Origination

When banks modify a mortgage to make the payments more affordable, it is not only considered a troubled debt restructuring by the federal banking regulators, the regulators also expect banks to increase their allowances for loan losses. "It could result in more significant allowances for TDRs," said Kathy Murphy, chief accountant for the Office of the Comptroller of the Currency. The OCC official told the certified public accountants at their annual banking conference that most banks don't have a history of doing loan modifications. Nevertheless, banks are expected to do a Financial Accounting Standard 114 analysis of future cash flows on modified loans using current market trends to determine the appropriate impairment, she said. "Trends right now don't look like real estate is recovering," OCC's chief accountant said. Tom Kelly of PriceWaterhouseCoopers told the CPAs that a lot of firms are struggling with the complexity of FAS 114 and TDRs. "It is complex from an accounting standpoint and from an operational aspect," Mr. Kelly said.

The mortgage and finance company subsidiaries of bank holding companies will now be subject to consumer compliance reviews by the Federal Reserve Board. "The policy, which takes effect immediately, also provides for investigation of consumer complaints against nonbank entities," the Fed said. The Fed is the primary supervisor of bank holding companies but it has traditionally taken a hands-off approach to nonbank subsidiaries. There have been exceptions, however. Fleet Finance, the Atlanta subsidiary of a BHC, was charged and settled state allegations of predatory lending in 1992. Under chairman Ben Bernanke, the Fed initiated coordinated exams of nonbank subs with the Federal Trade Commission and state regulators in 2007. The new policy "builds on the pilot program and responds to a need for more effective supervision and consumer protection," the Fed said.

The House of Representatives late Tuesday approved legislation to beef up the Federal Housing Administration program — including a provision that encourages the Obama administration to provide support for warehouse lending. The "21st Century FHA Housing Act" gives the Department of Housing and Urban Development secretary more flexibility to appoint and fix the compensation for FHA personnel and to fund technology projects to replace FHA's aging information systems. Passed on a voice vote, the bill (H.R. 3146) also says that the Treasury Department, HUD and the Federal Housing Finance Agency should work together to provide financial support and assistance to increase warehouse lending capacity to nonbanks. The National Association of Home Builders, National Association of Realtors and Mortgage Bankers Association supported the bill.

Former top executives at Fannie Mae, PMI, and Countrywide have launched and are seeking to expand a new advocacy group that will lobby on behalf of what it calls "independent, community and regionally-based" mortgage banking firms. The Community Mortgage Banking Project already has 26 members and is talking to eight more, said group founder, Glen Corso, a former senior vice president for The PMI Group, a mortgage insurance firm. His partners in the project include Robert Engelstad, a former senior vice president at Fannie, and Pete Mills, who was Countrywide Financial Corp.'s top lobbyist in Washington. In an interview with National Mortgage News Mr. Corso said his group would not compete with the Mortgage Bankers Association per se but would be involved in lobbying, and legislative and regulatory analysis on behalf of its members. Mr. Corso noted that the CMBP is a "not-for-profit company" but for tax purposes will not be filing as a nonprofit (which enjoy certain federal tax breaks). The MBA, by contrast, is a (Form 990) nonprofit organization with annual results that are publicly available. He said the CMBP would stay away from holding trade shows and getting involved in educational programs — two major sources of revenue for MBA. Mr. Corso is a founding member of The Warehouse Lending Project. That group has been lobbying regulators for government help with efforts aimed at increasing warehouse-lending capacity for nonbanks.

Now that we have several months of Reverse for Purchase under our belts, it's a good time to step back and look at where we are. This valuable addition to our menu of programs has certainly made a difference in the lives of seniors and I predict it will continue to increase in popularity.

Fitch Ratings, Chicago, has downgraded the insurer financial strength rating of Stewart Title Guaranty Co., Houston, from "A-" to "BBB+" and the issuer default rating of Stewart Information Services Corp., from "BBB" to "BBB-" citing a below average profitability relative to peers and declines in statutory surplus. Through the first half of 2009, Stewart's GAAP pretax operating margin was -7.7% compared to a peer average of 2.8%. Similarly, Stewart's statutory capital levels were down 13% since year-end compared to a dollar weighted peer average of positive 4%. In the past Stewart's ratings benefited from the assumption that the company's technology-related investments would allow it to show better margins than the competition during a down market, but Fitch said this has not been the case. Separately, Fitch downgraded the IDR of First American Corp., Santa Ana, Calif., from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+". The change in ratings "reflects a heightened scrutiny of the company's 47% debt to tangible capital ratio as of June 30, 2009 given the current stressful environment," Fitch said. FAF has long planned to spin-off its title and specialty insurance business from the information services business. The rating agency said an unfavorable result of the spin-off is that FAF would lose the benefits of the unregulated cash flows of the information solutions business.

House Financial Services Committee chairman Barney Frank, D-Mass., said he is working with small banks and credit unions to craft a bill that will create a new consumer protection agency. Many financial services groups and the U.S. Chamber of Commerce have lined up against the creation of a new agency that would write and enforce the rules for mortgage and other forms of consumer lending. But chairman Frank is trying to get small depositories on his side as his committee prepares to mark up a Consumer Financial Protection Agency bill on Sept. 23. "We are working with them on legitimate concerns and I am confident we will get a tough enforcement agency to protect consumers," Rep. Frank said in an interview with Bloomberg News. The Independent Community Bankers of America has been talking with Rep. Frank. "We have offered our ideas. We will have to see how far he goes," said ICBA's top lobbyist Steve Verdier. The Financial Services Roundtable opposes the idea of stripping the federal bank regulators of their consumer protection functions and giving the CFPA enforcement and rulemaking authority over national banks. "The better answer to consumer protection is to amend the charters of the existing prudential regulators, giving consumer protection parity with safety and soundness regulation," Roundtable president and chief executive Steve Bartlett said.

Genworth Financial, Richmond, will take a $65 million provision to settle a $531 million bulk insurance dispute concerning payment option ARMs. In a new filing with the Securities and Exchange Commission, Genworth said it went to arbitration with an undisclosed lender and reached a settlement. The company, which owns the nation's fourth largest MI (in terms of policies-in-force), said "After giving effect to the premiums retained, settlement payments, and other consideration exchanged by the parties, we have made an additional provision for obligations" that will cost it $65 million. Meanwhile, Genworth has commenced a $500 million public offering of common stock in a deal underwritten by Goldman Sachs, Bank of America/Merrill Lynch, and Deutsche Bank. A new research note from Sandler O'Neill says the company is still considering "strategic alternatives" for its MI business.

Federal regulators expect banks and thrifts to move certain mortgage securitizations onto their balance sheets due to new accounting rules and are seeking comment on the impact it will have on capital ratios. The new Financial Accounting Standard Board rules go into effect in January. Request for comment was published in Tuesday's Federal Register and is a short 30 days. Institutions have until October 15 to respond and convince regulators that they need capital relief. The request for comments asks whether a phase-in of risk-based capital requirements over four quarters is needed. Federal Reserve Board chief accountant Arthur Lindo told certified public accountants at their annual banking conference that certain private-label mortgage backed securities are "likely to come on board." And securitizations where the servicing bank has residual interests are likely to be consolidated under Financial Accounting Standards 166 and 167.

LoanSifter, a Web-based loan product eligibility and pricing tool, has expanded its offering given the shift from broker to banker, to include LoanSifter Banker Edition to help automate backend processes. LoanSifter Banker Edition is a single product eligibility and pricing solution for bankers, credit unions and community banks. The product includes an automated rate sheet generator, a wholesale/third-party originator Web portal, an online 1003 mortgage application, and an upcoming bulk-pricing tool. These features expand on the original LoanSifter solution, consisting of a secondary pricing engine, scenario rate alerts and monitoring, custom e-mail rate campaigns, open house flyers, website quoting, and lead auto-quoting.