Servicing

Troubled borrowers who turned to so-called foreclosure prevention specialists paid an average of $2,900 for "poor advice" that "bordered on theft," mystery shoppers hired by the National Community Reinvestment Coalition have found. The counsel provided by these firms is "horrible," NCRC executive vice president David Berenbaum told the NAREE Conference in Washington. "For every legitimate one, the next three border on theft." Among other things, these scam artists told borrowers not to pay their mortgages and not to speak with their lenders. NCDC plans to announce these and other findings uncovered by some 200 mystery shoppers later this month, Mr. Berenbaum said. He also told the group of about 100 housing writers that nine out of 10 subprime loans were refinancings that "did not expand home ownership," and that many seniors are being "misguided" into high-cost reverse mortgages.

Homeowners and mortgage investors would not be the only ones with "skin in the game" if U.S. Housing Secretary Shaun Donovan's plan for revising the nation's consumer protection laws comes to pass. The secretary of the Department of Housing and Urban Development told the NAREE conference that "fairness" would be a "fundamental principle" that the Consumer Financial Protection Agency proposed by the Obama Administration would follow. Under that heading, he said, mortgage brokers would "owe a duty of best execution" to avoid conflicts of interest between themselves and their borrower clients. In addition, yield spread premiums would be "banned outright" and prepayment penalties would be restricted. And to reward responsible lending, loan originators would be required to retain a vested interest in the mortgages they write. Brokers would be paid "over time" based on the continued performance of the loans they originate rather than at the closing table. At the same time, lenders and mortgage aggregators would be compelled to retain a 5% interest in the loans so they would be rewarded for making good loans and penalized for making bad ones. The HUD secretary said neither he nor President Obama had any desire to prescribe exactly how brokers should be paid. But they "have to have a duty" to provide affordable products. "Putting a borrower in a mortgage (the broker) knew from day one that the borrower could not afford cannot be allowed to continue," he told the conference. "There has to be a chain there to tie some responsibility to the mortgage to ensure that this kind of situation doesn't ever happen again." None of what secretary Donovan proposed is new, but it is the first time the proposals have been adopted by a key government official.

The Obama Administration expects Fannie Mae and Freddie Mac to continue playing a key role in housing finance, the government sponsored enterprises' regulator said. While exactly what structure the GSEs will eventually take is still very much up in the air, James Lockhart, director of the recently minted Federal Housing Finance Agency, said they will be reconstituted with a well-defined mission that does not involve excessive risk taking. That's likely to mean the two companies, which are now in conservatorship and under FHFA's wing, will no longer be required to meet affordable housing goals that were prescribed by their old mission regulator, the Department of Housing and Urban Development. "In retrospect," Mr. Lockhart told attendees at the National Association of Real Estate Editors' annual real estate journalism conference in Washington that the goals "caused (Fannie Mae and Freddie Mac) to do things they shouldn't have done." The federal regulator also said the GSEs should operate under "clear demarcation" of their roles in relation to the private sector, and that any risk they undertake should be explicit, at actuarial cost and in conjunction with sound insurance principles. "Clearly," he said, "it was folly to allow the enterprises to legally leverage their mortgage credit by well over 100 to 1."

A majority of respondents to the first-ever mid-year version of an annual survey of foreign investors in real estate indicated they plan to invest some debt or equity in U.S. real estate before 2009 ends, even though many have not made any such investments so far. "Three quarters of the survey respondents had not yet invested in 2009; however, more than two-thirds of them plan to invest some debt or equity in U.S. real estate before the end of the year," the Association of Foreign Investors in Real Estate, Washington, said. Thirty-one percent of the respondents to the survey conducted by the University of Wisconsin-Madison's James A. Graaskamp Center for Real Estate said they were more optimistic than at the beginning of the year, while 16% said they were more pessimistic and 53% said their expectations had not changed.

Mortgage market players and other securitization market participants say they largely agree with the Obama Administration plan's aims but have some concerns about the way in which it plans to realign incentives and its global context. "While we support policy initiatives to align economic incentives among securitization market participants and to achieve greater risk transparency, we believe that mandated retention of risk by asset originators and securitization sponsors may not be the most effective way to achieve this goal," said American Securitization Forum executive director George Miller in response to the regulatory reform proposal. "To the extent risk retention is required, we believe provisions must be designed carefully to avoid undue restrictions on the ability to fund consumer and business lending via securitization, which could impair broader economic recovery." He also noted that "international consistency on this topic is critically important" given the global nature of the capital markets and the fact that European policymakers also have been working on risk retention policies. "We acknowledge that there were misuses of securitization that need to be corrected," Mr. Miller said. "However securitization is a central means of delivering affordable credit to consumers and businesses that has produced ... benefits over the past 40 years [that] include increased availability and reduced cost of financing for mortgage loans."

Performance deterioration seen in commercial mortgage-backed securities and multifamily transactions in Europe, the Middle East and Africa during the first quarter is expected to continue, Moody's Investors Service said in a report Wednesday, citing upcoming refinancing risks. "While the refinancing exposure of EMEA CMBS in 2009 and 2010 is still remote, one has to look further ahead," said Deniz Yegenaga, a Moody's associate analyst and co-author of the report. "Given the most recent commercial property market performance and the anticipation of further property value declines, also loans that mature after 2010 will be highly levered on their refinancing date and will most likely experience difficulties to repay. In addition, the significantly declining property values increase the loss upon default of commercial real estate loans." During the first quarter, the number of loans "subject to an event of default" came close to doubling, Moody's said. The rating agency downgraded 13 classes of notes in nine transactions and placed 23 classes of notes in six transactions on review for possible downgrade during the period. It also upgraded three classes of notes in two transactions during the quarter.

Spring is in the air in the Houston metro area, where the number of single-family house sales in May was the most of any month so far this year, according to the local Realtors group. While single-family sales for May were still 21.2% below that of the same month last year, the average price climbed to $213,474, the highest it's been since August. Another promising sign, says the Houston Association of Realtors: foreclosure sales continued to shrink in May. Repossessions accounted for just 20% of all sales in the month, compared to 34% in January, 28% in February, 24.5% in March and 23.6% in April. Overall, 5,539 properties of all types, totaling $1.1 billion, changed hands in the metro area in May. "The more I speak with real estate associations around the country, the more I appreciate the strength with which the Houston market has weathered the economic downturn," said HAR Chair Vicki Fullerton, a RE/MAX broker in The Woodlands. "Our current housing climate has been performing at about 2004 levels while other regions of the U.S. are suffering what Houston endured back in the 1980s." However, month-end pending sales — those listings expected to close within the next 30 days — totaled just 3,637, which was 24.7% lower than last year, suggesting a decline in sales when the June numbers are tallied.

The Federal Reserve's purchases of mortgage-backed securities are affecting the supply-demand balance of MBS collateral in the repurchase markets, according to a Barclays Capital report. This has narrowed the one-month term repo MBS spread to Treasury collateral to 2 basis points from 14 bps in March when the Fed began its purchases, according to a June 15 report by Joseph Abate, a U.S. fixed income strategist at Barclays Capital. "At the same time, usage of the Federal Reserve's [Term Securities Lending Facility] for schedule one collateral (essentially MBS) has evaporated, with no bids at any of the collateral swap auctions for several weeks," said Mr. Abate, in his Weekly Collateral Update report.

The White House late Tuesday unveiled its plan to overhaul the nation's financial regulatory system, a blueprint that would create a new government body — the Consumer Financial Protection Agency — with sweeping oversight and enforcement powers over all aspects of the origination process, including several bedrock laws that govern how lenders interface with consumers. "This a sweeping change to how things are done now," said Howard Glaser of the Glaser Group. He noted that the CFPA would be empowered to enforce the Real Estate Settlement Procedures Act, the Home Ownership and Equity Protection Act, the Home Mortgage Disclosure Act, and even certain aspects of the Community Reinvestment Act. The plan states that, "Consumers should have clear disclosure regarding the consequences of their financial decisions." The plan notes that the White House wants to require lenders to offer 30-year fixed-rate "vanilla" loans to consumers with streamlined pricing. Mr. Glaser said the creation of the CFPA might level the playing field for independent non-bank lenders who are getting "short shrift" from the Federal Reserve. He encouraged the mortgage industry to embrace the plan "to bring certainty and clarity back" to the home lending market.

Non-bank mortgage lenders and depositories would be assessed millions of dollars in fees to fund the creation and maintenance of the Consumer Financial Protection Agency, a new government body that would have massive enforcement powers over all players in residential finance, according to a White House draft proposal. Funding of the new agency also would come from transaction fees, the White House says. The Obama Administration notes that mortgage lenders not owned by banks fall into a regulatory "no man's land" where no government body "exercises leadership and state [attorneys general] are left to fill in the gap." The administration feels the Federal Trade Commission lacks the jurisdiction over the banking sector and has limited tools to "promote compliance of nonbank institutions." The White House believes the core of the CFPA can be "assembled reasonably quickly from discrete operations of other agencies." (For the full plan see Editor's Choice below or visit: http://www.nationalmortgagenews.com/documents/reg_reform_paper.pdf.