Compliance

Ambac, a New York-based bond insurer that has been wrestling with U.S. mortgage-related woes, may be getting a capital infusion from a group of banks in the wake of recent regulatory pressure on the industry."We haven't concluded negotiations," said an Ambac spokeswoman Monday afternoon, confirming that the company is considering the possibility among its options. A spokesman for the New York Insurance Department, in noting reports that Ambac has been working with a group of banks, said only, "There is stuff going on." New York Gov. Eliot Spitzer, who said in congressional testimony that he considers bond insurers to be largely within his state's jurisdiction, gave companies in the sector a deadline to do something last week to bolster their flagging ratings, according to a Wall Street Journal article. The governor's office referred queries on the matter to the insurance department. A department spokesman said there is "no actual deadline" and that the period mentioned reflected state officials' expectations about when some action should be taken, ideally "as soon as possible." Standard & Poor's, in updating several bond insurer ratings Monday, affirmed some of Ambac's, citing "the scope of Ambac's capital-raising plans and the company's ability to implement those plans," but left them on CreditWatch with negative implications.

To expedite loan modifications, Congress may need to "step in" and shield mortgage servicers from investor lawsuits, according to FDIC Chairman Sheila Bair. "My hope is investors wake up to what's going on and push hard for loan modifications, not fight them," the Federal Deposit Insurance Corp. chairman told an audience in California's Silicon Valley. But she noted that servicers are reluctant to write down the principal amount of distressed mortgage because it could expose them to litigation. "But in this environment of declining home prices, writing down the values of loans to an amount the borrowers can pay in a sustainable manner may result in smaller losses to investors than foreclosure," Ms. Bair said.

Senate Democrats are pushing for a cloture vote Feb. 26 on a foreclosure prevention bill that would allow bankruptcy judges to restructure mortgages for distressed homeowners, and the financial services industry is mobilizing to defeat it. If the Democrats can get 60 votes, it opens the door to debate and amendments before final passage. But industry groups like the Mortgage Bankers Association are adamantly opposed to giving bankruptcy courts the leeway to reduce the principal amount or interest rate on a single-family mortgage. "We are fighting this," said MBA vice president Francis Creighton. "There is not a lot of room for compromise." The bill also provides funding for refinancing subprime borrowers and for grants to cities to purchase and rehabilitate foreclosed properties. In addition, it has a tax sweetener that allows lenders, homebuilders, and other companies to carry back 2006 and 2007 losses and receive refunds on taxes paid in prior years. Mr. Creighton said the outcome of Tuesday's vote is "really up in the air" and that the MBA is calling on its members to contact their senators.

The Department of Housing and Urban Development expects to issue the new loan limits for Fannie Mae, Freddie Mac, and Federal Housing Administration loans by March 7, sources have told MortgageWire. Congress raised the loan limits as part of the economic stimulus bill that President Bush signed on Feb. 13. And lenders are waiting for HUD to compute the new loan limits, which are based on 125% of median home prices, with a $729,750 cap. In a Feb. 20 conference call with industry groups and lenders, HUD officials indicated that separate lists of the higher-priced metropolitan statistical areas would be issued for FHA mortgages and for Fannie and Freddie mortgages. However, FHA lenders were disappointed that HUD has not decided whether the effective date should be determined by the date the lender receives an FHA case number or the date FHA insures the loan. The stimulus bill raised the FHA floor from $201,060 to $271,050, and lenders could begin making those higher-balance loans right now if HUD chose the date the loan is insured.

The Maryland Department of Labor, Licensing and Regulation is examining the servicing practices of Ocwen Loan Servicing, West Palm Beach, Fla., one of the largest subprime servicers in the United States. A spokeswoman for the agency told MortgageWire that "We don't randomly conduct exams," adding that "we saw some flags." She did not elaborate. Ocwen was singled out by Maryland Gov. Martin O'Malley at a news conference on Tuesday. Bill Rinehart, vice president and chief credit officer for the publicly traded Ocwen, said, "We received an examination request in the ordinary course of business. That's as much as we know. If they find something in the exam, we'll address it." Ocwen services $53.5 billion in loans. At year's end, its foreclosure rate was 6.47%, compared with 3.21% a year earlier. Mr. Rinehart noted that less than 1% of Ocwen's foreclosure cures result from "short sales" or "deeds in lieu."

To deal with so-called underwater mortgages, the Office of Thrift Supervision wants to develop a refinancing program that provides lender/servicers with certificates for writing down the principal amount of a mortgage to enable them to possibly recoup "some or all" of the immediate loss when the property is sold or refinanced again. OTS Director John Reich said he is trying to find a way to assist homeowners who cannot refinance to lower their mortgage costs and have negative equity in the homes. "We are concerned this reality is encouraging an increasing number of people to walk away from their homes," Mr. Reich told reporters. The OTS is looking at the Federal Housing Administration Secure program as a refinancing vehicle now that the FHA can insure mortgages above the $417,000 conforming loan limit. The OTS director said there is a potential for the certificates to be sold, like warrants, to investors and traded. OTS officials are promoting and developing the concept and say they hope to get other regulators, the FHA, and the American Securitization Forum on board in a few weeks.

The number of subprime-related cases filed in federal courts is "dramatically outpacing" the litigation filed during the savings-and-loan crisis of the early 1990s, according to Navigant Consulting Inc., Chicago. According to a Navigant study, 278 subprime-related cases were filed in 2007, nearly half the total of 559 S&L cases handled by the Resolution Trust Corp. over several years. "The S&L crisis has been a high-water mark in terms of the litigation fallout of a major financial crisis," said Jeff Nielsen, managing director of Navigant Consulting. "The subprime-related cases appear on their way to eclipsing that benchmark." Mr. Nielsen said the wave of litigation "appears to be just the beginning" and that there has been "a steady acceleration" of such cases so far this year. Navigant can be found on the Web at http://www.navigantconsulting.com.

Senate Democrats have crafted a second stimulus bill that includes bankruptcy changes lenders will oppose and a net operating loss carry-back supported by homebuilders. "This package is aimed at the bull's-eye of our economic crisis -- the housing market," said Sen. Charles E. Schumer, D-N.Y. Included in the package was a bill by Sen. Richard Durbin, D-Ill., that would allow bankruptcy judges to restructure subprime mortgages. "Small changes to the bankruptcy code could help 600,000 at-risk families keep their homes," the Illinois senator said. The Mortgage Bankers Association said there is "much in this bill to applaud." However, the MBA served notice that it will oppose the bill because the bankruptcy provision will increase the cost of mortgage credit. The National Association of Home Builders has been pushing for an NOL carry-back. But it wants a tax credit for homebuyers even more. The builders have frozen all political contributions because the first stimulus bill did not include a homebuyers' tax credit.

New York Gov. Eliot Spitzer has set a three- to five-day deadline for bond insurers hurt by certain mortgage securities exposures to bolster their flagging ratings, according to the Wall Street Journal. A call to the New York insurance department about the deadline had not been returned by deadline time. Mr. Spitzer indicated in congressional testimony Feb. 14 that he feels officials in his state should take the lead in tackling the bond insurance issue because "insurance is regulated by the states, and most of the bond insurance companies are domiciled in and primarily regulated by New York." Moody's Investors Service on Thursday downgraded some ratings of bond insurer FGIC, a New York-based company in which mortgage insurer PMI owns a 42% stake.

Six of the nation's largest servicers -- which control nearly 60% of the $9 trillion residential receivables market -- have agreed to participate in a new Bush administration plan to freeze foreclosures for at least 30 days. Dubbed "Project Lifeline," the program affects both subprime and prime borrowers who are in danger of losing their homes. (The effort was actually created by the servicers, but with the blessing of the Treasury Department.) The servicers in charge of these delinquent loans -- including Countrywide Financial, Wells Fargo, Citigroup, and others -- will contact homeowners who are more than 90 days late, freeze the foreclosure process, and then try to work out a solution for the borrower. According to the Quarterly Data Report, the nationwide foreclosure rate on subprime loans is almost 8%.

AllRegs, an information provider for the mortgage lending industry, has announced that its Ask the Expert--Legal Content Support Services will be offered through Smith Dollar PC, a mortgage banking law firm based in Santa Rosa, Calif. Eligible AllRegs subscribers will have unlimited access to Smith Dollar attorneys who can offer clarification on federal and state laws and regulations that reside in AllRegs' Information Service, AllRegs said. Smith Dollar is a California law firm that represents lenders and secondary-market investors in matters relating to mortgage fraud, lender liability, and regulatory compliance. AllRegs said Legal Content Support Service was created to help mortgage companies clarify the numerous changes in federal, state, and other regulations that affect the mortgage business.

Only 15 counties in California will qualify for the maximum $729,750 loan limit under the economic stimulus bill that temporarily increases loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration, according to an FHA official. This translates into six to nine metropolitan statistical areas in the lower 48 states where Fannie, Freddie, and FHA lenders will be able to make a $729,750 jumbo loan, one expert said. FHA Director Joanne Kuczma said HUD should be ready to issue guidance on the MSAs affected by the stimulus bill in a few weeks. The mortgagee letter has been crafted, and now it needs to be cleared by the Department of Housing and Urban Development, she told the finance committee of the National Association of Home Builders. The stimulus bill increases the Fannie and Freddie loan limit from a floor of $417,000 to 125% of median home prices in high-cost areas, with a cap of $729,750. The NAHB said it expects this to increase the GSE loan limit in 29 MSAs. Meanwhile, the floor for FHA loans rises from $200,160 to $271,050. Nearly 85% of counties will have a 125% median house price that falls between $271,050 and $729,750, the FHA director said. HUD generally sets the MSA loan limit based on the highest-priced county.

In an effort to warn more delinquent borrowers about a widespread form of foreclosure fraud, Freddie Mac has re-edited the custom-made video it posted to YouTube for Spanish-speaking homeowners. The new Spanish language version of Freddie Mac's anti- fraud video can be found at http://www.youtube.com/AvoidFraud. Like the English-language Internet video Freddie Mac produced and posted in 2007, the Spanish language version uses professional actors to demonstrate how con artists can get copies of foreclosure notices at City Hall or a county courthouse, persuade distressed borrowers to give up the deeds in exchange for suspicious promises to solve their financial problems, use the deeds to secure new loans for themselves and let the new loans go into foreclosure, which means the homeowners looking for help end up losing their house. Freddie Mac decided to produce the anti-fraud videos when a new survey of delinquent borrowers found 25% going to the Internet first for information about managing their mortgages and avoiding foreclosure.

In an effort to warn more delinquent borrowers about a widespread form of foreclosure fraud, Freddie Mac has re-edited the custom-made video it posted to YouTube for Spanish-speaking homeowners. The new Spanish language version of Freddie Mac's anti- fraud video can be found at http://www.youtube.com/AvoidFraud. Like the English-language Internet video Freddie Mac produced and posted in 2007, the Spanish language version uses professional actors to demonstrate how con artists can get copies of foreclosure notices at City Hall or a county courthouse, persuade distressed borrowers to give up the deeds in exchange for suspicious promises to solve their financial problems, use the deeds to secure new loans for themselves and let the new loans go into foreclosure, which means the homeowners looking for help end up losing their house. Freddie Mac decided to produce the anti-fraud videos when a new survey of delinquent borrowers found 25% going to the Internet first for information about managing their mortgages and avoiding foreclosure.

Ryland Homes has agreed to implement a substantial portion of a shareholder proposal by a LIUNA pension fund requiring better disclosure of the homebuilder's mortgage risk. LIUNA -- the Laborers' International Union of North America -- said it filed the proposal as part of an initiative to help restore confidence in the housing industry. The Ryland proposal, filed by the Indiana State District Council of Laborers and HOD Carriers Pension Fund, sought regular reporting of the types of mortgages originated so investors can identify the level of exposure to prime, subprime, and alternative-A loans. The proposal also sought reporting on sales of those mortgages, including identification of buyers and terms. "We applaud Ryland for taking this action and call upon other homebuilders and mortgage originators to enact the provisions of our proposal," LIUNA general president Terence M. O'Sullivan said. "We believe restoring confidence to the industry must be multipronged and include responsible shareholder proposals, legislative action, and self-regulation by homebuilders, lenders, and credit rating agencies." LIUNA can be found online at http://www.liuna.org.

The Hope Now initiative might help 250,000 subprime borrowers avoid foreclosure, but another 2 million homeowners are likely to lose their homes over the next 24 months if they can't petition the bankruptcy courts for relief, according to economist Mark Zandi."While the Hope Now initiative is laudable, it should not forestall passage of H.R. 3609 to provide hard-pressed homeowners facing foreclosure more protection in a Chapter 13 bankruptcy," the chief economist at Moody's Economy.com told a House Judiciary panel. Former Housing Secretary Jack Kemp also testified in favor of the bill, which would allow bankruptcy judges to reduce the interest rate and principal amount of a residential mortgage. But the Mortgage Bankers Association warned that passage of the bankruptcy bill could destabilize the mortgage market. "This would have an immediate and severe impact on the mortgage market as companies book the diminished value of their loans and servicing rights," MBA chairman-elect David Kittle said.

Countrywide Financial Corp., Calabasas, Calif., said Wednesday that it has been subpoenaed by the Florida attorney general's office, which is looking into its foreclosure practices, among other things. Florida joins several other states, including Illinois and Pennsylvania, that are reviewing allegations that the nation's largest lender/servicer charged excessive fees in regard to foreclosures and used high-pressure sales tactics in pushing payment-option adjustable-rate mortgages. Countrywide can be found on the Web at http://www.countrywide.com.

Financial institutions filed a record 15,000 suspicious activity reports (including instances of mortgage fraud) with the Federal Bureau of Investigation in the first fiscal quarter of this year. If the pace keeps up, more than 60,000 SARs will be filed, outstripping 2007, when 46,717 reports hit the system. In a briefing on Jan. 29, FBI officials said the agency has 14 major "corporate fraud" investigations under way involving mortgage or related companies. The focus, officials said, was on subprime firms, their accounting and lending practices, and insider trading. The agency did not specify any cases, but it is well known that the collapse of New Century Financial Corp. of Irvine, Calif., is the subject of a major probe. As previously reported, the Securities and Exchange Commission is investigating the failure of several subprime firms, focusing on -- among other things -- their investment bankers, including Bear Stearns, Merrill Lynch, and Morgan Stanley.

The House, in a 383-35 vote, has passed an economic stimulus bill that temporarily increases the loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration. The stimulus bill (H.R. 5140) raises the loan limits to 125% of median area home prices in high-cost areas, with a $729,750 cap, and it is expected to increase home sales and help stabilize real estate markets. Raising the loan limits for Fannie and Freddie could generate 300,000 additional home sales, reduce the inventory of unsold homes, strengthen home prices, and help 210,000 families avoid foreclosure, according to the National Association of Realtors. "Simply lifting the loan limit will have an immediate impact on lessening foreclosures," NAR chief economist Lawrence Yun told reporters. Preliminary estimates also indicate that raising the FHA loan limit could generate 200,000 to 250,000 additional home sales and 500,000 refinancings. It would also reduce foreclosures, the association said, but NAR economists have not completed that analysis. The Senate is expected to pass its own stimulus bill by Feb. 1. The association can be found online at http://www.realtor.org.

The Core Mortgage Risk Index increased 9.0% in the first quarter, reflecting the pressures of rising delinquency and foreclosure rates, flat or declining price appreciation, and slower job growth, according to First American CoreLogic, Sacramento, Calif. Among the largest 100 markets in the country, CoreLogic said the five with the highest risk are: Bakersfield, Calif.; Stockton, Calif.; Fresno, Calif.; Warren-Troy-Farmington Hills, Mich.; and Grand Rapids-Wyoming, Mich. "While Michigan markets overall are not as highly ranked as they were in the past, it is not because the risk has declined or even stabilized, but rather that California markets are deteriorating at a faster rate," the company reported. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.corelogic.com.