Servicing

The regulatory reform bill that cleared the Senate is supposed to impose risk retention requirements on MBS issued by Fannie Mae and Freddie Mac, but some legislative experts say the language adopted may have missed the mark. S. 3127 passed by the Senate imposes a 5% risk retention requirement on issuers of MBS through a change in the securities laws, according to an analysis prepared by Anne Canfield & Associates. The Washington consulting firm points out that under current securities law the GSEs are exempt from registering their MBS with the Securities and Exchange Commission. The bill, drafted by Sen. Chris Dodd, D-Conn., does not override that exemption and therefore, does not subject Fannie and Freddie's MBS to SEC regulation. "At best this is very unclear," Canfield told National Mortgage News. "But we don't think the GSEs are covered because the language in the bill does not address their underlying exemption in current securities law." The Mortgage Bankers Association would like Congress to specifically exempt the GSEs from risk retention. "Fannie, Freddie and Ginnie are not exempt from risk retention in the Senate bill, though the regulators could exempt them," said an MBA spokesman.

Homebuyers and investors have less interest now in buying foreclosed homes than they did a year ago, according to a new survey. If the attitude holds it will continue to raise concerns about who will buy all the repossessed homes coming on the market and the effect on a housing recovery. Consumers who would consider purchasing a foreclosure dropped to 45% this month from 55% last May, according to an online Harris Interactive survey conducted for Trulia.com and RealtyTrac.com. The Orange County Register reported that the survey shows that among those who cite a downside to buying a foreclosure-and there are actually somewhat fewer than last year: 78% vs. 85%-more are worried about the risk and possible loss of value than a year ago.

Rep. Carolyn Maloney, who represents part of New York City, voiced her support for mortgage bankers having "skin the game" but not a "one size fits all approach." Speaking at the MBA trade show in New York, Maloney noted that some commercial property values have decreased by at least 40% from their peak, voicing her concern about a lack of liquidity in the commercial mortgage market and underwater mortgages. The Democrat from the East Side of Manhattan said she sees a glimmer of hope in the market due to improving GDP numbers. More than 600 attendees are at the MBA show, up 200% from last year. The trade group recently reported improving commercial loan volumes. "With 8.4 million jobs lost during the Great Recession, it will take time while our economy recovers and the CMBS market returns," Maloney told lenders.

Federal Housing Administration commissioner David Stevens urged mortgage bankers to "think a little less about your own wallets and more about integrity and responsibility" in their efforts to mold legislation to reform the nation's financial system. "Make your case, but make it for the right reason," he said at the Mortgage Bankers Association's National Secondary Market Conference in New York. After MBA president John Courson prodded members to deliver their message to lawmakers—"The issues before us will affect the very shape and form of lending in the future," he said—Stevens took to the podium to warn that advocating for the industry alone is the wrong message to take to their legislators on Capitol Hill. "Washington doesn't trust this industry at all," he told a crowd of about 1,500 at the Hilton New York. "It's not about protecting mortgage banking, it's about protecting the American dream. That's the only issue that has credence in Washington today." The FHA commissioner said that while there is plenty of blame to go around for the financial crisis, the "general consensus" in Washington is that housing finance "is the industry that brought the world to the brink of financial ruin." On a brighter note, Stevens also told the conference that most signs are pointing to a housing market turnaround. The sector is "slowly starting to come back," he said. "You can feel a growing confidence in the market, and you can sense more willingness to invest."

Roughly 37% of single-family residences in California that are in foreclosure are rental units, according to a new report from Tenants Together, a consumer advocacy group for renters' rights. The organization says more than 200,000 renters in the state "were directly affected by home foreclosures in 2009 alone, most of whom have been displaced from their homes." Tenants Together noted that the foreclosure rate on California apartment properties spiked by 70% last year-but only on buildings with rental units of five or more.

The Senate late Thursday passed a landmark financial regulatory reform bill that will increase regulation and oversight of the residential mortgage industry and overhaul the way Wall Street conducts business. The legislation, the most sweeping since the Great Depression, requires issuers of mortgage-backed securities to pool the safest "qualified" mortgages (as determined by regulators) to escape a 5% risk retention requirement. The bill, crafted by Sen. Chris Dodd, D-Conn., creates a new consumer protection agency with rulemaking and enforcement authority to stop abusive mortgage lending practices. However, the legislation, for now, punts on the issue of reforming Fannie Mae and Freddie Mac. "For the first time ever, we will have a Consumer Financial Protection Bureau to watch out for the average citizen in our country when they are abused by the financial marketplace that takes advantage of them on home mortgages and credit cards," Dodd said. The legislation directs federal regulators to establish minimum standards for verifying a borrower's ability to repay a loan and places certain restrictions on loan officer and mortgage broker compensation. The bill (S. 3217) also instructs the Securities and Exchange Commission to create a regulatory body that selects the credit rating agency for initial ratings on MBS. The Senate passed the Dodd bill by a 59-39 vote around 8:30 Thursday evening. The House of Representatives passed similar reform legislation in December but many differences remain between the two bills. House and Senate banking committee leaders will meet in conference to iron out final legislation. The talks are expected to take several weeks and will not be completed until the end of June.

Mortgage vendor MRG Document Technologies, Dallas, is offering an REO document package creation capability within its Miracle Online mortgage system. Lenders will have access to regulatory compliant REO document packages in all 50 states, MRG said. The firm says the system gives lenders automated, real-time revisions to the documents when legal and regulatory changes occur. "With the variation between states in the regulations that guide REO transactions, MRG has developed one source for these closing packages, encompassing the laws and regulations for all 50 states," said Laura LaRaia, an attorney and director of customer service with MRG.

With foreclosures still at record levels, it should be no surprise that the voice of housing advocates continues to grow louder. May has been a particularly active month, with several grassroots organizations across the country staging "live-ins" by moving families into foreclosed or vacant properties. It's all part of the "Month of Action," a campaign launched by the Take Back the Land Movement, a national network of housing advocacy organizations, and the Poor People's Economic Human Rights Campaign, to elevate the plight of distressed homeowners. Actions this month have been planned in at least 20 cities, according to the Poor People's Economic Human Rights Campaign, including Detroit, Chicago, Philadelphia and New York. At least one "live-in," in Madison, Wis., has been met with some resistance from local law enforcement agencies. After Take Back the Land-Madison and Operation Welcome Home, two local organizations, helped move Desiree Wilson, a mother of two, into a vacant property, police threatened to charge her with trespassing and she moved out after a couple weeks. "We knew that there would be some sort of resistance," said Monica Adams, one of the organizers.

Members of the Federal Reserve's monetary policy committee are concerned the recovery in the housing market has "stalled," according to minutes of its April 28 meeting. Federal Open Market Committee members noted that home prices have stabilized in many parts of the U.S. and in some areas are rising. However, certain members see "elevated foreclosures as posing a downside risk to home prices," according to the transcript. The FOMC minutes reveal that members discussed the Fed's $1.25 trillion MBS purchase program which ended, as planned, on March 31. The discussion centered on when the central bank should begin the sale of MBS as well as the pace of those sales. There was a wide range of views and no decisions were made concerning a strategy. For now, the Fed will continue to allow its MBS portfolio to run off.

The California Association of Realtors is trying to drum up support for a bill in the state legislature that would ban deficiency judgments on refinancings. Most states place some limit on lenders' ability to go after borrowers if the sale of a home does not satisfy the entire mortgage balance. In California, for example, the lender cannot pursue a deficiency judgment if the loan was taken out to buy the home. But the Golden State does not currently extend that protection to refis. And most defaulted borrowers "have no idea they are personally liable" for the full value of the mortgage even after the bank has repossessed their property, Steve Goddard, the real estate agent group's president, said in a press release issued Tuesday. Of course, the trade group may have ulterior motives for backing the bill sponsored by Sen. Ellen Corbett, a Democrat from San Leandro. After all, the prospect of a deficiency judgment hanging over their heads might deter homeowners from giving up their homes through a short sale or strategic default. And right now, distressed sales make up a sizable chunk of the market. Foreclosure sales alone accounted for 36.4% of California home resales in April (though this figure was down from an all-time high of 56.7% in February 2009), according to MDA DataQuick. The trade group did not return a call seeking comment by press time. Deficiency judgments in residential foreclosures are rare. Most foreclosures in California occur under a deed of trust (not a judicial foreclosure), in which there is no liability for a deficiency, lawyers said. But if that were to change and lenders became more aggressive about collecting leftover debts, deficiency judgments could pose a threat to agents' commissions as well as borrowers' peace of mind.