Compliance

The president of LGE Community CU was barred from working for any financial institution for five years under a consent order he agreed to with Florida regulators related to alleged misconduct related to a real estate transaction at his previous job heading Florida-based First Coast Community CU. Chris Leggett told The Credit Union Journal the Georgia credit union was aware of the controversy before it hired him on as CEO. Under the agreement, Leggett has also been compelled to resign his position on the board of Tallahassee, Fla.-based ATM network Credit Union 24. The order stated the Florida regulator issued an administrative complaint to remove Leggett on April 30 for allegedly being "improperly and illegally engaged in an insider real estate transaction at the credit union that ultimately resulted in a financial loss to the credit union." Leggett was the president and CEO of First Coast Community CU, based in Palatka, Fla., from November 2003 to Oct. 1, 2007.

The Government National Mortgage Association is contemplating selling the $1.3 billion residential servicing portfolio that it recently seized from Lend America of Melville, N.Y. An agency spokeswoman confirmed that GNMA recently took control of the receivables and placed it with a subservicer — Loan Care Servicing Center of Norfolk, Va. "We just completed the transfer and are performing our due diligence," she said, adding that "We cannot make a determination on the sale of servicing rights until that process is completed. Of course any final decision will be made based on what is in the best interest of taxpayers." Investment banking sources say the portfolio is suffering from higher than average delinquencies. GNMA and FHA suspended Lend America last month. The company laid off most of its work force and is no longer funding new loans.

The advocacy arm of the Small Business Administration is taking the Federal Reserve Board to task for failing to estimate the economic impact a proposed mortgage lending rule would have on community bankers and mortgage brokers. The Fed has an "obligation" under the Regulatory Flexibility Act (RFA) to estimate the costs of changing the timing of Truth in Lending Act disclosures and imposing restrictions on loan officer and broker compensation, according to the SBA Office of Advocacy. "Failure to do so not only compromises and usurps the purpose of the RFA; it also impinges on the board's ability to consider less burdensome alternatives as required by the RFA," advocacy office acting chief counsel Susan Walthall says in a comment letter to the Federal Reserve Board. Under the Fed's TILA proposal, loan officer and broker compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The National Association of Mortgage Brokers has proposed an alternative to prohibiting yield spread premiums, Ms. Whitehall says. It would ensure consumers know the "lowest interest rate the creditor will accept" so they can tell if the originator has increased the rate. "Advocacy encourages the board to consider this less costly alternative," the acting chief counsel says.

Columbia, S.C.-based origination vendor Avista Solutions said it has updated its Avista Agile suite of products such that it is compliant with the changes to the Real Estate Settlement Procedures Act that go into effect on Jan. 1, 2010. The updates are available for retail, wholesale or correspondent lending channels. At the heart of the RESPA change is the consumer concern that the initial transaction outlined in the Good Faith Estimate can change by the time the loan is closed, with unexpected fees showing up on the HUD-1 Settlement Statement. The new rules require that the documents be consistent, and if there are changes, they be supported by specific documented changes in the circumstances of the loan. Avista Solutions provides side-by-side comparison screens for users to check for variances between the GFE and HUD-1. All changes of circumstance can be tracked and are available for review.

Federal Housing Administration lenders are expected to charge reasonable origination fees but in most cases they will no longer be bound to a 1% limit, according to the Department of Housing and Urban Development. As a result of a new Real Estate Settlement Procedures Act rule, "FHA no longer limits the origination fee to 1% of the mortgage amount for its standard mortgage insurance programs," HUD says in mortgagee letter 2009-53. However, the 1% limit will continue to apply to FHA-insured reverse mortgages and FHA 203(k) purchase/renovation loans. The new RESPA rule that goes into effect Friday (Jan. 1, 2010) mandates the use of a standardized Good Faith Estimate disclosure that bundles all origination charges into a single fee. The GFE does not disclose the lender's origination fee as a single line item. "FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged," FHA commissioner David Stevens says in the mortgagee letter.

Document preparation vendor DocuTech has partnered with LOS Wipro Gallagher Solutions to more tightly integrate compliant documents into the lender's origination platform. The integration enables lenders to generate compliant documents and disclosures from any Web connection. NetOxygen Cirrus is WGS' Web-based LOS that enables lenders to take advantage of a streamlined service to enter, monitor and maintain loans through a scalable platform hosted by WGS. The integration with DocuTech's ConformX allows for the streamlined deployment of a more end-to end, enterprise wide LOS. This integration also provides users with internal compliance and document services, including support for disclosures.

International Document Services Inc., Salt Lake City, Utah, expects state mandated high-cost audits to become a more time-consuming concern for mortgage lenders in 2010. State-specific high-cost regulations should be a source of concern for lenders, according to IDS president Curt Doman. The company is advising lenders to test their ability to provide evidence that meets and satisfies state-specific requirements.

The Federal Housing Administration is telling consumers to continue making their monthly mortgage payments to the recently shuttered Lend America of Long Island but is warning that this advice could change. Lend America controlled the servicing rights to roughly $1.3 billion worth of FHA-backed loans. Late last month the agency suspended the company which promptly laid off most of its 650-person work force. Mortgage attorney Robert Lotstein said he has several vendor clients that are owed money by the company and confirmed earlier reports that while refinancing existing loans, the company has failed to pay off the prior lien. In a "frequently asked question" memo on the HUD website, FHA says mortgagors should continue making monthly payments to the company "until you receive notice that your loan has been transferred to a new servicer." Mr. Lotstein said he expects Lend America to file for bankruptcy protection. A company spokesman declined to comment.

Equitable Trust Mortgage Corp. has agreed to pay a $277,000 fine and reimburse 37 FHA borrowers as a part of a settlement with the Department of Housing and Urban Development. The agreement means the Baltimore-based nonbank is once again allowed to originate government-backed loans. The agency suspended ETM on Dec. 7 for improperly charging 37 borrowers excessive loan origination fees. However, in settling, the company did not admit fault or liability. In addition to paying the civil money penalty, ETM has agreed to refund the overcharges to the 37 borrowers. The individuals will receive refunds ranging from $500 to $9,135. The total amount repaid to borrowers will be $147,589, HUD said. "The settlement agreement imposes a significant penalty on ETM for violating HUD requirements, but also provides the wronged borrowers relief in these tough economic times," said FHA commissioner David Stevens.

The Federal Bureau of Investigation is conducting several joint reviews of the Troubled Asset Relief Program, according to new testimony from FBI assistant director Kevin Perkins. Mr. Perkins told a Senate panel that the investigations are being done in conjunction with the Special Inspector General for TARP, Neil Barofsky. Mr. Perkins provided no details on what the investigations entail. The FBI in Washington declined to elaborate on the matter. Mr. Perkins, late this week, said mortgage fraud continues to "pose a significant threat" to the mortgage industry as well as to investors.

Orange County police have arrested three men for suspicion of breaking into the Newport Coast mansion of former subprime high-flyer Daniel Sadek. According to a report in The Orange County Register, Mr. Sadek founded and managed Quick Loan Funding, which originated roughly $4 billion in subprime mortgages before collapsing in 2007. The newspaper reported that three people at Mr. Sadek's home suffered head injuries during the home invasion, and one of them was taken to the hospital. No word yet on whether Mr. Sadek was present or if he was hurt. The former mortgage chief bought the Newport Coast mansion, a fleet of exotic cars, and enjoyed a little gambling. Court records list cash advances taken out on his credit card at casinos from Hawaiian Gardens to Lebanon, the OCR said.

The U.S. Attorney for Eastern District of Pennsylvania has indicted five people for a $14.6 million mortgage fraud scheme that resulted in at least 35 fraudulent loans. Named in the 15-count indictment are Edward McCusker and John Alford Bariana, owners of Axxium Mortgage Inc.; McCusker's wife, Jacqueline; and Jeffrey Bennett and Stephen Doherty, owners of the Doylestown law firm Bennett & Doherty, P.C. They are charged with conspiracy to commit mail fraud, wire fraud, and money laundering. Mr. Doherty is also charged with bankruptcy fraud. According to the indictment, the defendants targeted financially distressed homeowners facing foreclosure, falsely promised them help in saving their homes, engaged in real estate transactions with straw purchasers, and obtained dozens of fraudulent mortgages. The defendants allegedly took whatever equity the homeowner had left, funneled it through various shell corporations they controlled, used some of it to pay the new mortgages, and put the rest of the equity into their own bank accounts. Edward McCusker and Bariana, along with Jacqueline McCusker allegedly obtained the mortgages by submitting false documents to lenders and making false claims about the straw purchasers' finances, the indictment said. Doherty allegedly used fraudulent bankruptcy filings for some borrowers to delay foreclosure until McCusker had obtained an investor and a mortgage. Bennett allegedly handled the closings for the real estate transfers. Edward and Jacqueline McCusker, Jeffrey Bennett, and John Bariana face maximum sentences of 240 years imprisonment, $3.25 million in fines, three years supervised release, and a $1,200 special assessment. Stephen Doherty faces 385 years imprisonment, $4 million in fines, three years supervised release, and a $1,500 special assessment. Attempts to reach the defendants were unsuccessful by press time.

House and Senate appropriators are increasing the Department of Housing and Urban Development's resources to combat mortgage fraud, update its technology, while increasing the Federal Housing Administration's lending capacity to $400 billion. The conference report on the HUD appropriations bill for fiscal year 2010 includes $20 million to combat mortgage fraud, and $80 million to modernize its legacy computer systems. The appropriators also provide the HUD Inspector General with an additional $5 million to conduct audits of FHA-approved lenders. (Over the past week HUD banned two FHA lenders.) FHA endorsed $328 billion in loans in fiscal yeas 2009, which ended Sept. 30, and its business continues to grow. (The $400 billion figure is for FY 2010.) Ginnie Mae, which provides a secondary market outlet for FHA and other government-backed loans, is in line for a $185 billion increase in commitment authority to $500 billion in FY 2010, up from $315 billion in 2009. Congress is late in passing the FY 2010 budget bills. Democratic leaders have rolled the HUD appropriations bill into a consolidated appropriations bill that the House of Representatives is expected to pass soon. The timing in the Senate is unclear.

The Securities and Exchange Commission on Tuesday slapped the now-defunct Brookstreet Securities Corp., Irvine, Calif., with civil fraud charges, accusing it of causing "substantial investor losses" on the sale of $300 million worth of collateralized mortgage obligations. The SEC also charged company CEO Stanley C. Brooks with fraud for selling risky mortgage-backed securities to more than 1,000 customers that had "conservative investment goals." The SEC said the fraud cost Brookstreet investors their savings, homes and retirement money. The government says the company collapsed in 2007 because of these bad investments and continued to sell risky CMOs to retail investors even after Mr. Brooks received numerous indications and personal warnings that these were "dangerous" investments. One trader even called Brookstreet's program a "scam." At press time Mr. Brooks could not be reached for comment.

The Securities and Exchange Commission has charged three former executives of now-defunct subprime mortgage giant New Century Financial with fraud for misleading investors as their business was "collapsing" in 2006. At the time, Irvine, Calif.-based New Century was a top-ranked subprime lender, and management was considering selling the company to Merrill Lynch. SEC director of enforcement Robert Khuzami said investors in the once publicly traded company "took a double-hit: The company's mortgage assets and business performance became increasingly impaired, and management manipulated its numbers and concealed its deteriorating performance." At one time, New Century's shares traded for $50. Former top managers accused of fraud include Brad Morrice (vice chairman/president), Patti Dodge (EVP) and David Kenneally (SVP). New Century filed for bankruptcy protection in April 2007. The complaint, filed in federal court in the Central District of California, seeks civil penalties and from Morrice and Dodge reimbursement of bonuses and other incentive or equity-based compensation. The agency is seeking a severe personal penalty against the three: a bar against ever again serving as officers or directors of a publicly traded company. Josh Epstein, a spokesman for Proskauer, the law firm representing Mr. Morrice, told The Orange County Register that the SEC's charges against the former executive are "flatly false." He said, "Brad did all he could to save the company and to accurately report the company's numerous challenges to its shareholders. While his efforts failed, there was no fraud." Mr. Morrice remained a large shareholder until the end, losing millions of dollars when New Century filed for bankruptcy in April 2007, Mr. Epstein said. John Vandevelde, an attorney for Mr. Kenneally, said the former executive was never a top executive there but a new accountant who lost "every penny he ever invested" in the company he believed in. "Kenneally never signed any financial statements and relied on the outside auditors for accounting treatment now under question by the SEC," his lawyer said. Ms. Dodge could not be reached for comment.

The Department of Housing and Urban Development late Monday suspended Equitable Trust Mortgage Corp. of Baltimore from making Federal Housing Administration-backed loans -- the second such suspension of a lender within a week. ETMC, which has branches in Maryland, Virginia, and South Carolina, told National Mortgage News it will make a statement on the matter later in the day Tuesday. Its specialty is renovation financing. For now, the suspension is for a minimum of six months. HUD alleges that the nonbank lender charged excessive origination fees to minority borrowers and others. In some cases, the company charged borrowers a broker fee and an additional 1% origination fee, HUD said. "ETM received excessive compensation and improperly charged consumers duplicative and unreasonable fees to originate their loans," HUD noted. It originated nearly 2,250 FHA-insured loans over the past two years, 8% of which are in default. It has filed only 8 claims. HUD's Office of Inspector General also is investigating ETMC's lending practices. Last week HUD suspended Lend America of Long Island which a few days later laid off most of its workforce.

CUNA Mutual Group's CUMIS Insurance Society subsidiary is asking a state court to declare that surety bonds held by 26 credit union victims of the $140 million fraud by U.S. Mortgage/CU National Mortgage Corp. do not cover an estimated $125 million of losses suffered by those credit unions. The little-known move came to light in a new civil suit filed last week by Educational Systems FCU, a Greenbelt, Md., credit union that stands to lose $3 million from the fraud and is asking a federal court in Baltimore to order the credit union insurer to cover the losses as part of the bond. Chris Conway, president of Educational Systems FCU, said over the weekend that he was compelled to file the new suit to prevent CUMIS from getting a court order protecting against his credit union's bond claim. "They kind of forced our hand," Conway told The Credit Union Journal on Saturday. "We have a valid claim and it's pretty straightforward. We couldn't just let them sit by and deny our claim." The state suit filed by CUMIS is apparently the second attempt launched by the insurer to get a court to block the claims, which could be the biggest ever against CUNA Mutual. Educational Systems is one of 26 credit unions whose mortgages were being serviced by CU National and were surreptitiously sold by the company's president, Michael McGrath, to Fannie Mae. McGrath pleaded guilty to the massive fraud in June and is scheduled to be sentenced in February.

Lend America, which was banned from FHA lending on Monday, was refinancing certain customers without paying off their prior existing lien, according to veteran mortgage banking attorney Robert Lotstein. Mr. Lotstein, who has clients that did business with Long Island-based Lend America, said this has created a situation where customers received a new loan from the lender but without their existing lien being paid off. A managing attorney with Mortgage Banking Advisors PLLC, Mr. Lotstein said this has created a situation where some Lend America mortgagors "will get a call from their old lender asking where the payment is." The attorney said his mortgage banking and vendor clients informed him of the situation. He said he could not quantify how many Lend America refi customers might be having this problem. A spokesman for the company said the lender is trying to rectify the problem.

Former New York mayor Rudolph Giuliani and some of his advisors attended talks between Lend America officials and the Department of Housing and Urban Development last week, hoping to find a solution to the lender's problems, according to sources familiar with the matter. A source close to Lend America told National Mortgage News that Mr. Giuliani "was there" at the meetings but at press time it was unclear whether he attended as a representative of his law firm, Bracewell & Giuliani, or in an outside capacity. A spokeswoman for Bracewell said to the best of her knowledge, Lend America and its 'dba,' Ideal Mortgage Bankers, are not clients of the law firm. Also in attendance was Lend America president Michael Primeau. Before going into politics, Mr. Giuliani was U.S. Attorney for the Southern District of New York and made his name by busting junk bond king Michael Milken. On Monday HUD ordered the New York-based Lend America to halt the origination of FHA-backed loans. The next day the company laid off most of its work force - roughly 550 workers. HUD fined the company $512,000, accusing it of underwriting fraud and other misrepresentations.

A U.S. district court judge in California has denied a motion by JPMorgan Chase Bank to dismiss a lawsuit that alleges the bank illegally reduced a couple's home equity line of credit. Chase argued that the plaintiffs, Jeffrey and Jenifer Schulken, are former customers of Washington Mutual and they should sue the Federal Deposit Insurance Corp. - which approved Chase's acquisition of WaMu - not Chase. But the judge sided with the Schulkens. According to the plaintiffs' attorney Jay Edelson, "Chase's unprecedented position was simple: Chase can harm former WaMu customers with impunity and anyone who suffers damage should sue the FDIC." Chase acquired the troubled WaMu with the approval of the FDIC in September 2008. The bank moved to reduce the plaintiffs' HELOC in March 2009, claiming their income had declined. Plaintiffs claim their income hasn't changed and sued Chase for violating the Truth in Lending Act. If the judge certifies the class act lawsuit, the plaintiffs' attorneys want the class to cover all Chase HELOC customers as well as former WaMu customers. A Chase spokeswoman said the bank does not comment on litigation. Chicago-based KamberEdelson LLC also is pursuing class action litigation against two large institutions that are among Chase's peers for suspending and reducing HELOCs. An FDIC spokesman did not have an immediate comment pending a review of the case by the FDIC's legal team.