Servicing

Mortgage industry and consumer groups are urging members of the House Financial Services Committee to vote against an amendment that would raise the minimum downpayment on Federal Housing Administration loans to 5%, from the current 3.5%. "Increasing FHA's downpayment could disenfranchise more than 300,000 responsible homeowners," eight groups say in a letter to the committee, warning such a hike could derail the fragile recovery in housing. Rep. Scott Garrett, R-N.J., claims FHA is making too many risky loans and the downpayment increase is needed to protect taxpayers. The Financial Services Committee is expected to vote this week on Garrett's 5% downpayment amendment as it marks up an FHA reform bill. The bill (H.R. 5072) includes several proposals to adjust FHA annual and upfront mortgage insurance premiums to replenish the agency's mortgage insurance fund. The Garrett amendment would "do little to strengthen FHA's capital reserve ratio," the eight believe. The organizations that put their name on the letter include the Mortgage Bankers of America, National Association of Realtors, National Association of Home Builders, Center for Responsible Lending, Consumer Federation of America, National Fair Housing Alliance, National Consumer Law Center and National Council of La Raza.

The Federal Bureau of Investigation is currently juggling 3,000 open mortgage fraud cases, but is facing challenges managing its resources. Speakers at an industry trade show on mortgage fraud told attendees that rather than spend more money to prosecute fraud, government agencies must utilize their available resources to be as smart and as effective as possible. Ninety-three U.S. attorneys across the nation are working to determine enforcement efforts to fit the needs of individual cases in local communities, said John D. Arterberry, executive deputy and fraud chief of the Justice Department's criminal division. "Each U.S. attorney has the opportunity to tailor his or her enforcement," he said. "The needs in the Northern District of Illinois are going to be different than Fargo, N.D., compared to what is happening in Phoenix or Washington, D.C.," said Arterberry. Speaking at the same show, which was put together by the Mortgage Bankers Association, FHA officials said they are spending an increasing amount of their time focusing on risk while carefully reviewing early payment defaults for signs of fraud. Vicki Bott, deputy assistant secretary for single-family housing at FHA, said the agency is stepping up enforcement through its Mortgagee Review Board. "We are not afraid to take action on lenders who are doing fraudulent activity," she said. "We are looking at how principles of lenders jump around. We are really beefing up our process around loan-level review. We are bringing delinquencies into our cycle of reviewing."

Ed Raice, a former president of EMC Mortgage Corp., the nonprime mortgage arm of Bear Stearns, has raised private equity money and is in the hunt for a bank, preferably one near his home in Connecticut. Raice, in a brief interview with National Mortgage News, confirmed that he has an interest in buying First Bank of Greenwich, a $55 million asset FDIC-insured depository that has been in business for about three years. He declined to identify his backers. His interest in returning to the banking sector comes at a time when several Congressional panels are closely scrutinizing Wall Street's role in the credit and subprime crisis. However, Raice left EMC and Bear back in 2002, long before subprime lenders began to think of loan underwriting as something they could avoid. EMC was headquartered in Texas.

FHA single-family originations stabilized in March at the $22.7 billion level with the "seriously delinquent" ratio falling below 9% for the first time since November. The Federal Housing Administration reported that lenders originated $22.7 billion of FHA-insured loans in March, up slightly from the $22.3 billion funded in February. FHA monthly originations averaged $23.7 billion in the first quarter, compared to $28.8 billion in the fourth quarter. The government-backed product accounts for about 25% of all new fundings nationwide. Meanwhile, FHA reported that 8.8% of its insured single-family loans are 90 days or more past due, down from 9.17% in February and 9.4% in January. The drop in serious delinquencies may be signaling that FHA's $807 billion single-family portfolio has turned the corner, allowing its insurance fund to rebuild its depleted capital reserves. The positive news also might give Democratic members of the House Financial Services Committee more ammunition to shoot down GOP amendments to tighten FHA underwriting, including a hike in downpayments to 5% from the current 3.5% requirement. The committee is expected to vote on the amendments and approve a FHA reform bill late Tuesday afternoon.

Lender Processing Services, a third-party service provider to the mortgage industry, earned $76.7 million in the first quarter, compared to $60.6 million in the same period a year ago. LPS reported consolidated revenue of $592.4 million for the first quarter of 2010, an increase of 11.8%, compared to the first quarter of 2009. "LPS is off to a strong start in 2010 despite difficult market conditions and a challenging broader macro-economic environment," said Lee A. Kennedy, executive chairman of the company. "Our loan facilitation business posted record growth in a sluggish year-over-year origination market as we continued to gain market share." He noted that the firm's default services division posted strong gains as well.

Top executives at two credit rating agencies defended themselves Friday against charges that, to retain market share, they knowingly issued inflated ratings on mortgage-backed securities before the financial crisis and put off making needed changes in their standards. Officials from Moody's Investors Service and Standard & Poor's tried to rebut a congressional report regarding their actions, arguing that they had been public about flaws in the mortgage market and had made changes to better adjust to risk. "Moody's did see the escalating housing prices and the loosening of standards in subprime lending practices, we published on these observations, and we incorporated our more unfavorable views into the way we assigned ratings," said Raymond McDaniel, chairman and CEO of Moody's, in a hearing by the Senate Permanent Subcommittee on Investigations. But former employees of S&P and Moody's painted a much different picture, telling lawmakers that executives pressured analysts to maintain market share. They were discouraged, they said, from raising questions about the credit quality of some loans backed by mortgages. Eric Kolchinsky, a former director of Moody's derivatives group, testified that in October 2007, days after the firm downgraded $33 billion in subprime bonds, he was reprimanded by e-mail because quarterly market share fell to 94%, from 98%.

Sequoia Mortgage Trust 2010-H1, the first securitization of recently originated jumbo loans since 2008, has been priced in the public market. Issued by Redwood Trust Inc., the deal includes $222 million (principal balance) of class A-1 certificates carrying Moody's Investors Service's top Aaa rating. The notes are being offered with an initial interest rate of 3.75% per annum, subject to adjustments. The deal is currently expected to close on April 28. The lead managing underwriter is Citigroup Global Markets Inc. JPMorgan Securities Inc. also is acting as an underwriter on the offering. The prospectus and supplemental documents indicate the deal has an interest-only class and several other subordinate tranches that are not being offered. "Without seeing the subs sold, we can't really say whether this deal is a valid template for securitization going forward," said one hedge fund manager who is also working on a jumbo securitization deal. The documents also indicate there is one unrated class that is not being offered and one or more REMIC elections for federal income tax purposes. The five-year hybrid adjustable-rate mortgages backing the transaction have an average balance of about $933,000 and range from about $300,000 to $2.5 million in size. They have an average of eight months of seasoning. Seventy-three percent of the loans had no second liens, which the hedge fund manager said suggests "the issuer may have done a post-origination title search to verify the nonexistence of seconds, which might account for the loans' seasoning." Forty-six percent of the loans are from California and 28% of the deal comes from self-employed borrowers, but the borrowers appear to be extremely wealthy, with their average monthly income being $54,000 and their average verified assets at $1.2 million, the hedge fund manager noted.

Federal Deposit Insurance Corp. chairman Sheila Bair said the agency has reduced its projection of the number of bank failures this year. In a cable news interview Friday, Bair said that though closures are still expected to exceed last year's total of 140, the pace is slowing. "We do think things are improving," she said. "We think it will be more than 140" this year "but less than what we were projecting, for instance, three months ago." Bair reiterated a projection that failures would peak "toward the end of this year." She added that it will continue to be predominantly smaller banks that are closed and said some institutions that had been nearing insolvency-and were placed on the agency's "problem" list-have since recovered. "Some of the banks that we thought were going to fail have actually raised capital, and they've come off of our list," she said.

A senator from New York where several credit unions were victims of the $140 million U.S. Mortgage/CU National Mortgage fraud is calling on Fannie Mae's regulator to engineer a settlement on the disputed claims. In a letter to Edward DeMarco, director of the Federal Housing Finance Agency, Democrat Charles Schumer urges the agency and Fannie Mae to "work with the affected credit unions to come to a fair resolution of this dispute that does not threaten the viability of the credit unions." Schumer noted, "Ultimately, I am concerned about the fiscal well-being of thousands of my constituents who may suffer adverse financial impacts" because of U.S. Mortgage Corp. "The magnitude of this potential loss will have a significant adverse impact on these credit unions and their members, some of whom are employees of the U.S. government, as well as state and local governments." Schumer declined requests for further comment. The congressional intervention comes as Fannie Mae has begun mediation with several of the credit unions aimed at settling the dispute. Several New York credit unions, including Suffolk FCU, Sperry Associates FCU and TCT FCU, were among 28 credit unions that had their mortgages fraudulently sold to Fannie Mae by CU National president Michael McGrath. McGrath has pleaded guilty to the fraud and is scheduled to be sentenced next month.

Sen. Richard Shelby, R-Ala., is confident his fellow Republicans will vote "en block" Monday evening, preventing the Senate from starting debate on the financial services reform bill. "I believe the 41 Republicans, for right now, will stand together," Sen. Shelby told a meeting of the Independent Community Bankers of America Monday morning. If the GOP can hang together, Shelby said, it will give him a stronger hand in negotiating with Senate Banking Committee chairman Christopher Dodd, D-Conn., on a compromise bill. To prevent bailouts, Shelby wants tighter limits on Treasury and Federal Reserve lending to failing financial institutions. He also wants prudential banking regulators to have more "say" over the activities of a new independent consumer protection agency, which likely will be given sweeping powers over mortgage lenders. Dodd is now working with Shelby but wants the bill to reach the floor soon, so the amendment process can begin. Negotiations with Republicans have been ongoing for months. Dodd estimates there are only 40 to 50 legislative days left this year to pass a bill. The Republicans are wary of the amendment process, however, and want a compromise hammered out in advance of floor debates. If the reform bill passes the Senate, Shelby warned the bill could be in "peril" if changes are made in a conference with the House. The House passed its reform bill in December. Differences in the two bills are usually worked out in a House-Senate conference.