Compliance

To help struggling borrowers with little or no equity in their homes, the Bush administration would support GSE legislation that relaxes the mortgage insurance requirements on the loans Fannie Mae and Freddie Mac purchase, Treasury Secretary Henry Paulson has told Congress.Such a change would significantly increase the credit risk the government-sponsored enterprises take on, the Treasury secretary said, so it should only be done as part of a comprehensive GSE regulatory reform bill. "It would be irresponsible to expand GSEs' business without addressing the fundamental problems of their regulatory structure," Secretary Paulson told the House Financial Services Committee. Currently, the GSEs are required to have private mortgage insurance on loans they purchase with loan-to-value ratios greater than 80%. The secretary also said the administration would support a temporary increase in GSE loan limits to provide more liquidity in the jumbo market. But he emphasized that such an increase should only be implemented once Congress passes comprehensive GSE reform legislation.

The Office of Thrift Supervision is suggesting to Congress that it is time to impose some level of federal supervision over independent mortgage banks and that the OTS has the "expertise" to do it."The OTS has extensive expertise in the oversight and supervision of mortgage banking operations that I believe would benefit the currently unregulated mortgage banking market," OTS Director John Reich told the Exchequer Club in Washington. Imposing federal regulations and minimum lending standards on mortgage banks would create a level playing field with federally chartered banks and thrifts and "reduce the competitive pressures to engage in practices that are misleading and otherwise not consumer-friendly," Mr. Reich said. The Mortgage Bankers Association supports the creation of a uniform national lending standard. But MBA senior vice president Kurt Pfotenhauer said the supervision or regulation of those lending standards will have to be worked out as part of the legislative process. The OTS can be found on the Web at http://www.ots.treas.gov.

Ginnie Mae has granted an extension to R&G Mortgage Corp. allowing it to continue servicing Ginnie mortgage pools until Oct. 9, according to R&G Financial Corp., the San Juan, Puerto Rico-based parent company of R&G Mortgage.However, R&G Mortgage may not issue additional Ginnie Mae-guaranteed mortgage-backed securities. R&G Mortgage has also received notice from Fannie Mae placing conditions and limitations on the company's selling and servicing relationship with Fannie. Fannie Mae also said it will require R&G Mortgage to sell its servicing portfolio to another Fannie-approved servicer if Fannie Mae does not approve an application by R&G Financial's banking subsidiary, R-G Premier Bank of Puerto Rico, to be a Fannie Mae seller/servicer. R&G reported in July that it was no longer able to originate loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs because of the company's failure to submit timely audited financial statements. R&G can be found on the Web at http://www.rgonline.com.

The House Financial Services Committee has unanimously approved a bill that would give all the federal banking regulators the authority to adopt consumer protection rules that prohibit depository institutions from engaging in unfair and deceptive practices.The committee chairman, Rep. Barney Frank, D-Mass., has complained that banking regulators do not have the explicit authority to use their enforcement powers to protect consumers and says his bill corrects that anomaly. He noted that the Federal Reserve Board and the Office of Thrift Supervision already have authority to issue unfair-practices rules, but that only the OTS has taken the initial step of issuing a proposal to spells out specific unfair and deceptive lending practices for public comment. The bill (H.R. 3526) directs all the agencies -- including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. -- to jointly or individually issue unfair-practices rules. "I think it is an important bill that really helps consumers and really helps regulation," said Rep. Carolyn Maloney, D-N.Y. Rep. Frank noted that all the banking agencies and the banking industry support the bill.

The National Association of Hispanic Real Estate Professionals has announced the adoption of En Confianza: The NAHREP Code of Trust, a set of ethical principles that its members are required to abide by.The code sets requirements for four groups of professionals: mortgage originators; licensees and Realtors; builders; and providers of title, escrow, home inspection, and closing services. The principles call for stronger licensing and industry education requirements; quality controls such as net-benefit tests to ensure that all qualifying consumers are offered a prime loan; increased disclosures; development of a bilingual guide; protections against conflicts of interests; and full compliance with all state and federal laws. "Our industry's image is tainted by the actions of a few bad actors," said NAHREP chair Felix DeHerrera. "En Confianza solidifies NAHREP's position as an industry leader, and its members as trustworthy and reliable professionals." The organization said its first steps to enforce the code include joining forces with the Conference of State Bank Regulators and supporting the establishment of a "whistleblower hotline." The group can be found online at http://nahrep.org.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has scheduled a mark-up of a Federal Housing Administration reform bill on Sept. 19, and the House is expected to vote on passage of an FHA bill this week.The FHA reform bill "can be an important component in addressing the tidal wave of foreclosures" and provide troubled homeowners with "safe, affordable home loans," Sen. Dodd said. When the House takes up the FHA bill (H.R. 1852), Financial Services Committee Chairman Barney Frank, D-Mass., will offer a manager's amendment that specifically authorizes the FHA to refinance homeowners who are in default and have mortgages with "adverse terms or rates." Rep. Frank also plans to offer an amendment that boosts FHA loan limits to 125% of the median house price or $730,000 (175% of the conforming loan limit), whichever is lower. The Senate FHA reform bill is expected to raise the FHA loan limit to the $417,000 conforming loan limit in high-cost areas.

The Senate Banking Committee is tentatively scheduled to mark up a Federal Housing Administration reform bill Sept. 19, sources say, but committee members are still trying to reach agreement on key provisions of the bill.The Senate bill is expected to raise the FHA loan limits to $417,000 in high-cost areas and limit the ability of the mortgage insurance agency to charge risk-based premiums based on credit scores. Just before the August recess, it appeared that the senators were near agreement to give the FHA the green light to set premiums based on loan-to-value ratios as well as loan or property type -- but not on credit scores. Separately, the FHA is expected to issue a proposed rule soon to establish an RBP system that the agency plans to implement if Congress does not pass an FHA bill by Jan. 1. In the other chamber of Congress, the House is expected to vote on passage of an FHA reform bill (H.R. 1852) the week of Sept. 16.

The Mortgage Asset Research Institute, a Reston, Va.-based service of ChoicePoint, has announced the release of what it calls the first phase of a series of enhancements to its Mortgage Industry Data Exchange antifraud database.The redesigned MIDEX 2.5 offers new features to assist the mortgage industry in identifying individuals associated with mortgage fraud. "A new user interface has been developed to help users access and categorize information more quickly," MARI said. "Additionally, the search logic has been improved to return results that are most relevant to queries." MARI can be found on the Web at http://www.mari-inc.com.

The Federal Trade Commission has stepped up its surveillance of deceptive mortgage advertising, and it has warned 200 mortgage brokers, lenders, and media outlets to be careful about touting low interest rates without adequate disclosures."Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments without telling consumers the whole story -- for example, that these low rates and payments apply for a short period only and can go up substantially after the loan's introductory period," said Lydia Parnes, the FTC's consumer protection director. In June, the FTC conducted a nationwide review of mortgage advertisements that might be deceptive or violate the Truth in Lending Act. Many advertisements touted rates as low as 1% but failed to adequately disclose the actual interest rate on the mortgage or the annual percentage rate, the FTC said.

The Federal Housing Administration would be able to insure $700,000 single-family mortgages in high-cost areas under an amendment the chairman of the House Financial Services Committee wants to attach to an FHA reform bill the House is expected to vote on soon.The FHA reform bill (H.R. 1852) already raises the FHA loan limit in high-cost areas from $362,790 to the $417,000 conforming loan limit, which is the upper limit on the loans Fannie Mae and Freddie Mac can purchase. But the House Financial Services Committee chairman, Rep. Barney Frank, D-Mass., and Reps. Gary Miller, R-Calif., and Dennis Cardoza, D-Calif., have filed an amendment with the House Rules Committee to raise the maximum FHA loan limit to 175% of the conforming loan limit, or $729,750, to address problems in the jumbo loan market. "The amendment modifies FHA loan limits to permit loans up to the lower of (a) 125% of the local media home price, or (b) 175% of the 2007 GSE national conforming loan limit [indexed in subsequent years] -- with additional HUD authority to raise limits by area or unit size by up to $100,000 if market conditions warrant," according to a summary of the Frank-Miller-Cardoza amendment.

Sen. Charles E. Schumer, D-N.Y., has introduced a bill that would temporarily raise the caps on Fannie Mae's and Freddie Mac's portfolios as Democrats in Congress are becoming increasingly frustrated with federal regulators who insist on maintaining the caps at a time when the secondary market for many mortgage products has dried up.In a letter to the Federal Reserve Board, House Financial Services Committee Chairman Barney Frank, D-Mass., says it doesn't make sense to expect the two government-sponsored enterprises to help with the refinancing of subprime borrowers unless they have room in their portfolios to buy the loans. Forcing the GSEs to sell their best mortgage-backed securities and buy riskier assets will diminish the quality of their portfolios and raise safety-and-soundness concerns, Rep. Frank says in a letter to Fed Chairman Ben Bernanke. Separately, Office of Federal Housing Enterprise Oversight Director James Lockhart says the portfolio caps are not hindering the GSEs from helping subprime borrowers. "Most new refinance loans of such borrowers can be securitized," Mr. Lockhart says in a letter to Sen. Schumer. The New York senator's bill would raise the portfolio cap by 10% so the GSEs could purchase $145 billion in new mortgages and increase the GSE conforming loan limit from $417,000 to $625,000 in high-cost areas.

Like banks and thrifts, Fannie Mae and Freddie Mac are now bound by federal underwriting guidelines when they purchase subprime mortgages and private-label securitizations backed by subprime loans, according to the Office of Federal Housing Enterprise Oversight.OFHEO Director James Lockhart said the two government-sponsored enterprises have completed their implementation of the subprime guidance that federal banking regulators issued on June 29. The guidance requires lenders to qualify borrowers at the fully indexed rate and restricts stated-income loans and risk-layering features. Meanwhile, Treasury Under Secretary Robert Steel told a congressional panel last week that he is urging the two GSEs to develop loan products that can help refinance troubled subprime borrowers. He cited studies indicating that a large number of borrowers ended up in subprime loans when they could have qualified for a prime mortgage. "In those cases, the GSEs could help," Mr. Steel told the House Financial Services Committee. A Fannie Mae spokesman said, "Conversations are occurring. So we will see where they go."

The Bush administration is pressuring the Department of Housing and Urban Development to speed up the issuance of a Real Estate Settlement Procedures Act proposal to improve good-faith estimate disclosures of mortgage broker fees and settlement costs.HUD officials were planning to issue the proposal in January after completing the required Office of Management and Budget review, which can take up to 90 days. But Treasury Under Secretary Robert Steel testified Wednesday on Capitol Hill that HUD will issue the RESPA proposal "later this fall." It appears that the administration wants HUD to send the proposal to the OMB by Oct. 1, according to one source. Meanwhile, HUD has published the results of the consumer testing conducted on a revamped GFE form the department was working on back in 2003 and 2004. "[T]he new GFE to be proposed will reflect improvements to the prior form," HUD said.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has revealed that he is working on a comprehensive predatory-lending bill that would prohibit lenders from steering borrowers into subprime loans and impose a fiduciary duty on mortgage brokers.The bill also holds lenders who pay brokers a yield-spread premium responsible for the brokers' actions. "Predatory lending needs to be stopped, which is why I intend to introduce legislation that will put an end to the practices that have forced thousands of Americans into foreclosure," said Sen. Dodd, who is seeking the Democratic presidential nomination. The Dodd bill would include YSPs in the points-and-fees test for determining whether a loan is a "high-cost loan" under the Home Ownership and Equity Protection Act. It would also prohibit prepayment penalties on subprime loans and require escrow accounts. The senator's bill also addresses servicing abuses.

Treasury Under Secretary Robert Steel has cautioned a congressional panel that volatility in the credit and mortgage markets is "far from over," but said he expects economic growth to continue despite weakness in the housing sector.The under secretary also told the House Financial Services Committee that the president's Working Group on Financial Markets will be examining recent market events, including the impact of securitization and the role of the rating agencies in the credit and mortgage markets. "The Treasury Department will be releasing early next year a blueprint of structural reforms to make financial services industry regulation more effective, taking into account consumer and investor protections and the need to maintain U.S. capital market competitiveness," Mr. Steel said.

To augment its recently announced FHASecure program, the Department of Housing and Urban Development plans to take administrative action to implement a risked-based pricing system by Jan. 1 so the Federal Housing Administration can price its mortgage insurance premiums based on a borrower's risk profile, according to a senior HUD official.With risk-based pricing, the FHA would be able to help an additional 20,000 subprime borrowers refinance into new FHA-insured mortgages in fiscal year 2008 and help finance 120,000 new homebuyers who have fewer options due to the contraction in subprime lending, the official told reporters. The Bush administration still wants Congress to pass an FHA reform bill that would give the agency even more flexibility in setting premiums and downpayment requirements. HUD estimates that the FHA will refinance 101,000 subprime borrowers into FHA loans by the end of this fiscal year (Sept. 30) and the agency would probably refi another 160,000 subprime borrowers in fiscal 2008 without any changes to its program. With the FHASecure program (which allows the FHA to refinance delinquent borrowers and risk-based pricing), HUD expects that the FHA can help another 80,000 troubled borrowers avoid foreclosures. But it could do even more if Congress passes FHA reform. HUD officials also revealed that they plan to issue a Real Estate Settlement Procedures Act proposal in January aimed at improving disclosures of mortgage broker fees and settlement costs.

The Federal Reserve Board is concerned that problems in the subprime and jumbo mortgage markets could lead to further weakening in the housing sector and consumer spending."Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed chairman Ben Bernanke told an economic symposium in Jackson Hole, Wyo. "We are following these developments closely." The Fed chairman noted that mortgage-backed securities investors are demanding stronger protections and better incentives for originators to underwrite prudently. "In recent months we have seen a reassessment of the problems of maintaining adequate monitoring and incentives in the lending process, with investors insisting on tighter underwriting standards and some large lenders pulling back from the use of brokers and other agents," Mr. Bernanke said. The Fed can be found online at http://www.federalreserve.gov.

President Bush has announced that the Federal Housing Administration will roll out a new program in a few days that will provide certain subprime borrowers facing default with a refinancing option.The "FHASecure" program will help many families who are struggling to refinance into FHA-insured mortgages and keep their homes, the president said. The program is designed to refinance creditworthy borrowers who have been current on their monthly payments up to the time of the reset of their subprime adjustable-rate mortgage. It is understood that borrowers would be able to roll up to six missed payments into their new FHA loan, but they can’t go above a 97.75% loan-to-value ratio (based on a new appraisal). For the program to have a real impact, investors or lenders will have to write down the amount of the existing mortgage so the borrower meets the FHA LTV requirement. Or else someone will have to put up a "cash transfusion to cover the shortfall," said consultant Brian Chappelle of Potomac Partners in Washington. President Bush stressed that the new FHA program is not a "bailout" for lenders, and he called on lenders to work with homeowners to modify or restructure their mortgages. "I believe lenders have a responsibility to help these good people," the president said.

The Federal Housing Administration might be a better agency for helping subprime borrowers than the government-sponsored enterprises Fannie Mae and Freddie Mac, according to Federal Reserve Board Chairman Ben Bernanke."Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets," Mr. Bernanke says in a letter to Sen. Charles E. Schumer, D-N.Y. The Fed chairman noted that the GSEs' current programs can only help a relatively small share of subprime borrowers. "The GSEs should be encouraged to provide products for subprime borrowers to the extent permitted by their charters," he says. Mr. Bernanke also says the GSEs should be encouraged to "increase their mortgage securitization efforts, which are not constrained by their portfolio caps."

Sen. Charles E. Schumer, D-N.Y., is calling on Countrywide Financial Corp. to stop steering customers into high-cost mortgages and to help its troubled subprime borrowers by waiving prepayment penalties and refinancing them into more affordable loans."I am calling on Countrywide -- as the nation's largest lender --- to bury its bad business practices and reverse some of the damage it has already inflicted on our housing market," the Senate Banking Committee member said. The New York senator referred to abusive lending practices reported in a New York Times article, which Countrywide says "contained numerous inaccuracies and 'facts' taken out of context." The Calabasas, Calif.-based lender said its business processes prohibit steering and that it does not pay its loan officers higher commissions for making subprime loans with prepayment penalties. The Office of Thrift Supervision has initiated a review of Countrywide's lending and servicing practices based on complaints by Countrywide borrowers that the Neighborhood Assistance Corporation of America brought to the regulator's attention. Countrywide can be found online at http://www.countrywide.com.