Origination

Certain Federal Housing Administration loans could run afoul of a new HOEPA rule that prohibits prepayment penalties, and industry groups want the Federal Reserve Board to fix the problem. The problem stems from a Ginnie Mae payoff requirement that all interest on a loan must be paid for the full month. If the loan is paid off on September 5, the interest must be collected for the rest of the month. The Consumer Mortgage Coalition and other groups are concerned this extra interest is considered a prepayment penalty under the Home Owners and Equity Protection Act regulation that goes into effect October 1. HOEPA bans prepayment penalties on higher-priced loans if the interest rate changes during the first four years. On fixed-rate loans, HOEPA limits a prepayment penalty to the first two years. Too many FHA loans fall into the higher-priced category and the industry wants the Fed to clarify that payoff interest is not a prepayment penalty under HOEPA.

Federal Housing Administration chief David Stevens has confirmed that the government's mortgage insurer will see its reserves fall below the 2% minimum level set by Congress but said the agency is tightening its credit standards to bolster the fund. "To be clear, the fund's reserves are sufficient to cover our future losses, so FHA will not require taxpayer assistance or new congressional action," Mr. Stevens said. The commissioner told reporters there is no plan or need to increase FHA mortgage insurance premiums. FHA's auditors see the "capital reserves getting above 2% within a couple of years with absolutely no changes" in FHA policies or underwriting standards, Mr. Stevens said. But the new commissioner wants to accelerate that timetable and he outlined several changes, involving appraisals, refinancings and lender net worth requirements to reduce FHA's risks and defaults going forward. "These are the first steps in what will be an on-going increasing look at risk management within FHA," he said.

Title insurance premiums generated during the second quarter of 2009 totaled $4.53 billion, down 16.4% from a year ago. But the decline in premiums has narrowed over the past two quarters, according to the American Land Title Association. Refinance activity as well as people taking advantage of the first-time homebuyer credit were contributing factors for the improved performance. Nevertheless, the title industry posted an operating loss of $68.8 million during the second quarter of 2009. This is much improved over the operating loss of $264.4 million for the 2008 second quarter. Investment income resulted in a net profit for the industry, $111.4 million, as compared to a net loss of $190.4 million for the second quarter of 2008. In terms of market share, Fidelity National Financial, Jacksonville, Fla., received 45.8% of all premiums generated, up slightly from 45.5% one year prior (this number includes the underwriting units of LandAmerica which FNF acquired in December 2008). First American Corp., Santa Ana, Calif., reported a market share of 26.6%, down from 28.8% one year ago. Stewart Information Services Corp., Houston, has a 12.9% share of the market, up from 12.5%, while Chicago-based Old Republic International has 6.6% of the market, up from 5.4% in the second quarter of 2008.

The National Association of Mortgage Brokers said it has received thousands of complaints from its members as well as appraisers, Realtors, and consumers concerning Home Valuation Code of Conduct rules promulgated by the GSEs. Loan brokers, in particular, don't like the rule because it takes them directly out the appraisal process, ceding that function to appraisal management firms. "One of the major problems caused by the HVCC is inaccurate appraisals, which are lowering house prices," the trade group said. It said some of the complaints received over the HVCC consistently describe out-of-area appraisers unfamiliar with the neighborhood being contracted to appraise homes."

The country has seen a "drastic increase" in mortgage fraud cases as a result of the upheaval in the housing market, according to FBI director Robert Mueller. FBI agents are investigating 2,600 mortgage fraud cases as of July 31, up from 1,600 for all of 2008. Many of these investigations are focused on fraud perpetrated by industry insiders and most of the pending mortgage fraud cases involve losses of more than $1 million, Mr. Mueller told the Senate Judiciary Committee. "To meet this growing challenge, we have redirected investigative resources and assigned approximately 300 special agents the task of investigating mortgage fraud. In addition, we direct 15 task forces and 59 working groups that target mortgage fraud," he said. Mr. Mueller pointed out that the FBI is using innovative ways to generate new cases, "We employ statistical correlations and other advanced computer technology to identify patterns in the search for companies and persons engaged in activity that is indicative of fraud." FBI agents also analyze data compiled through Suspicious Activity Reports filed by financial institutions and through HUD-OIG reports.

Has the tide finally turned in California? A survey of home builders in the Golden State suggests it has. According to a poll by John Burns Real Estate Consulting, more builders are now raising their prices than are lowering them — or even keeping them at their current level. It's the first time that's happened since the Irvine-based consulting firm began its home builder executive survey 15 months ago. But reports of emerging price stability in a growing number of markets also were balanced by numerous reports of continued downward pressure on pricing from foreclosures and short sales, according to the consultant. In almost all markets, the lower price points are faring better than the higher price points due to government-backed financing and the $8,000 federal tax credit. The survey covered 269 industry executives from both public and private firms, including 62 in California. Together, their insight is said to be reflective of "on-the-ground conditions" in 86 metro areas and 1,855 new home projects.

The nation's six active mortgage insurance firms wrote $22.89 billion worth of coverage in the second quarter, a 61% decline from the same period last year, according to figures compiled by National Mortgage News. Even though originations are on the rise, the MIs have been constrained by their weak capital positions which hurts their ability to write news business. They also have lost customers to the Federal Housing Administration's insurance program. In the second quarter MGIC Investment Corp. ranked first with $5.9 billion in coverage, followed by Radian Guaranty ($5.49 billion), and United Guaranty Inc. ($3.9 billion). UGI is for sale. Investor Wilbur Ross has been mentioned as being a leading candidate to buy the company.

The Senate has passed an appropriations bill that provides the Federal Housing Administration with authority to insure up to $400 billion of single family loans in fiscal year 2010. Lenders are on track to originate $335 billion of FHA loans in FY 2009, which ends September 30. The Senate also appointed conferees to meet with House appropriators to iron out a final Department of Housing and Urban Development appropriations bill for FY 2010. Like the Senate bill, the House bill provides $400 billion for FHA and $500 billion in commitment authority for Ginnie Mae. The House and Senate differ, however, on how to deal with an $800 million shortfall in the FHA reverse mortgage program. The Senate bill provides $288 million to cover part of the credit subsidy shortfall and instructs FHA to reduce the proceeds on FHA-insured home equity conversion mortgages to cover the rest of the shortfall. The House bill does not provide any funds. The House and Senate appropriators will have to resolve the HECM when they meet in conference. Reserve mortgage lenders are concerned a reduction in loan proceeds will diminish the value of FHA reverse mortgages and cut benefits for seniors.

The Federal Housing Administration is increasing its net worth requirements for approved lenders to $1 million and requiring banks to file audited financial statements for the first time ever. "With so many banks at risk of default, we want to make sure that our counterparty risk is being reviewed at FHA," said commissioner David Stevens. "Just the fact that they are supervised will no longer be enough." The agency released the tighter rules in response to a weakening capital position at the fund. (See story below.) FHA also is hiring its first credit risk officer and it is tightening its appraisal and refinancing requirements to curtail risk and conserve capital. On streamlined refinancings, FHA will require income verification and credit scores for the first time. The lender also will be required to demonstrate that the refinancing provides a "net tangible benefit" for the borrower. In addition, FHA will cap the maximum loan-to-value ratio on a streamlined refinancing at 125% and require an appraisal in all cases where the borrower wants to add closing costs to the loan amount.

The Federal Housing Administration has decided that "direct endorsement" lenders should be fully liable for the mortgages they originate through loan brokers while saying that these third-party salesmen no longer need to register or meet the agency's net worth requirements. The new policy change appears to be a major boost for brokers, whose ranks have been decimated during the housing and mortgage crisis. "Mortgage brokers will continue to originate FHA-insured mortgages through their relations with approved mortgagees," the agency said. "However, they will no longer receive independent FHA approval for origination eligibility." The new policy relieves brokers from filing audited financial statements with FHA and basically mirrors the hands-off approach that Fannie Mae and Freddie Mae follow with respect to brokers. FHA is making this change as part of a risk reduction effort and refocusing of its resources. However, the agency is adopting a policy that prohibits brokers and commission-based lender staff from ordering appraisals. FHA commissioner David Stevens stressed that FHA is adopting appraisals policies that are consistent with the Home Valuation Code of Conduct but not the entire HVCC that Fannie and Freddie have adopted.