Compliance

The National Association of Mortgage Brokers is hoping to find some middle ground with House Democrats on a provision in a newly introduced predatory-lending bill that would ban "incentive" payments to originators, including yield-spread premiums that are a broker's main source of compensation."I understand their intent is aimed at incentive payments," NAMB executive vice president Roy DeLoach said, where a securitizer pays an additional premium for certain types of loans. The NAMB agrees that incentive payments should be banned. "We want to clarify that an origination fee can be paid by the lender to the brokers," Mr. DeLoach said. Otherwise, the mortgage brokers will be forced to oppose the bill introduced on Oct. 22 by Reps. Barney Frank, D-Mass., Brad Miller, D-N.C., and Mel Watt, D-N.C. "The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers," NAMB president George Hanzimanolis said. The NAMB can be found on the Web at http://www.namb.org.

Lack of income documentation on securitized subprime mortgages would allow borrowers to rescind the loan and recover transaction costs under a predatory-lending bill introduced by House Democrats that comes down hard on stated-income loans.The bill, co-sponsored by North Carolina Congressmen Brad Miller and Mel Watt, creates a minimum national standard for mortgage originations that applies to all lenders and mortgage brokers. Securitizers would be required to conduct due diligence and sampling to detect possible lending violations. The bill also creates a safe-harbor provision and allows securitizers 90 days to cure a mortgage to avoid penalties. To qualify for the safe harbor, the loans must meet four basic standards -- ability to repay, income documentation, a debt-to-income ratio not exceeding 50%, and disclosure of costs for insurance and taxes. House Financial Services Committee Chairman Barney Frank, D-Mass, stressed that the assignee liability provision only applies to securitizers, not investors. Democrats plan to mark up the bill in the next few weeks. "The securitizers don't have to guess what kinds of loans" would get them into trouble, Rep. Frank told reporters. "It is well spelled out in the bill."

State attorneys general are not going to take a back seat to the Treasury Department's Hope Now initiative when it comes to working with and monitoring the top 10 subprime servicers and their loan modification activities, despite the suggestions of one mortgage industry group."We think the Hope Now initiative and our initiative are very complementary," Iowa AG Tom Miller said. It is important to have people at the local as well as the federal level involved in the monitoring, he added. In a letter to the Iowa AG, the Consumer Mortgage Coalition said the Treasury is putting together a coordinated effort to prevent foreclosures and that requiring servicers to work with two initiatives will make them less effective. "We believe that by concentrating our efforts in the Hope Now Alliance, we will be able to maximize the benefit for the citizens of your state," CMC executive director Anne Canfield says in the letter. Mr. Miller told MortgageWire that the top 10 servicers have agreed to work closely with a group of state AGs and banking regulators. "None of them have indicated they are not going to honor their commitment," he said.

The Senate Banking Committee has approved a five-year extension of the National Flood Insurance Program and a seven-year extension of the federal government's terrorism insurance program in strong bipartisan votes.By a 21-0 vote, the committee passed the NFIP extension bill that would forgive $21 billion in debt accumulated by the flood insurance program in the 2005 hurricane season and phases out subsidized premiums for vacation homes and properties with repetitive flood losses. The Senate bill does not expand coverage to include wind damage, as a House-passed flood bill did, because committee leaders are uncertain of the costs and concerned that it would sink the bill. By a 20-1 vote, the committee approved an extension of the Terrorism Risk Insurance Act that the Bush administration says it can support. The House is working on a 15-year extension of TRIA along with expanding coverage to include nuclear, biological, chemical, and radiological acts of terrorism. The Senate bill includes a study of such expanded coverage.

LoanToolbox, Westlake Village, Calif., has signed an alliance agreement with Carson, Calif.-based Document Systems Inc., a developer of mortgage technology for compliant loan document preparation and customer contact management solutions.Under the agreement, LoanToolbox will make DSI's LoanMagic broker point-of-sale software available free for one year to new LoanToolbox subscribers. LoanMagic, developed in 2000, is the first fully integrated mortgage customer contact management system designed to meet the needs of loan officers, LoanToolbox said. The built-in loan program analysis tools allow loan officers to instantly create and e-mail side-by-side comparisons of any of the 10,000 loan programs already built into the system. Connections embedded in LoanMagic allow easy access to Fannie Mae's Desktop Underwriter, Freddie Mac's Loan Prospector, and over 190 of the nation's credit report suppliers, LoanToolbox said. LoanToolbox can be found online at http://www.loantoolbox.com, and Document Systems can be found at http://www.docmagic.com.

Clayton Holdings Inc., a provider of information-based analytics and consulting based in Shelton, Conn., has announced the introduction of Clarity, a new system that it terms "the next generation in due diligence."The system gives loan buyers/securitizers "greater insight into the risk profile of portfolios" at the time of purchase, a projection of losses, and new options to reduce potential losses, the company said. Clarity uses a predictive approach that incorporates Clayton's proprietary risk-filter technology built on data collected in its surveillance of more than $1.5 trillion of subprime and alternative-A mortgage-backed securities. Unlike traditional due diligence, which reports on whether loans meet an acquirer’s guidelines, Clarity scores individual loans and the overall portfolio for credit, compliance, collateral, and estimated loss risk, Clayton said. Third-party data and technology can also be integrated into the process to assess collateral and fraud risk. "Clarity can help issuers identify the riskiest loans, better target due diligence efforts, and project and reduce prospective losses," said Keith Johnson, president and chief operating officer of Clayton. The company can be found online at http://www.clayton.com.

ValuFinders Inc., a provider of valuation services based in Culver City, Calif., has introduced a service that helps originators comply with a Department of Housing and Urban Development Mortgagee Letter regarding accountability and fraudulent appraisal reports.The service, called Appraisal Concierge, was unveiled at the Mortgage Bankers Association convention in Boston. Under HUD Mortgagee Letter 2007-11, dated Sept. 6, 2007, lenders will share responsibility with the appraiser if a poor or fraudulent appraisal leads the FHA to insure a loan at an inflated amount. "Lenders and brokers will soon be just as responsible for fraudulent and deficient appraisals as the appraiser," said Joe Williams, chief executive of ValuFinders. "Our system is an independent portal that acts as a 'middle man' in accepting orders and facilitating the deliverables back to the lender." Appraisal Concierge is described as an outsourcing database that lets lenders and brokers order appraisals through the Web. The system randomly selects an appraiser from a pool. "This service bypasses communications between lenders or brokers and appraisers," assuring appraiser independence, Mr. Williams said.

Did John Robbins pick "the wrong year" to chair the Mortgage Bankers Association? Not by his account."It was a terrific year," in every sense of the word, Mr. Robbins said in his final address to the MBA at the group's annual conference in Boston. Noting that the word means "intense" and "frightening" as well as "marvelous," the 2007 chair said that if anything was accomplished during his year at the association's helm, it was that the MBA was heard, loud and clear. "The MBA leadership made more appearances before Congress, gave more interviews to the press, and had more one-on-one meetings with legislators and regulators than in any other year in the MBA's 94-year history," he said. As a result, he added, no onerous predatory lending laws were passed, at least on the federal level, and progress was made on good legislation that would reform the Federal Housing Administration and simplify the lending process.

The Office of Federal Housing Enterprise Oversight is proposing to correct its loss severity calculations for mortgage defaults, which could substantially increase Fannie Mae's and Freddie Mac's risk-based capital requirements.Under the current equations, the government-sponsored enterprises record profits, instead of losses, on foreclosures of government-guaranteed loans and loans with low loan-to-value ratios. These changes would have increased Fannie's RBC requirement by $7.5 billion to $9.8 billion in the fourth quarter of 2006 and Freddie's by $4.5 billion to $5.4 billion. Fannie exceeded its RBC requirements by $16.1 billion that quarter and Freddie exceeded it by $21.4 billion. If finalized, this rule would negate any benefits the two GSEs expect when OFHEO releases them from the requirement to maintain a 30% capital surplus, according to Federal Financial Analytics, a Washington consulting firm. The regulator is expected to roll back the capital surcharge when the GSEs return to timely financial reporting next year. There is a 90-day comment period on the proposal.

House Financial Services Committee Chairman Barney Frank, D-Mass., has drafted a bill that temporarily increases the caps on Fannie Mae's and Freddie Mac's portfolios for six months so the two mortgage giants can purchase modified or refinanced subprime loans.The bill would increase the caps on the companies' $700 billion portfolios by 10%, but 85% of any mortgages purchased must benefit struggling subprime borrowers. Sen. Charles E. Schumer, D-N.Y., is expected to introduce a similar bill in the Senate. "The six month/85% bill that I am filing seems to me responsive to the immediate needs to help people avoid foreclosure," Rep. Frank said. The House committee chairman is also preparing to introduce a bill aimed at stopping abusive lending practices. And he is planning to hold hearings on and mark up the predatory lending bill this year. The committee can be found online at http://financialservices.house.gov.

The Department of Housing and Urban Development is investigating payments of "excessive" fees to nonapproved mortgage brokers by Federal Housing Administration lenders.In the past few weeks, HUD officials have noticed that some FHA lenders are charging borrowers points and paying $4,000 to $5,000 to brokers for simply bringing a customer to their office. Brokers that are not approved by the FHA cannot take a loan application or close an FHA loan. HUD rules do allow nonapproved brokers to refer borrowers to FHA lenders. However, FHA Commissioner Brian Montgomery told MortgageWire that a $4,000 fee is a "little excessive" and that his agency has "ramped up an investigation." HUD officials are also reviewing FHA guidelines for nonapproved brokers and talking with department officials that deal with Real Estate Settlement Procedures Act matters. These fees seem to be "beyond what is reasonable and customary," Mr. Montgomery said in an interview.

The North Carolina state treasurer has asked the Securities and Exchange Commission to investigate stock sales by Countrywide Financial Corp. founder, chairman, and chief executive Angelo Mozilo.The letter to SEC Chairman Christopher Cox from North Carolina Treasurer Richard H. Moore says, "I was shocked to learn that CEO Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide's fortunes were cooling off." According to the letter, Mr. Mozilo accelerated his stock selling as the publicly traded lender's fortunes continued to wane. (Over the past few years, Mr. Mozilo has exercised options and sold more than $300 million worth of stock.) North Carolina pension funds own at least 500,000 shares of Countrywide stock. The request to investigate comes as Mr. Mozilo continues to exercise options and sell shares in the ailing lender. (On Oct. 10, Mr. Mozilo exercised options at $9.94 and sold $2.6 million worth of stock.) In about two weeks, Countrywide will release its third-quarter earnings. Morgan Stanley recently said Countrywide could lose at least $2.4 billion in the quarter. At deadline time, Countrywide's spokesman Rick Simon had not returned a telephone call about the North Carolina request.

The Department of Housing and Urban Development is very close to sending a RESPA proposal to the Office of Management and Budget that revamps the good-faith estimate and HUD-1 settlement sheet, according to a high-ranking HUD official.The Real Estate Settlement Procedures Act proposal will be shipped over to the OMB "very soon," HUD Assistant Secretary Brian Montgomery told MortgageWire. The proposal includes a standard GFE form to create more consistency in the initial disclosure that mortgage applicants receive from lenders on the costs of a mortgage transaction. The GFE will be comparable to the HUD-1 settlement sheet, and fees that might change before closing are grouped together. Increases should not exceed certain tolerances, which are also disclosed to consumers. HUD also plans to ask Congress to amend RESPA to require that borrowers receive closing documents sooner and to increase civil monetary penalties.

R&G Financial Corp., San Juan, Puerto Rico, has announced that its status as an approved lender for the Department of Housing and Urban Development has been reinstated.R&G also reported the execution of an agreement with the investors from the company's 2006 financing transaction that will permit it to repurchase certain outstanding warrants for a nominal consideration upon the sale of R-G Crown Bank, R&G's wholly owned Florida thrift subsidiary. Regarding R&G's approved-lender status, the company said HUD's chief administrative law judge had recently ordered the department to reinstate R&G pending the outcome of an appeal, citing HUD's failure to follow its regulations in withdrawing R&G Mortgage Corp.'s approved-lender status. R&G can be found on the Web at http://www.rgonline.com.

First Line Data Inc., a Boulder, Colo.-based provider of business intelligence for mortgage lenders, has announced enhancements to its Counter-Fraud Review reports, including address verification.Called CMRA Checkpoint, the new address feature will indicate whether a submitted address is actually a Certified Mail Receiving Agency. "With mortgage companies downsizing, the potential exists for mortgage brokers to be working out of virtual offices instead of an actual physical location," said Nancy Cowley, First Line Data's vice president of national sales. "CMRA Checkpoint will help lenders determine if their applicant is housed in an actual office." Another enhancement allows HUD NeighborhoodWatch to be included in reports on broker, correspondent, and warehouse line-of-credit applicants. This indicates whether the subject company is listed with the Department of Housing and Urban Development as a lender, and if so, the number of originations, default and claims totals, and Credit Watch status. The company can be found online at http://www.firstlinedata.com.

Mayer Brown, a global law firm based in Chicago, has announced the formation of a Subprime Lending Response Team to help clients deal with issues related to the nosedive in the subprime mortgage market.Noting that the subprime mortgage swoon is "reverberating worldwide," with rising regulatory scrutiny in the United States and Europe, the firm said it has "assembled an interdisciplinary team of lawyers from our offices in the U.S., the U.K., and Germany whose practices include securitization, banking, real estate, securities, and litigation." Mayer Brown touted its expertise in the international securitization and collateralized debt obligation markets, financial services regulation, and financial restructuring and bankruptcy. "The Subprime Lending Response Team will enhance the firm's recognized position as the leading legal adviser in these markets by also offering dispute management and regulatory services to clients facing the increased risks of litigation and regulatory inquiry," the firm declared. The law firm can be found online at http://www.mayerbrown.com.

National banks should have high standards for underwriting residential mortgages even if they are selling the loans to Wall Street conduits or other investors, according to the comptroller of the currency.National banks "simply cannot cede underwriting standards" to third-party purchasers of mortgages, Comptroller John Dugan told the American Bankers Association at its annual convention in San Diego. He warned that examiners expect banks to adhere to regulatory guidance in making subprime and nontraditional mortgages, including loans originated for sale. There can be some deviation, "but only so long as the risk differences are manageable" and there is a "credible prospect of repayment," Mr. Dugan said. The comptroller noted that national banks avoided significant losses on subprime loans because they sold their weaker credits in the secondary market. But he stressed that banks are not "primarily responsible for the worst abuses and losses arising from subprime credit." The ABA can be found on the Web at http://www.aba.com.

Servicers of private-label mortgage-backed securities are concerned that some investors are preparing to sue them for approving loan modifications, according to the Consumer Mortgage Coalition."We are aware of securities holders that have begun scrutinizing the actions of servicers and the ways the servicers' actions have allegedly improperly hurt the interests of the securities holders by insufficient adherence to the [servicing contract's] restrictions on modifications and related actions," CMC says in a letter to Sheila Bair, chairman of the Federal Deposit Insurance Corp. The FDIC chief recently said she is "frustrated" with the slow pace of modifications to help subprime borrowers avoid foreclosure. The CMC letter also points out that "global" remedies, such as forgoing interest rate increases on 2/28s and 3/27s, would violate servicing contracts. "We believe that the 'loan by loan' methods we use are appropriate and allow all the stakeholders -- the borrower, the investor and the servicer -- to reach the correct outcome…," CMC executive director Anne Canfield says in the Oct. 6 letter.

State attorneys general and bank commissioners have initiated an effort to monitor the top 20 subprime mortgage servicers to ensure that borrowers get the loan modifications they need."We feel this is a serious effort to avert a foreclosure avalanche that we potentially face," Iowa AG Tom Miller told MortgageWire. A working group of 11 AGs and three bank commissioners recently met with the top 10 subprime servicers in Chicago to discuss loan modifications. The working group expects the servicers to provide regular reports on their loss mitigation efforts. The state officials also expect to have contact with the servicers on a weekly or even daily basis.

Department of Housing and Urban Development officials are finding that non-FHA-approved mortgage brokers are charging "exorbitant" fees on Federal Housing Administration loans in possible violation of HUD rules."We are seeing exorbitant fees," HUD officer Mark Ross told a Mortgage Bankers Association conference, adding that HUD officials are reviewing the matter. Mr. Ross also reported that some FHA direct-endorsement lenders are soliciting nonapproved broker business with misleading advertisements implying that the broker can take the application or close the loan. "That is not allowed," he said. In addition, HUD has seen a "flurry" of applications for direct lending branches that are supposed to be used as call centers or Internet portals to solicit and take mortgage applications directly from borrowers. But some FHA direct-endorsement lenders are using the direct lending branches to solicit loans from nonapproved brokers throughout country. "That wasn't the intent," Mr. Ross said.