Origination

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

Automated compliance vendor Wolters Kluwer Financial Services notes that substantial regulatory changes have already been made, but lawmakers are in the process of debating additional legislation that would help protect consumers even more aggressively. Wolters Kluwer's compliance experts agree that development alone has already changed the mood within the financial services industry. "Regulators are feeling much more empowered than they were during the previous administration," said Edward Kramer, executive vice president for Regulatory Programs at Wolters Kluwer Financial Services. "More stringent regulatory exams, a rising number of enforcement actions and the growing number of financial institution closings during the first quarter of this year are evidence of that." Mr. Kramer said he believes the mortgage reform bill Congress debated last week could be the beginning of major financial services regulatory reform. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on nonprime mortgage lending and lender compensation. Perhaps more importantly, it would require lenders establish what the bill calls a "duty of care" in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit. "The proposed mortgage reform bill combined with numerous regulatory changes already scheduled to take effect this year could likely put financial institutions in a significant crunch," added Amy Downey, senior regulatory consultant at Wolters Kluwer Financial Services. "These changes are very different from those of previous years that required a simple update to a document or disclosure. Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt."

The House Financial Services Committee is scheduled to mark up a mortgage reform bill next week and industry groups are lobbying to reduce the amount of credit risk they would have to retain when selling or securitizing single-family loans. The bill (H.R. 1728) drafted by committee chairman Barney Frank, D- Mass., requires lenders to absorb 5% of the first loss on most loans that are not prime 30-year fixed-rate mortgages. As an alternative, the Financial Services Roundtable has proposed that lenders and investors (assignee) share pro-rata in the losses. If defaults lead to a $100 loss, the lenders would incur a 5% or $5 loss and the mortgage-backed securities investor would incur a $95 loss. "This ensures the lender will continue to have some 'skin in the game,' without having the unintended consequence of significantly reducing mortgage availability," FSR Housing Policy Council president John Dalton told the committee during a hearing on H.R. 1728. Roundtable officials say they are open to other risk retentions proposals that would reduce the impact on capital. Mr. Dalton also suggested that the retention requirement expire after 18 months. This would provide protection against early defaults and "avoid excessive buildup of capital depleting positions," he testified. The committee is scheduled to begin the markup on Tuesday (April 28).

The homeownership rate fell to 67.3% in the first quarter, which is the lowest level since 2000, hurting Black Americans the most. The U.S. Census Bureau reported the homeownership rate overall fell 50 basis points from 67.8% in the first quarter of 2008. During the same period, the rate of Black homeownership fell 100 bp to 46.1%, while the homeownership rate among Hispanics fell by 30 bp to 48.6%. The Census Bureau also reported that the number of vacant houses for sale fell 5% in the first quarter to 2.11 million units, down from 2.23 million in the fourth quarter. Fueled by overbuilding and rising foreclosure rates, the inventory has remained stubbornly high for nearly two years. Economists at the National Association of Home Builders closely watch this inventory number because the overhang puts downward pressure on house prices and makes it difficult to sell new homes. Over the past four quarters, homebuilders have reduced their inventory of unsold homes by 38% to 311,000 as of March 31. "Builder inventory has been falling for 23 months," according to the NAHB's director of economist forecasting, Bernard Markstein. "Once the sales pace picks [up] the inventory will fall dramatically," he said.

CitiMortgage ranked first among all jumbo lenders last year, but industry-wide residential fundings in this once hot sector fell by 57% according to new figures compiled by National Mortgage News and the Quarterly Data Report. NMN found that the nation's jumbo lenders originated just $139 billion in 2008, compared to $325 billion the year before. Citi's originations fell 32% to $23.3 billion. Bank of America ranked second in jumbo production with $15.4 billion (down 41%) followed by Wachovia Mortgage ($14.5 billion/up 78%); Chase ($12.4 billion/down 57%); and Wells Fargo & Co. ($10.5 billion/down 83%). Wachovia is now the property of Wells Fargo. Jumbo loans are above the Fannie Mae/Freddie Mac loan limit of $417,000, although there are GSE jumbo limits for high cost areas.

Bank of America is rolling out new tools and products aimed at providing transparency and responsible lending to consumers, among them a flat closing fee loan that has no application fee, and a one-page loan summary for customers taking out retail purchase and refinance loans. The latter, the Clarity Commitment, spells out the key aspects of loan terms — the monthly payment, the date it's due, the rate, what the rate and monthly payment could reset to, if it is an adjustable rate mortgage and the closing cost. BoA also said it was introducing a new interactive Home Loan Guide website as part of the rollout, done as part of its Bank of America Home Loans rebranding for mortgage operations that now include its home equity business and the former Countrywide Home Loans. Bank of America said it extended more than $85 billion in mortgage credit in the first quarter of 2009, helping more than 382,000 customers purchase a home or save money on the one they already own. Seventy-five percent of first quarter originations were for refinance. BofA is bringing two companies together when interest rates are at an all-time low and the economy is in a recession. The company has added 3,000 positions and is in the process of adding 1,000 more to its fulfillment to keep pace with the demand on the refi and purchase side.

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

The House Financial Services Committee is scheduled to mark up a mortgage reform bill next week and industry groups are lobbying to reduce the amount of credit risk they would have to retain when selling or securitizing single-family loans. The bill (H.R. 1728) drafted by committee chairman Barney Frank, D- Mass., requires lenders to absorb 5% of the first loss on most loans that are not prime 30-year fixed-rate mortgages. As an alternative, the Financial Services Roundtable has proposed that lenders and investors (assignee) share pro-rata in the losses. If defaults lead to a $100 loss, the lenders would incur a 5% or $5 loss and the mortgage-back securities investor would incur a $95 loss. "This ensures the lender will continue to have some 'skin in the game,' without having the unintended consequence of significantly reducing mortgage availability," FSR Housing Policy Council president John Dalton told the committee during a hearing on H.R. 1728. Roundtable officials say they are open to other risk retentions proposals that would reduce the impact on capital. Mr. Dalton also suggested that the retention requirement expire after 18 months. This would provide protection against early defaults and "avoid excessive buildup of capital depleting positions," he testified. The committee is scheduled to begin the markup on Tuesday (April 28).

Professional appraisers are campaigning for restrictions on the use of alternative or computerized valuation methods when estimating a property value for mortgage origination purposes. Broker price opinions and automated valuation models may be used as "additional due diligence or data confirmation," not as the basis of a lending decision, said president of the Appraisal Institute, Jim Amorin in his testimony on H.R. 1728, "The Mortgage Reform and Anti-Predatory Lending Act." Speaking before the House Financial Services Committee on behalf of the Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and National Association of Independent Fee Appraisers, Mr. Amorin stressed there is an inherent conflict of interest when "an agent's primary role is to facilitate a sale of real property, not objectively develop an opinion of its value." Often real estate agents are not licensed as appraisers and have minimal training and education in appraisal methodology, he said.

Patrick M. Singletary, Robert D. Singletary and Peter J. Russo, all from Jacksonville, Florida, have been sentenced on charges related to a mortgage scheme to defraud the Federal Housing Administration of $2.5 million. Patrick Singletary was sentenced to 18 months in federal prison and ordered to forfeit $1 million. Robert Singletary and Peter Russo were each sentenced to serve one year in federal prison. Robert Singletary was ordered to forfeit $1 million and Russo was ordered to forfeit $500,000. All three defendants had pleaded guilty in October 2008. According to court documents, the defendants submitted false documentation to obtain FHA-insured loans for buyers of single-family properties in Jacksonville between 1997 and September 2004.