Compliance

Kroll Factual Data, a Loveland, Colo.-based provider of business information to mortgage lenders and others, has announced an expansion of its risk assessment services with the introduction of FullFacts.The service assesses the risk of misrepresentation by brokers, appraisers, loan officers, closing agents, and other participants in the mortgage loan process. "FullFacts comprehensively identifies loan party collusion, conflict of interest, and non-arm's-length transactions for every participant involved in a mortgage loan" and determines whether any participant is included on exclusionary and compliance lists, said Jeff Gentry, vice president of Kroll Factual Data. "To streamline your workflow, Kroll Factual Data can upload your own internal exclusionary list into the FullFacts participant risk analysis." Kroll Factual Data can be found online at http://www.krollfactualdata.com.

To ensure that mortgage borrowers are treated fairly, Congress should impose a fiduciary duty on loan officers and mortgage brokers, according to a newly formed trade association of mortgage professionals."The National Association of Mortgage Professionals is calling for legislation that would establish a higher level of trust and accountability for mortgage agents who enter into a relationship with borrowers," the NAMP said. The association was launched in March to help clean up the mortgage industry, a spokeswoman said. Getting a mortgage is usually the most significant financial transaction in a person's life, and it should not be treated simply as a "retail transaction," the NAMP said. The group can be found on the Web at http://www.namp.org.

A predatory-lending bill that House Democrats plan to introduce in September will place a lot of emphasis on the borrower's ability to repay the loan as a way to prevent loan flipping and to restore investor confidence in the mortgage-backed securities market."Given the meltdown in the subprime market and the foreclosure rate, we will pay more attention to that [ability to repay] -- not just as a protection for consumers, but as a protection to reassure the market," Rep. Brad Miller, D-N.C., told MortgageWire. He said most of the protections in the bill will apply to all loans. "We want to make sure that lenders are lending to people who can actually pay back the loan according to its terms," he said. Reps. Miller and Mel Watt, D-N.C., will be the lead sponsors of the anti-predatory-lending bill that House Financial Services Committee Chairman Barney Frank, D-Mass, wants to mark up in late September or early October. "We are developing a bill that we fully expect to pass the House and the Senate," Rep. Miller said in an interview.

House Financial Services Committee chairman Barney Frank, D-Mass., has scheduled a Sept. 5 hearing on the crisis in the mortgage and credit markets and the implications for consumers and the economy.Top Treasury Department and Federal Reserve Board officials are scheduled to testify first. Mortgage banking industry and other market participants will testify on a second panel. The committee did not release a witness list in announcing the hearing.

Sen. Charles E. Schumer, D-N.Y., says he will introduce emergency legislation to raise the caps on Fannie Mae's and Freddie Mac's portfolios if the Bush administration does not act soon.The Office of Federal Housing Enterprise Oversight recently rejected a request by Fannie Mae to lift the cap on its portfolio -- preventing the government-sponsored enterprise from providing liquidity for the subprime market. Sen. Schumer warned that the problems in the subprime sector are spilling over into the broader mortgage market and that the administration should act now. "We cannot afford a 'wait-and-see' approach when it comes to a credit crisis that threatens to derail our economy," the Senate Banking Committee member said. He said he plans to introduce his bill, if necessary, as soon as Congress returns from its August recess after Labor Day.

The National Association of Mortgage Brokers, responding to criticism of the mortgage brokerage industry by Sen. Hillary Rodham Clinton, D-N.Y., has criticized the senator for advocating policies that "single out small business America" and called instead for an examination of the entire mortgage system."The entire mortgage system needs to be examined from stem to stern -- from the home shopping phase, bankers, brokers, and lenders all the way to Wall Street and the rating agencies," the NAMB said in a statement. "NAMB welcomes Sen. Clinton's proposal to create a registry database, but it needs to go one step further -- it should be applied to all mortgage originators, not just mortgage brokers." In a recent speech, Sen. Clinton called for upfront disclosures of mortgage brokers' compensation, a ban on prepayment penalties, and a requirement that all subprime mortgages have escrow accounts. Regarding disclosures, the NAMB noted that it has also called for reform, pointing to Federal Trade Commission studies suggesting that "our entire mortgage disclosure system is broken and it needs a comprehensive fix." The association can be found on the Web at http://www.namb.org.

The Core Mortgage Risk Index increased 4.4% in the second quarter, reflecting the pressures of rising delinquency and foreclosure rates and slow price appreciation, according to First American CoreLogic, a Sacramento, Calif.-based provider of mortgage risk assessment and fraud prevention systems.The index is "increasingly driven by the fallout caused by high delinquency rates in the subprime and alt-A markets," the company said. CoreLogic listed the five U.S. markets currently most at risk as Detroit-Livonia-Dearborn, Mich.; Warren-Troy-Farmington Hills, Mich.; Memphis; Youngstown-Warren-Boardman, Ohio-Pa.; and Dayton, Ohio. CoreLogic can be found on the Web at http://www.corelogic.com.

To crack down on abusive lending, Sen. Hillary Rodham Clinton, D-N.Y., wants upfront disclosures of a mortgage broker's compensation and a ban on prepayment penalties, along with a requirement that all subprime mortgages have escrow accounts."We need to put an end to fly-night-night mortgage brokers peddling loans to unqualified applicants based on inflated appraisals," the Democratic presidential candidate said in a speech outlining legislative proposals she intends to introduce when Congress returns in September. Her legislation will also provide $1 billion to assist state-sponsored foreclosure rescue funds and expand Fannie Mae's and Freddie Mac's mission to include helping at-risk homeowners avoid foreclosure. "If I were president, I would address abuses across the mortgage industry with a plan to curb unfair lending practices and hold brokers and lenders accountable, give families the support they need to avoid foreclosure, and increase the supply of affordable housing," the New York senator said.

First American Credco, a provider of specialty credit (and part of First Advantage Corp.), and First American CoreLogic have announced the introduction of ThirdParty Manager and Professional Screening Services as part of a line of mortgage lender origination and channel management tools.First American CoreLogic said its ThirdParty Manager streamlines the submission of broker data, as well as the due diligence, management, and monitoring of wholesale channel brokers via an online wizard. It also provides integrated due-diligence data and management tools for lenders to manage their overall broker relationships. First American Credco's Professional Screening Services, which includes broker and third-party screening and license monitoring, has been integrated with ThirdParty Manager. These services enable lenders to certify new originators, recertify third-party contractors, and perform a complete audit on their broker base as needed. "The integration of First Advantage's due diligence management capabilities and First American's solutions helps effectively manage risk and mortgage fraud, a growing issue affecting our lender customers, as well as the consumer," said Kathy Manzione, president of First American Credco. The companies can be found online at http://www.credco.com and http://www.facorelogic.com.

Two bond market associations are urging the Federal Reserve Board to be careful in writing new rules to stop abusive subprime lending practices and to ensure that any violations of its Home Ownership and Equity Protection Act regulation do not trigger assignee liability for mortgage investors."At a minimum, we request that, in any proposed and final regulations under Section 129, the Board explicitly confirm that violations of new substantive regulations may not be asserted against an assignee (unless the related loan is a high cost loan)," says a joint comment letter by the American Securitization Forum and the Securities Industry and Financial Markets Association. (The vast majority of subprime mortgages are not "high-cost loans" as defined by HOEPA.) The ASF and SIFMA also urge the Fed to concentrate on improving mortgage disclosures as the best way to protect consumers, as opposed to restricting prepayment penalties or requiring escrow accounts on subprime loans. "In our view, the Board should focus its efforts on preventing unfair and deceptive lending practices in connection with HOEPA loans through creating uniform mortgage disclosures for borrowers, and not prohibiting products or features that are not inherently unfair or deceptive."

The Office of Thrift Supervision is seeking public comment on what approach it should take in issuing a regulation that addresses "unfair and deceptive" subprime lending practices.The 22-page advance notice of proposed rulemaking contains a list of "targeted practices," such as loan flipping and overages that the OTS might prohibit as part of a regulation on unfair and deceptive acts and practices (UDAP). The OTS also points out that the regulation could take a principles-based approach or prohibit specific practices (as the North Carolina predatory-lending law does). "The ANPR reviews OTS legal authority for issuing a UDAP regulation and discusses various approaches that the agency could take, either individually or in conjunction with other initiatives, in issuing a regulation," the agency said. The OTS is issuing the proposal for a 90-day comment period. OTS Director John Reich directed his staff to draft the UDAP proposal after concluding that Congress wants the regulators to exercise all their authorities to stop abusive lending practices.

Federal Reserve Board nominees Elizabeth Duke and Larry Klane said they support the Fed's efforts to draft a rule that would provide better consumer protections for subprime borrowers and ban certain unfair lending practices."If confirmed, I will put my full energy" into using "all the arrows in the regulatory quiver to protect consumers under the Home Ownership and Equity Protection Act," Mr. Klane told the Senate Banking Committee during a confirmation hearing. The Fed is expected to issue a proposed HOEPA rule before the end of the year. Ms. Duke is a Virginia community banker, and Mr. Klane is a top executive at the credit company Capital One, which has a mortgage subsidiary that makes prime and alternative-A loans. President Bush nominated the two bankers to fill two vacancies on the Federal Reserve Board. The Fed can be found online at http://www.federalreserve.gov.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., says he is "very confident" that committee members will be able reach a consensus and pass a Federal Housing Administration reform bill after Congress returns from its August recess.Sen. Dodd wanted to mark up an FHA bill this week. But he indicated that there was not enough time to complete the negotiations with senators about to leave town for the month-long recess. "There are a number of issues outstanding," he admitted. The committee chairman stressed that FHA reform, flood insurance reform, and an extension of the Terrorism Risk Insurance Act will be his main priorities when Congress reconvenes in September. "I hope to get to flood insurance and TRIA very quickly," Sen. Dodd told reporters. Then he wants to turn to the government-sponsored enterprise reform bill to strengthen regulation of Fannie Mae and Freddie Mac.

The Senate Banking Committee has canceled a mark-up of a Federal Housing Administration reform bill after key Republicans complained about the process and wanted more time to work on the bill.A sudden push by committee Chairman Christopher J. Dodd, D-Conn., to mark up an FHA bill on Wednesday did not sit well with several Republican members, according to sources. They said the objections centered "more on process than substance" regarding the FHA bill Sen. Dodd put together with Sen. Mel Martinez, R-Fla. FHA reform supporters say they expect the senators to return from their August recess and approve a bill in September. The House Financial Services Committee has already approved an FHA reform bill.

Senate Banking Committee leaders have drafted a Federal Housing Administration reform bill that cuts the FHA downpayment requirement to 1.5% and raises FHA loan limits, according to a copy obtained by MortgageWire.However, negotiations are still under way over several provisions, and it is unclear whether committee members can reach an agreement in time to mark up and pass an FHA bill on Wednesday. The draft bill gives the FHA the green light to vary premiums based on loan or property type, loan-to-value ratios, and other factors, and to charge upfront premiums of up to 3%. The current limit is 2.25%. However, the bill stops short of allowing the federal mortgage insurance program to charge premiums based on credit scores -- a major reform objective of the Bush administration. In lowering the downpayment requirement from 3% to 1.5%, the bill prohibits seller-funded downpayment assistance on FHA loans.

Street Resource Group Inc., a provider of technology and consulting services for mortgage warehouse lenders, has announced the formation of the Closing Agent Risk Committee, an industry group focused on risks associated with the loan closing process.The committee, a response to "the growing incidence of mortgage fraud and the pivotal role closing agents play in that process," stemmed from discussions at SRG's annual Warehouse Lenders Forum in New York City, where Scott Broshears of the Federal Bureau of Investigation presented mortgage fraud data, SRG said. Tom Holland, senior vice president of Regions Funding, led a discussion on closing agent risk and argued for the formation of a committee of executives from leading warehouse lenders to address the issue. Mr. Holland now heads the committee. Citing the growth of the recently formed Warehouse Information Network, SRG president Stanley Street promised that WIN will form committees on regulatory issues and industry standards and practices.

A House Financial Services subcommittee has approved a 10-year extension of the federal government's terrorism insurance program along with changes to expand the coverage to include nuclear, biological, chemical, and radiological acts of terrorism.The Terrorism Risk Insurance Act extension bill also provides a federal backup for insurers providing group life insurance. Republican amendments to shorten the extension period to two years and then to five years failed, and the subcommittee members approve the bill by a voice vote. The full committee is expected to mark up the TRIA extension bill (H.R. 2761) soon. The Bush administration opposes a 10-year extension and efforts to expand the terror insurance program.

The House has passed a Department of Housing and Urban Development appropriations bill after inserting language that prohibits the department from implementing a rule that would block seller-funded downpayment assistance on Federal Housing Administration-insured mortgages.Reps. Maxine Waters, D-Calif., and Gary Miller, R-Calif., offered the amendment, approved by voice vote, so that downpayment assistance providers like Nehemiah and AmeriDream can continue to assistance low-income families to become homeowners. "With passage of this amendment and the overwhelming support of the House of Representatives, the dream of homeownership for millions of Americans in need of downpayment assistance is alive and well," said Scott Syphax, president and chief executive of Nehemiah Corporation of America, Oakland, Calif. HUD recently proposed to ban seller-funded downpayment assistance, maintaining that it leads to inflated appraisals and high foreclosure rates on FHA loans. The HUD appropriations bill also increases FHA multifamily loan limits in high-cost areas and suspends for one year a cap on the number of reverse mortgages the FHA can insure.

U.S. banking regulators have agreed to kick the Basel Ia risk-based capital proposal aside and give regional and community banks the option of using the "standardized" RBC approach, which many foreign banks have adopted."We are pleased with the recognition of the importance of the standardized approaches, particularly that they offer more flexibility than the earlier Basel Ia proposal," said Wayne Abernathy, executive director of the American Bankers Association. While the largest and most internationally active U.S. banks will move ahead with implementation of the Basel II "advanced" RBC approach, the federal regulators were silent in regard to allowing small banks to continue to operate under the current Basel I rules. But most observers doubt that the regulators would force the small banks to adopt the more complex standardized approach, which has more gradients of risk than Basel I, plus an operational risk component. ABA senior economist Robert Strand noted, however, that some banks strongly supported Basel Ia because of the improvements in the risk weights for residential mortgages. "We will ask that those improvements be allowed as an option under Basel I," he said.

Federal regulators and mortgage lenders were "largely responsible" for the housing and mortgage crisis, which should be remedied by better enforcement of predatory-lending statutes and the adoption of "suitability" requirements and federal licensing standards for lenders, according to a white paper by Weiss Research Inc.The white paper, submitted to the Federal Reserve Board July 19, argues that the crisis is likely to worsen and that the Fed played a role in "further inflating the housing bubble that's at the root of the current crisis." Mike Larson, Weiss's interest rate and real estate analyst and the author of the report, also points the finger at lenders who "debased their standards" rather than accept a decline in lending volume, and at Wall Street, whose "large-scale transformation of mortgages into securities significantly boosted risk-taking." Among other things, the report calls for assignee liability for the secondary market and closer monitoring and prompter action by the Fed to "help avert runaway asset price inflation." Weiss, based in Jupiter, Fla., can be found online at http://www.weissgroupinc.com.