Compliance

First American Title Insurance Co. has agreed to pay a $5 million fine and shut down 84 affiliated partnerships with real estate agents, mortgage brokers, and builders in Florida as part of a settlement with state regulators and the U.S. Department of Housing and Urban Development."Our joint investigation found these partnerships were created to generate referrals in violation of the Real Estate Settlement Procedures Act and HUD's policies against sham affiliated business arrangements," HUD Assistant Secretary Brian Montgomery said. The Santa Ana, Calif.-based company agreed to abide by HUD rules in operating future affiliated title companies in Florida that are separately capitalized and have full-time employees. First American said it is adjusting its practices to changing regulatory standards. "Homeowners who purchased title insurance through these joint venture companies were charged premiums consistent with the valid, filed rates for title insurance in Florida," the company said. "Rates were not adversely impacted by these business arrangements." First American can be found on the Web at http://www.firstam.com.

A few Republican senators are blocking efforts by Democratic leaders to pass a Federal Housing Administration reform bill just before the Senate leaves for a two-week Thanksgiving break.Senate Majority Leader Harry Reid, D-Nev., urged Republicans to expedite passage by allowing an up-or-down vote on the bill (S. 2338), which would increase the FHA's capacity to refinance struggling subprime borrowers. "These borrowers need better mortgage options, and FHA loans will be a better option with this legislation," Sen. Reid said. But Sen. Tom Coburn, R-Okla., said he would object to such a vote, which caused Sen. Reid to withdraw his request for a vote late Thursday afternoon. The Oklahoma Republican said the Senate needs to take the time to debate and consider changes to the FHA reform bill. And he raised concerns about increasing the FHA loan limit to $417,000 (the conforming loan limit) and lowering the FHA downpayment requirement from 3.0% to 1.5%.

The House has passed a predatory-lending bill by a bipartisan vote of 291-127 that clamps down on abusive lending practices, makes securitizers responsible for loans they package, and lowers the points-and-fees trigger on the Home Ownership and Equity Protection Act to cover more high-cost subprime loans.Mortgage lenders, along with the Bush administration, oppose key provisions of the bill, contending that the lending standards are too subjective and that the assignee liability provisions (along with the HOEPA provisions) will reduce access to mortgage credit. However, Rep. Spencer Bachus, R-Ala., said the bill will "protect consumers from predatory lending practices" and preserve access to credit. "We are dealing with legislation that seeks to prevent a repetition of the events that caused one of the most serious financial crises in recent times," said House Financial Services Committee Chairman Barney Frank, D-Mass. The National Association of Mortgage Brokers succeeded in getting language in the bill (H.R. 3915) clarifying that a broker's fee can be financed into the loan. However, mortgage bankers are concerned that this language might require the disclosure of servicing-released premiums for the first time. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said he will introduce a predatory-lending bill soon.

The Rev. Al Sharpton is calling on Senate Democrats to stop the Department of Housing and Urban Development from killing downpayment assistance programs that help Federal Housing Administration homebuyers just as the Democrats are trying to pass an FHA reform bill that also prohibits DPA programs.The civil rights activist said House Democrats have moved to block a HUD rule that would prohibit seller-funded downpayment assistance that Nehemiah Corporation of America and other nonprofits arrange for FHA borrowers. But Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has been "missing in action," the Rev. Sharpton told reporters, when it comes to saving this homeownership program for minorities and low-income families. However, the Senate Banking Committee has approved an FHA reform bill that lowers the FHA downpayment requirement from 3.0% to 1.5% and prohibits seller-funded downpayment assistance on FHA loans. Senate Majority Leader Harry Reid, D-Nev., was trying to get the Senate to vote on an FHA reform bill Thursday. But Senate Republicans are stonewalling the Democrats on several major bills. The FHA reform bill's chances of getting through appear to be slim.

Sen. Robert F. Bennett, R-Utah, says there is a "pretty good" chance the Senate will pass a bill to strengthen regulation of Fannie Mae and Freddie Mac during the first half of next year."It is very clear the GSEs need a robust, well-staffed, well-financed regulator," Sen. Bennett told a Women in Housing and Finance luncheon in Washington. "And they do not have one now." The Senate Banking Committee member noted that the "ideological gap" between the Bush administration and Congress has narrowed and the principals have a more realistic view of what needs to be done to enhance the regulation of the government-sponsored enterprises. He said he expects the committee chairman, Sen. Christopher J. Dodd, D-Conn., to get the ball rolling on GSE reform "fairly early" next year. The House passed a GSE reform bill in May.

General Growth Properties Inc. says it plans to appeal a recent $74 million verdict and $15 million punitive damage award by a California jury in a lawsuit alleging intimidation by the real estate investment trust.A Superior Court jury in Los Angeles awarded the compensatory damages in a suit filed against General Growth Properties by Caruso Affiliated Holdings LLC involving Glendale Galleria, a California mall. The suit alleged that the company intimidated The Cheesecake Factory while it was exploring leasing at The Americana at Brand and interfered with Caruso's business using unfair business practices. General Growth owns the Glendale Galleria adjacent to Caruso's Americana at Brand, a $369 million retail building in downtown Glendale. "The company emphatically disagrees with the jury's verdict and will pursue review and reversal through every available means," General Growth said. The case has been in court for over three years. Rick J. Caruso, chief executive of Caruso Affiliated, said he hopes that "by fighting this case we will have set a precedent throughout the retail industry that the giant REITs can no longer use intimidation to squash competition. They will have to play fair on a level playing field with the rest of us."

Federal Housing Administration Commissioner Brian Montgomery chided the Senate at the National Association of Realtors' convention in Las Vegas for moving too slowly on legislation that would modernize his agency.The Senate Banking Committee cleared its version of FHA reform legislation in mid-September -- a day after the full House approved its bill -- but the committee chairman and presidential candidate, Sen. Christopher J. Dodd, D-Conn., didn't place the measure into the Senate hopper until Nov 13. "The time to move [FHA reform legislation] was last year," Mr. Montgomery said, "but we can still have a profound impact if we act this year." Noting that the Department of Housing and Urban Development has been asking Congress to revamp and revitalize some of the FHA's key programs for nearly two years, the commissioner said lawmakers could have spared a lot of homeowners "a lot of misery" had they already acted to lower FHA downpayment requirements and raise loan limits. The NAR and other advocates of FHA reform are hoping the full Senate will act before Congress quits for the holiday season in early December. And if it does, NAR lobbyists may try to persuade lawmakers to attach a rider that would enhance regulatory oversight of Fannie Mae and Freddie Mac. GSE reform legislation is also stalled in the Senate.

The National Association of Mortgage Brokers has succeeded in getting a clarification on the treatment of yield-spread premiums included in a predatory lending bill that the House is expected to pass on Thursday.Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Rep. Spencer Bachus, R-Ala., agreed to insert language in the manager's amendment that allows the financing of the broker's fee, provided that the fee is "fully and clearly disclosed to the consumer early in the application process." The manager's amendment also includes a new "absent" creditor provision, sponsored by Rep. Mel Watt, D-N.C., that would hold securitizers accountable, if the lender or assignee goes out of business, for fixing subprime mortgages that violate the lending standards in the bill. The National Community Reinvestment Coalition board member said holding Wall Street accountable is essential to prevent "irresponsible" lending and investing. Without a strong assignee liability provision, NCRC president John Taylor said, the investment banks will have no incentive to do loan modifications.

The House is on track to pass a Mortgage Reform and Anti-Predatory Lending bill Thursday, and the lawmakers will likely attach a separate bill that addresses escrow, appraisal, and servicing issues.The House Financial Services Committee approved the predatory-lending bill by a 45-19 vote Nov. 6. The next day the committee approved the servicing reform bill (H.R. 3837), sponsored by Rep. Paul Kanjorski, D-Pa., by voice vote. The Kanjorski bill establishes enforceable national appraisal independence standards with tough penalties for lenders who pressure appraisers to inflate property values. The bill also requires escrow accounts for taxes and insurance on most subprime mortgages and creates standards for force-placed insurance. New York Attorney General Andrew Cuomo endorsed the appraisal reforms at a news briefing arranged by Rep. Kanjorski last week. The New York AG has raised issues about major institutions that have allegedly been pressuring appraisers.

The federal regulator of Fannie Mae and Freddie Mac has blasted New York Attorney General Andrew Cuomo for subpoenaing the two GSEs in connection with an appraisal fraud probe, arguing that "they have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals.""I am disappointed that your office did not contact OFHEO before or even after subpoenaing the GSEs and issuing certain threats regarding their future business activities," writes OFHEO Director James Lockhart in a Nov. 8 letter to AG Cuomo. Mr. Lockhart wants an explanation from Mr. Cuomo in regard to his demand that the government-sponsored enterprises cease doing business with Washington Mutual, a large seller of mortgages to the GSEs. Earlier this week the New York AG said his office would subpoena the GSEs as part of a wider probe into mortgage industry practices. OFHEO is the safety-and-soundness regulator of Fannie and Freddie.

Former Freddie Mac chairman and chief executive Leland Brendsel has agreed to disgorge $10.5 million in salary and bonuses to settle an administrative enforcement action by the Office of Federal Housing Enterprise Oversight.Mr. Brendsel also agreed to pay the U.S. government $2.5 million and waive claims against Freddie for $3.4 million in additional compensation in settling allegations that the government-sponsored enterprise allowed improper earnings management under his leadership. The former CEO was ousted by Freddie Mac's board of directors in 2003 after an internal investigation discovered that the company had understated profits by $5 billions to show steady and increasing earnings. OFHEO charged Mr. Brendsel with operating the GSE in an unsafe and unsound manner.

Late Wednesday night the House Financial Services Committee passed predatory-lending legislation that could put a crimp in yield-spread premiums, a key component of how loan brokers are compensated.The National Association of Mortgage Brokers is concerned that a section of the bill that bans "incentive payments" to brokers also bans all YSPs. Rep. Gary Miller, R-Calif., proposed an amendment to clarify that YSPs are permitted if the broker's fee is disclosed early in the process and if the fee is not changed based on the consumer's decision to finance certain closing costs. Rep. Barney Frank, D-Mass., the committee chairman and sponsor of the bill, said the ban on incentive pay is designed to prevent brokers from steering borrowers into higher-cost loans. Among other things, the bill imposes standards on the origination and securitization of subprime loans. (For full details, see the Nov. 12 issue of National Mortgage News.)

New York Attorney General Andrew Cuomo said Wednesday that his office will subpoena Fannie Mae and Freddie Mac as part of a widening probe of the residential mortgage industry.Among other things, the subpoenas seek information on mortgages purchased by the government-sponsored enterprises from their seller/servicers, including Washington Mutual of Seattle. The GSEs also agreed to a demand by the New York AG that they hire an independent examiner to conduct a review of all WaMu appraisals on mortgages they purchased. In 2006, according to the eMortgage Industry Directory, WaMu sold north of $30 billion in loans to the GSEs. "In order to fulfill their duty to consumers and investors, Fannie Mae and Freddie Mac must ensure that Washington Mutual's mortgages have not been corrupted by inflated appraisals," the attorney general said in a statement. At deadline time, only Fannie had commented on the matter, saying it would fully cooperate.

Forty states are planning to participate in the Nationwide Mortgage Licensing System that will track state-licensed mortgage lenders, loan officers, and brokers, and seven states are ready to go onto the system within 60 days of its launch on Jan. 2."These seven states are creating the initial critical mass necessary for a successful launch of the system," said David Bleicken, president of the American Association of Residential Mortgage Regulators. The states are Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York, and Rhode Island. The AARMR and the Conference of State Bank Supervisors have developed the licensing system to track unethical mortgage professionals as they move from state to state and from company to company. At the same time, the House Financial Services Committee is considering a predatory-lending bill (H.R. 3915) that would require federal regulators to create a registry for mortgage originators at federally regulated banks and their subsidiaries. And like state-licensed mortgage lenders, bank loan officers would have to have a "unique identifier."

The Federal Reserve Board is close to proposing that all subprime mortgages should have escrow accounts, according to a Fed governor who is working on updating the Home Ownership and Equity Protection Act regulations.The failure to escrow taxes and insurance can lead to payment shock, Randall Kroszner told a Consumer Bankers Association fair-lending conference. "It is common practice for these payments to be escrowed in prime markets, and I see no reason that escrows should not be standard practice in the subprime markets, too," Mr. Kroszner said. The Fed is expected to issue proposed changes to the HOEPA regulations before the end of the year. Mr. Kroszner said the Fed also plans to issue proposals by the year-end that ban several deceptive advertising practices and require important consumer disclosures earlier in the mortgage process so consumer can shop around and compare loan products.

Fannie Mae has announced that it will file its first-, second-, and third-quarter financial reports with the Securities and Exchange Commission on Nov. 9 and host a conference call to brief investors and analysts."With these filings, the company will become current in its financial reporting requirements," the giant mortgage company said. Fannie Mae has not filed a quarterly report (Form 10-Q) since the second quarter of 2004 after it was discovered that the company manipulated accounting standards and overstated earnings by billions of dollars. The publicly traded company paid a $400 million fine to the SEC and restated earnings for 2001, 2002, 2003, and the first half of 2004. Fannie's regulator currently requires the company to maintain a 30% capital surplus until it returns to timely financial reporting and corrects its internal controls and accounting systems. Analysts will be waiting to hear how much longer the expensive process of rebuilding those systems will take. Fannie Mae can be found online at http://www.fanniemae.com.

New York Attorney General Andrew Cuomo is planning to file more lawsuits related to problems associated with lender pressuring of appraisers, but he is also preparing to take other legal actions that highlight another "systemic, industrywide" problem next week."We will begin other cases that make other points on systemic frauds within the housing arena," Mr. Cuomo said at a news conference in Washington, where he endorsed a bill to reform appraisal and servicing practices. The New York AG recently filed a lawsuit against First American Corp. and its appraisal management company for allegedly succumbing to pressure to change valuations. He stressed that his office pursued the First American case because it provides the "most graphic illustration of this issue" and that it cannot be dismissed as an isolated case. WaMu has said it was "surprised and disappointed by the allegations in the complaint related to [First American's] eAppraiseIT unit" and has suspended its business relationship with eAppraiseIT "until we can further investigate the situation." First American has said it believes the allegations have no basis in fact or law and that the program challenged by the attorney general "has been vetted and approved by the federal regulator responsible for oversight of such programs."

Meanwhile, Washington Mutual has announced the suspension of its relationship with eAppraiseIT until WaMu can investigate the allegations in the lawsuit filed by the New York attorney general.New York AG Andrew Cuomo sued First American Corp. and its eAppraiseIT unit for allegedly colluding with WaMu to use a list of preferred appraisers to inflate mortgage appraisals. The lawsuit said the state attorney general's investigation uncovered a series of e-mails between executives at eAppraiseIT, First American, and WaMu that allegedly show eAppraiseIT officials were willingly violating state and federal appraisal independence regulations to comply with WaMu demands to inflate appraisals. "We are surprised and disappointed by the allegations in the complaint related to eAppraiseIT," WaMu said in a news release. "We have absolutely no incentive to have appraisers inflate home values. In fact, inflated appraisals are contrary to our interests. We use third-party appraisal companies to make sure that appraisals are objective and accurate." WaMu can be found online at http://www.wamu.com.

The lawsuit by New York Attorney General Andrew Cuomo alleging collusion to inflate mortgage appraisals between First American Corp., its subsidiary eAppraiseIT, and Washington Mutual has no basis in fact or law, First American said in a statement issued Nov. 1."We are dismayed by any impact these specious allegations may have on our company, on our many employees, and on our valued customer, Washington Mutual," First American said. "The Attorney General's allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law." The program challenged by the attorney general "has been vetted and approved by the federal regulator responsible for oversight of such programs," the company said. First American said it will demonstrate to the court "the appropriateness of our appraisal practices in the state of New York, and we will vigorously defend the reputation of Washington Mutual and the reputation we have labored more than 100 years to build." First American can be found online at http://www.firstam.com.

The Office of Thrift Supervision has issued the final Basel II risk-based capital rule, and the other banking regulators are expected to follow soon.The long-awaited capital rule is designed for the largest U.S. banks with international exposure. But large regional banks that want to use an internal ratings-based approach to calculate their RBC requirements can also adopt it. The OTS noted that the regulators are working on the "standardized approach," which is an upgrade of the current Basel I RBC standard, and they expect to issue a notice of proposed rulemaking in the first quarter. The American Bankers Association urged the regulators to act quickly on the standardized RBC approach so that the majority of U.S. banks are not left at a competitive disadvantage to the large Basel II banks. "We look forward to working with the regulators on the prompt development of the standardized approach," ABA executive director Wayne Abernathy said.