to Countrywide Home Loan's chief economist, Jeff Speakes.Noting that loan production has shot higher every five years since the mid-1990s, Mr. Speakes told mortgage brokers meeting at their annual convention in Philadelphia that if they can hold on through next year, brighter days are on the horizon. Of more immediate concern to the economist, however, is the fear that the Federal Reserve Board won't stop ratcheting up short-term interest rates until it goes too far and sends the economy spinning into a recession. Mr. Speakes said he believes the Fed should "stop right here" by bumping the federal funds rate 0.5% at its next meeting in July and "be done with it." He voiced hope that the Fed "will get itself off the treadmill. Otherwise, it's going to overdo it." As for whether the bottom will fall out of the housing market, the economist agreed with most of his colleagues. "No kerplunko," he said. But he warned that price appreciation could slip below income growth for the first time in years. "Not negative. It's never been negative," he told the National Association of Mortgage Brokers. "But in the low single digits."

The Coalition Against Broker Fraud has created a "comprehensive database" on brokers and other finance business insiders known or suspected to have been involved in fraudulent activity.Being on the list is not tantamount to an immediate indictment, the database's co-founders, Mitch Freifeld and Ron Litt, said at the National Association of Mortgage Brokers' convention in Philadelphia, where they formally introduced their effort. Some people could be listed in error or out of retribution, they admitted. But a listing should be enough to give pause to anyone considering using someone whose name is registered, they added. Seeing a name on the list is a "red flag that you need to go a little deeper into the resume," said Mr. Freifeld, who is president of Global Net Branch Solutions, Clearwater, Fla. "We've got to act aggressively," he said. "We have to attack it." The co-founders said fraud against loan brokers goes much deeper than the $86 billion in losses estimated by the FBI in 2004. "It's putting entire companies out of business," Mr. Freifeld said. "And not just little mom-and-pop companies, either. Nobody is immune." Mr. Freifeld, who has been arrested on numerous charges, including credit card fraud and bouncing at least one check, said the coalition is his way of atoning for his past transgressions.

The National Association of Mortgage Brokers has updated both its Code of Ethics and Best Business Practices statement to condemn the use of pressure tactics between mortgage brokers and other service providers.At a news conference June 24 during the NAMB's annual convention in Philadelphia, NAMB past president Joe Falk said "we abhor" any effort to influence another professional because it ends up hurting the consumer. But pressure goes both ways, and mortgage brokers should not be pressured "to lower our standards," he continued. While mortgage brokers should not pressure another provider, they still have a duty to their customers to correct problems, Mr. Falk said, including the right to review an appraisal and point out any errors and to help clean up any problems with the title. Mr. Falk is currently the chairman of the NAMB's Legislative Committee. The organization can be found online at http://www.namb.org.

Fannie Mae and Freddie Mac did not properly hedge their giant mortgage portfolios for wide swings in interest rates in the past, and it is unclear whether they are hedged properly today, according to a Treasury Department official.A report by the Office of Federal Housing Enterprise Oversight "suggests that the GSEs' focus on such events have been, at best, lacking -- at worst, dangerously irresponsible," said Treasury assistant secretary Emil Henry Jr. Unless the portfolios are hedged properly, a mismatch in assets and liabilities could quickly lead to insolvency, with a wide-ranging impact on the entire economy, the Treasury official said in a speech stressing the systemic risks posed by the GSE portfolios. Mr. Henry said he doesn't know whether the portfolios are adequately hedged today. "The problem is, we don't know," he told reporters after the speech to the Housing Policy Council. "Why should we learn it in a big interest rate shock?" The Treasury continues to support efforts in the Senate to pass legislation this year that requires the GSEs to reduce the size of their portfolios. "We are hopeful of a legislative solution," he said.

Over 5,000 public housing residents have used a special voucher program to purchase a home since 1999, according to the Department of Housing and Urban Development.The HUD program allows Section 8 renters to use their vouchers to meet monthly mortgage payments. A new study of the voucher homeownership program reported that foreclosures are rare and delinquencies infrequent, even though the average purchase loan-to-value ratio is 99.7%. The study also found that more public housing authorities are participating in the VHO program and home purchases are accelerating. In early 2004, roughly 2,000 homes had been purchased through the voucher program. By December 2005, the number of purchases had doubled to more than 4,000. Most VHO purchasers have access to downpayment assistance, as well as below-market or forgivable second mortgages.

A panel of bank economists is forecasting that conventional 30-year mortgage rates will stay below 7% this year and next, which should support an orderly and gradual decline in housing sales and starts.The American Bankers Association's Economic Advisory Committee says it expects a continuing slowdown in the housing sector and a plateauing of the price of oil at around $70 a barrel. This scenario should allow 3% economic growth for the remainder of the year and take pressure off the Federal Reserve Board to raise the federal funds rate above 5.25%. Three of the nine economists on the ABA's panel say they expect the Fed to raise it again, to 5.5%, by the end of the year. The ABA consensus forecast shows new- and existing-home sales declining by 7% in 2006 to 7.13 million and another 5% decline in 2007, to 6.79 million. Home sales in 2005 totaled a record 7.67 million. U.S. Trust Co. chief economist Robert McGee noted that the committee's forecast is for moderate growth. However, the economists are more concerned that the forecast will be off on the downside. "It was unanimous that we are more concerned with downside risk," Mr. McGee said. "I think that largely reflects the fact that energy prices and housing are two big uncertainties out there."

House Financial Services Committee Chairman Michael Oxley, R-Ohio, says he is confident that Congress will pass a GSE regulatory reform bill this year to create a "world-class regulator" to oversee Fannie Mae and Freddie Mac."I am very confident that sometime before the Congress adjourns for the year, the president will be signing the historic and landmark legislation," Rep. Oxley said during a speech to the Exchequer Club in Washington. The House has already passed a bill to strengthen regulation of the two government-sponsored enterprises. He said he expects Senate Banking Committee Chairman Richard Shelby, R-Ala., to bring a GSE bill to the floor of the Senate for a vote this summer. "I am very confident he is going to get that job done and get us to conference," Rep. Oxley said. Chairman Oxley also said the House is scheduled to vote next week on a flood insurance bill that would increase insurance premiums for second homes and commercial properties.