Compliance

Roughly 50 different investors received confidential bid packages on IndyMac Bank FSB, the insolvent thrift that is also the nation's ninth largest residential servicer. A spokesman for the Federal Deposit Insurance Corp. also clarified that the investor group awarded IndyMac this past Friday is putting roughly $2.9 billion into the deal: $1.6 billion that represents the difference between the thrift's liabilities and the value of its assets (after the assets have been marked-to-market) and another $1.3 billion in cash that will be used to capitalize the re-constituted lender/servicer. "It's failed bank math," he said. The spokesman said at least 80 different investors were invited to bid but declined to say how many were involved in the final bid process. Of the 80, 50 received bid packages. Late last week the FDIC agreed to sell the Pasadena, Calif.-based IndyMac to IMB Management Holdings, a consortium of hedge funds led by Dune Capital, J.C. Flowers, Paulson & Co., and others. IndyMac has $13.9 billion in assets and $12.3 billion in liabilities, said the spokesman.

An accused participant in a mortgage fraud scheme has pled guilty to conspiring to commit mail fraud and wire fraud. Seth Srader entered his plea on Dec. 11, 2008, before U.S. District Judge Keith Ellison. Srader was charged in a mortgage fraud scheme involving the recruitment of individuals to purchase residential properties at or near 100% financing using their good credit. The borrowers were paid from the loan proceeds for their participation in the acquisition of the property. Loan officers at mortgage brokerage offices were utilized to furnish false and fraudulent information to the lenders. Loan proceeds would be disbursed to one or more of the conspirators through checks or wire transfers from the title company to a bank account established in an assumed name. Srader participated in the scheme as a borrower, purchasing two residential properties in the Houston area, borrowing a total of $869,310. Each loan was obtained using false and fraudulent information. The residential loans Srader obtained during the scheme eventually fell into default. Srader has been permitted to remain free on bond pending sentencing, which has been set for March 3, 2009.

The Tennessee Commissioner of Commerce and Insurance is now requiring fingerprints from certain license and registration applicants, including mortgage lenders, brokers, servicers and loan originators. According to written analysis from iComply, which is authored and published by a team of mortgage banking attorneys, there must be provisional authorization for mortgage loan originators to conduct business while awaiting registration approval from the commissioner. The requirement became effective on January 1. In other regulatory news, with the start of the new year North Carolina is requiring mortgage servicers to be licensed by the its Commissioner of Banks before acting as a servicer. The bill also changes the "brick-and-mortar" requirements for mortgage brokers to specify that a broker's physical location in North Carolina may not be a home or residence.

Federal Housing Administration lender Shore Mortgage, Birmingham, Mich., which is licensed in 25 states, said it is planning to significantly grow its origination staff due to rate-driven increases in its business and its reputation for swift mortgage closings. President Robert Rahal said in a prepared statement that the company is seeking to hire an additional 80 to 100 new employees and has a training program for those lacking experience. He said positions the company is seeking to fill include loan officers (10-20 people per month for the next three months), underwriters, processors, closers, post-closing specialists and account executives. The company is licensed to do business in Alabama, Arkansas, Arizona, Florida, Georgia, Illinois, Indiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Utah, Virginia, Washington and Wisconsin.

The National Association of Mortgage Brokers is opposing implementation of reforms that would prohibit brokers from picking or working with appraisers in mortgage transaction. The appraisal code of conduct that Fannie Mae and Freddie Mac, along with their regulator, have agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo tries to ensure that loan officers and brokers don't influence or interfere with the property valuation process. The code is slated to go into effect May 1 and applies to loans purchased by Fannie and Freddie. "This agreement will create a severe disadvantage to small business mortgage brokers, and prevent them from engaging competitively in the mortgage marketplace," said NAMB president Marc Savitt.

The American Financial Services Association is urging president-elect Barack Obama's transition team to consider several options to increase consumer credit, including bond insurance for asset-backed securities issued by finance companies. "Government must play a direct and immediate role in bringing liquidity and confidence back to the securitizations market through the purchase of securities or by issuance of insurance or guarantees," according to an AFSA report sent to the transition team. "Finance companies extend 40% to 50% of all consumer lending in the United States," AFSA executive vice president Bill Himpler said. But he noted that the flow of credit from finance companies to consumers is threatened by today's financial crisis. AFSA also wants the new administration to give Community Reinvestment Act credit to banks that extend credit to finance companies that are offering workouts to struggling borrowers.

Congress returns Jan. 6 to start a new session and House Financial Services Committee chairman Barney Frank, D-Mass., has already scheduled hearings on the Federal Housing Administration and the future use of Troubled Asset Relief Program funds. The FHA hearing on Jan. 9 will focus on the agency's oversight of FHA lenders. FHA single-family originations have tripled over the past year and more and more lenders are applying to make FHA loans. On Jan. 7, chairman Frank will hold a hearing on how the new administration should use the remaining $350 billion in TARP funds. The chairman has been critical of the Bush administration for failing to fund foreclosure prevention programs and for simply capitalizing banks without any lending or reporting requirements.

The Financial Accounting Standards Board is on track to give investors in mortgage-backed securities a break in the way they determine other-than-temporary impairment for their fourth quarter financial reports. FASB has issued a proposed staff position (FSP) that amends an impairment model, which required financial institutions to use "their best estimate of the cash flows that a market participant would use in determining the current fair value" of MBS. The FSP drops "market participant" and allows management to make a "reasonable judgment" of future cash flows, which should reduce charges if the securities are performing. The comment period on the proposed FSP EITF Issue 99-20-a ends Dec. 30. The Seattle Federal Home Loan Bank recently reported a $49.8 million "other than temporary impairment" charge against three private-label MBS. The FHLBank said it only expects to see a $4.9 million principal loss over the life of the three securities.

GMAC Financial Services has received Federal Reserve Board approval to become a bank holding company, providing the struggling auto and mortgage lender with access to new funding sources and a possible capital infusion from the Treasury Department. "Today's announcement marks a turning point in GMAC's history," said GMAC chief executive Alvaro de Molina. "As a bank holding company, GMAC will be competitively positioned for the long-term to provide financing to auto and mortgage consumers and businesses, such as automotive dealers." The approval order requires General Motors Corp. and Cerberus Capital Corp. to substantially reduce their equity interests in GMAC. It also requires the conversion of GMAC Bank to a state-chartered bank, which was approved by the Utah banking department. BHC status will allow GMAC to reduce its borrowing costs and ease the burden on its mortgage lending and servicing arm, Residential Capital, which is making principal and interest advances on an increasing number of delinquent loans. ResCap services nearly $400 billion in mortgages. GMAC has applied for a capital infusion under the Troubled Asset Relief Program. Treasury has already committed to provide $250 billion in capital assistance to banking companies.

The newly revised Appraisal Code of Conduct will not require lenders to fire in-house appraisers or sell-off their interests in affiliated appraisal shops, which raised so much controversy earlier this year when the code was first proposed by Fannie Mae and Freddie Mac, along with their regulator, and the New York Attorney General. The revised code does not rely on "unwieldy procedural prohibitions" to ensure appraiser independence, according to the Mortgage Bankers Association. "This will permit lenders and others to use their existing appraiser independence and quality control practices rather than mandate structural reorganization," MBA associate vice president Michael Carrier said. The code of conduct proposed back in March as part of a settlement with AG Andrew Cuomo, banned lenders from using affiliated appraisal shops. The Office of the Comptroller of the Currency threatened legal action to block its implementation. When asked about the revised code, an OCC spokesman said officials have no comment at this time.

The Office of Thrift Supervision has suspended a regulator whose career dates back to the S&L crisis for allegedly allowing IndyMac to backdate a capital infusion a few months before the alt-A lender/servicer was seized by the government. The OTS removed Darrel Dochow as director of its western region, which supervised IndyMac of Pasadena, Calif., Washington Mutual, Downey Savings, and several other large, now defunct thrifts that were key players in the subprime and alt-A markets. The matter is now under investigation by the Inspector General's Office of the U.S. Treasury. According to a letter written to Sen. Charles Grassley, R-Iowa, "The impact of West Region Director Dochow's approval to record the capital infusion in the quarter ending March 31, 2008, was that IndyMac was able to maintain its 'well-capitalized' status and avoid the requirement in law to obtain a waiver from FDIC to accept brokered deposits." IndyMac, which was taken over this past summer, was a big user of "hot money" to maintain its base of liabilities. Earlier in his career Mr. Dochow was a top regulator in Washington. In the late 1980s Mr. Dochow wanted the Federal Home Loan Bank Board (the forerunner of the OTS) to negotiate with rogue S&L operator Charles Keating Jr., who was threatening to sue the government. Eventually, Lincoln was seized by the FHLBB in one of the costliest thrift collapses in history, not counting failures that occurred this year.

Fraud prevention firm National Loan Auditors, Walnut Creek, Calif., is now offering an online resource portal aimed at providing clients with up-to-date information on statutes and case law pertaining to lending and foreclosure. The portal includes status updates on all federal, state and municipal legislation, the company said. "NLA Law Portal adds value to our forensic loan audit by providing support for its findings and information on how to effectively use the audit report in legal proceedings," said August Blass, CEO of National Loan Auditors. "Users are given summaries and guidelines that distill lending and foreclosure law into a short manageable synopsis, saving hours in research." Once access has been granted, clients have the ability to search various summary topics such as alternatives to workout agreements, Truth in Lending Act summary, and Home Ownership and Equity Protection Act action steps. State legislation topics also are available. By selecting a state, users will receive current case law and statues in that state. Litigation tools also will be displayed when applicable.

Harland Financial Solutions' Interlinq E3, the company's Web-based loan production platform management system, is providing complete integration with Compliance EAGLE, an automated compliance review service developed by QuestSoft. Compliance EAGLE offers Interlinq E3 users a compliance process within the LOS. Compliance EAGLE uses proprietary rule sets to identify regulatory exceptions. "Harland Financial Solutions has been a valued integration partner of QuestSoft's for more than ten years," said Leonard Ryan, president of QuestSoft in a prepared statement. This integration is said to provide customers with a best practices approach to dealing with regulatory compliance.

Steven Gordon, a former principal at Bayview Financial of Miami, has been indicted in connection with an alleged scheme to inflate the value of mortgage loans and increase his commissions. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Mr. Gordon was a principal at Bayview Financial, a finance company that buys portfolios of loans from lending institutions. Bayview pools certain loans into newly formed business entities, called "special purpose entities," and then issues securities backed by the loans to the investing public. Mr. Gordon held the title of director of residential acquisitions. One of his primary duties was to negotiate the purchase of thousands of loans for Bayview Financial's mortgage securitization program. Mr. Gordon's incentive compensation was based on his ability to buy those loans at a low cost. He allegedly defrauded Bayview Financial by altering credit information affecting the value of more than 2,800 loans he acquired on behalf of the firm. In a statement the company said, "After discovery of these actions, Mr. Gordon's employment was terminated," adding that "No investor suffered any loss as a result of this matter." Mr. Gordon could not be reached for comment.

The National Association of Mortgage Brokers on Friday sued the Department of Housing and Urban Development, seeking an injunction to coming changes under the Real Estate Settlement Procedures Act. In an interview with MortgageWire NAMB president Marc Savitt said, "We're asking for an injunction so the rule will not be finalized." NAMB has a number of complaints with the changes proposed by HUD. The new rules -- which go into effect a year from now -- require yield spread premiums to first be disclosed as a borrower paid item and then a broker credit back to the borrower. NAMB believes this will only confuse mortgage applicants and does not create a level playing field because mortgage bankers are not required to disclose servicing and secondary marketing fees paid to them. The trade group also does not like the new three-page good faith estimate (GFE) disclosure form because it is not itemized (as it is now) and quotes the borrower only one figure. Mr. Savitt said his brokerage has been asking customers whether they prefer an itemized explanation of their closing costs, "and all of them told us yes -- that they want to know how we arrived at that number." In a statement, HUD said, "In this housing market, the nation is crying out for reasonable regulation to help families shop for and save money on the largest purchase of their lives. This rule is that reasonable regulation and it helps consumers to avoid getting into trouble in the first place. It's mystifying why anyone would stand in the way of the kind of transparency this rule brings to the marketplace."

After pleading guilty before U.S. District Judge Keith Ellison, Seth Srader has been convicted for participating in a scheme to defraud residential mortgage lenders. According to Tim Johnson, acting U.S. attorney for the Southern District of Texas, Srader was involved in a mortgage fraud scheme where individuals were recruited to purchase residential properties at or near 100% financing using their good credit. The borrowers were paid from the loan proceeds for their participation in the acquisition of the property. Loan officers at mortgage brokerage offices were used to furnish false and fraudulent information to the lenders. Loan proceeds were disbursed to one or more of the conspirators through checks or wire transfers from the title company to a bank account established in an assumed name. Srader participated in the scheme as a borrower, purchasing two residential properties in the Houston area using false and fraudulent information. The loans Srader obtained, totaling $869,310, eventually fell into default. Srader, one of six people indicted in connection with the scheme, has been permitted to remain free on bond pending sentencing, which has been set for March 3, 2009.

Dorie DiMarca of Andover, Massachusetts, was charged with two counts of wire fraud concerning real estate appraisal services she had performed. According to Thomas P. Colantuono, U.S. attorney for the District of New Hampshire, Ms. DiMarca was arraigned on the charges on Dec. 8, 2008, and entered pleas of not guilty to the charges. The indictment alleges that Ms. DiMarca provided appraisal services to two mortgage brokerage companies located in New Hampshire: New England Regional Mortgage and First Call Mortgage. The indictment further alleges that Ms. DiMarca represented herself as a licensed appraiser when she was not licensed and had no authority to provide real estate appraisals. The indictment lists at least 22 properties in New Hampshire and Massachusetts for which Ms. DiMarca provided a purportedly legitimate appraisal. Ms. DiMarca allegedly e-mailed the appraisals from Massachusetts to the offices in New Hampshire. She was released on bail pending her trial, which is scheduled for Jan. 21, 2009.

U.S. District Court Judge Alan Gold sentenced real estate attorney Joseph J. Weisenfeld to 63 months in prison following his guilty plea to charges stemming from Weisenfeld's misappropriation of more than $3 million in client funds purportedly held in escrow for authorized real estate transactions and related expenses. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Weisenfeld, a licensed attorney, represented individuals and/or entities (mostly buyers) in real estate transactions. As the closing agent in many of these transactions, Weisenfeld would collect funds from buyers and lenders, and would represent to the parties engaged in the transaction that these funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. However, he misappropriated the escrowed funds for his use and benefit. Over the course of the scheme, Weisenfeld misappropriated more than $3 million in client funds from his attorney trust account. No fine was imposed and a restitution hearing is scheduled for Jan. 24, 2009.

Gateway Funding Diversified Mortgage Services, Horsham, Pa., has agreed to pay $200,000 to the Federal Trade Commission to settle charges that it engaged in discriminatory lending practices, even though it refutes the allegations. The FTC had originally levied a $2.9 million judgment against the non-bank lender, which was once headed by a top officer of the Mortgage Bankers Association. Gateway had been battling the FTC for three-and-a-half years. The agency alleged that in 2004 and 2005 the lender violated the Equal Credit Opportunity Act. During these two years, Diversified was managed by Regina Lowrie, who served as annual chairman of the Mortgage Bankers Association for 2005/2006. The FTC alleged that Gateway allowed its loan officers to charge overages that resulted in African-Americans and Hispanic applicants paying higher fees and interest rates than whites. But Gateway president and chief executive Bruno Pasceri says the company uses the term overage in an unusual way and it does not mean loan officers can charge overages. "We tried to explain," he said. "But they could not get their heads around that we don't operate like other people." FTC began its investigation in 2005 when Ms. Lowrie was president and CEO of Gateway and MBA chairman. She could not be reached for comment. She left Gateway about two years ago. "We do not discriminate," Mr. Pasceri said. "The only we reason we agreed to settle is because the legal fees are destroying us. Our legal bills were $100,000 a month," he added.

Daniel Adam Rooks, his father Alford Eugene Rooks, Stanley Garfield Williams, Jr., Henry Clay Blake, Jr., and Cynthia Tilley Greer, all from North Carolina, have been charged for scheming to obtain money and property from homebuyers and lenders by materially false and fraudulent pretenses. According to the indictment, from approximately January 1998 until April 2004, Daniel Rooks bought about four tracts of land in Whiteville, N.C., subdivided the properties, put trailers on them and sold them to low-income people from around the area. He originally sold these properties with the aid of family members. He then partnered with two mortgage brokers, Mr. Williams and another individual out of Greenville, N.C., to finance the mobile homes. Daniel Rooks lied to the buyers about the estimated cost of the property, the payment amounts and his ability to secure loans. After taking their Social Security numbers and names, he would turn the information over to Mr. Williams and the other broker, who would falsify the loan applications, sending them in for approval. Mr. Blake, a registered property appraiser, prepared false and inflated appraisals of parcels of property that were submitted to mortgage lenders. Ms. Greer, a paralegal and notary, prepared and notarized real estate documents and arranged and conducted real estate closings, sometimes without the borrower's knowledge or presence and disbursed settlement checks. After the first round of sales were foreclosed, Mr. Williams began buying up the foreclosed property, finding new buyers or getting straw buyers whose names and Social Security numbers he could use to sell them all over again. More than 100 loans allegedly were secured and approximately $6 million in fraudulent funds were received.