Compliance

Aegis Mortgage Corp. has agreed to change its underwriting restrictions on row houses and eliminate a $60,000 minimum property value requirement in settling a fair housing complaint filed by the National Community Reinvestment Coalition.The complaint alleged that the Houston-based mortgage lender and wholesaler engaged in a pattern and practice of discriminating against African-Americans and Latinos by not making loans on homes worth less than $60,000 or on row houses. "We have agreed to clarify our underwriting guidelines to remove any perceived barriers to equal access to credit for all eligible borrowers," AMC executive vice president Michael Balog said. He noted that the guidelines in question affected only a few of the company's loan products. The settlement agreement will ensure that residents of row houses in cities on the East Coast and in the Midwest "enjoy equal access to credit," NCRC president John Taylor said. "We trust that other lenders and securitizers with similar policies will follow the lead of Aegis."

Despite objections by the Bush administration, the House has approved an amendment by voice vote that restricts a new GSE regulator from using systemic risk as a reason for scaling back the size of Fannie Mae's and Freddie Mac's mortgage portfolios.The adoption of the portfolio amendment, sponsored by Reps. Randy Neugebauer, R-Texas, and Melissa Bean, D-Ill., is considered a significant victory for supporters of the two government-sponsored enterprises. But proponents of a strong GSE regulatory reform bill (H.R. 1427) don't expect the administration to turn its back on the bill at this point. "I would not think it is a deal-breaker," said Mike House, executive director of FM Policy Focus. During the debate Thursday evening, House Financial Services Committee Chairman Barney Frank, D-Mass., said he will continue to work with administration officials to address their concerns about the portfolios. "I don't consider this the last word on the subject," Rep. Frank said. A final vote on H.R. 1427 is scheduled for May 22.

Ohio Attorney General Marc Dann says he is ready to sue subprime mortgage lenders and their secondary-market investors on Wall Street on behalf of borrowers and the Ohio Public Employees Retirement System (which invested in subprime mortgage-backed securities).Ohio has the highest "serious" delinquency rate in the nation -- 3.4%, according to figures compiled by the Mortgage Bankers Association. The Ohio AG is expected to file at least one lawsuit in the next few weeks, alleging violations of the state's Consumer Sales Protection Act. The law prohibits unfair or deceptive practices in regard to consumer sales, which covers mortgages.

The Department of Housing and Urban Development wants to ban all downpayment "gift" assistance provided to homebuyers by sellers and, in some instances, nonprofits working with sellers.Under a proposed rule, the ban would apply only to mortgages insured by the government. A spokesman for the Federal Housing Administration said gifted downpayments from sellers represent one-third of its business, but a "higher percentage of defaults" at the agency. HUD would ban downpayment gifts before and after a sale if the money comes from the seller "or any other person or entity that financially benefits from the transaction" or from "any third party or entity that is reimbursed directly or indirectly by any of the parties" to the sale of the house. The ban, if approved, would affect nonprofits such as the Nehemiah Corp., Sacramento, Calif., which pioneered gifting programs a decade ago. HUD says it believes that in some cases, downpayment gifts wind up being added to the sale price of the home and covered by a larger mortgage amount. The rule was slated for publication on May 11. The industry and public have 60 days to comment.

The Conference of State Bank Supervisors has announced the addition of four new nondepository certifications for state examiners who specialize in mortgage examinations.The new certifications, which recognize "ascending skill levels" for examiners who specialize in mortgage supervision, are as follows: certified mortgage examiner, certified senior mortgage examiner, certified mortgage examination manager, and certified mortgage investigator. Candidates for the mortgage designations must meet certain training and experience requirements, as well as continuing education in the field, the CSBS said. The organization can be found online at http://www.csbs.org.

The National Community Reinvestment Coalition has filed a lawsuit against the subprime lender NovaStar, charging that the company discriminated against minorities wanting to buy row houses and individuals wanting to buy adult foster care for people with disabilities.Filed in U.S. District Court in Washington, the suit also charges that NovaStar refused to make loans to American Indians on reservations. While the lawsuit does not allege predatory lending by NovaStar, NCRC president and chief executive John Taylor said he found it "ironic that NovaStar was peddling loans with exploding interest rates and exorbitant fees to minorities in more traditional neighborhoods" while denying credit to other borrowers who qualified for loans. The NCRC says the suit represents the first time that the Federal Fair Housing Act has been used to bring charges of civil rights violations against lenders for refusing to make loans for row houses and adult foster care facilities. A media relations representative for NovaStar said the company had not received the lawsuit, but that "We believe the accusations in it are completely without merit, and we will defend against this lawsuit very vigorously."

The ranking Republican on the House Financial Services Committee says he does not believe secondary-market investors should be held liable for onerous subprime loans made to consumers.In a statement issued prior to a subcommittee hearing on Tuesday, Rep. Spencer Bachus, R-Ala., said assignee liability "should not be about going after those with deep pockets." He added that the assignee liability standard in current law (under the Home Ownership Equity Protection Act) "does not work." He said HOEPA loans are not being originated because of a lack of legal certainty for secondary-market players. "As we look for ways to address predatory-lending practices, any assignee liability standard must include safe-harbor" protections, he said. The Alabama congressman said "all participants" in the mortgage process need to share responsibility when it comes to predatory lending.

Citigroup, JPMorgan Chase, Litton Loan Servicing, and HSBC have agreed to a set of principles espoused by Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., to take early action to help subprime borrowers through loan modifications to avoid foreclosure."I commend the organizations and companies that have joined me in formulating and agreeing to these principles, and I urge others to participate," Sen. Dodd said. Under the principles, lenders and servicers should contact subprime borrowers with adjustable-rate mortgage loans to make sure they can afford the payments once the loan resets. If not, loan modifications should be explored, including switching the loan to a fixed rate or making the introductory rate permanent. The principles also call for servicers to ramp up so that loan modifications can be done on a scale needed to address the foreclosure crisis. Chase Home Loan chief executive David Lowman said his company supports Sen. Dodd's efforts to help families who are struggling with their mortgage payments. "We believe we can develop the best solutions by working with the Senate committee, our regulators, borrowers, investors, and community representatives," Mr. Lowman said. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bear Stearns & Co., and Self-Help Credit Union also support the principles.

The Colorado legislature is on track to pass some of the toughest laws in the country governing the conduct of state-licensed mortgage bankers, loan officers, and mortgage brokers in response to the state's foreclosure problems.Several bills coming up for a vote would require the state's 22,000 originators to have a surety bond and errors-and-omissions insurance. These measures would create a "duty of good faith and fair dealing" with borrowers and prohibit unconscionable acts, such as making a loan the borrower cannot afford to repay. A mortgage fraud bill creates a private right of action for borrowers to sue originators and other real estate professionals. There also are penalties for intimidating or coercing appraisers, along with criminal penalties against anyone who knowingly submits a false appraisal. "Colorado's aggressive response to our high foreclosure rate is really going to capture a lot of attention," said Erin Toll, director of Colorado's real estate division.

Massachusetts Gov. Deval Patrick has ordered state banking regulators to seek delays of up to two months on foreclosures against homeowners who have filed complaints with the Division of Banks.The move makes the commonwealth the first state in the country to place a moratorium on repossession proceedings, but it is not unprecedented. Years ago, shortly before adjustable-rate mortgages were approved by federal authorities, states held sway over institutions in their jurisdictions that made what were then known an variable-rate mortgages. And one, Wisconsin, refused to allow lenders to reset loans to higher levels when the market rate moved into double-digit territory. This time around, housing advocates say they expect Gov. Patrick's action to set the pattern for other states. "We will bring the Massachusetts standard nationwide," Bruce Marks, head of Neighborhood Assistance of America, told the Boston Herald. The governor said in a statement that stays would be sought on a case-by-case basis, but Mr. Marks indicated that his group would assist owners who are struggling to make their payments in filing complaints with the state. "It is effectively a moratorium of foreclosures in Massachusetts," he is quoted as saying. "It is a very big deal."

The Federal Housing Administration may not be able to revive its single-family program unless the agency adopts private-sector policies and procedures in originating, insuring, and servicing mortgages, according to the Consumer Mortgage Coalition.So the trade group is working to add language to an FHA reform bill (H.R. 1852) that requires the FHA to swiftly align its processes and procedures with those of the conventional market. The CMC contends that the FHA's outdated underwriting processes and severe penalties for noncompliance force lenders to conduct their FHA business as separate operations. This is expensive and discourages lenders from participating in the FHA program, according to CMA executive director Anne Canfield. "It is really important for FHA to align their processes and procedures with the way the world works," she said. The House Financial Services Committee is scheduled to mark up H.R. 1852 on May 1.

Wells Fargo Financial Inc., the consumer finance subsidiary of San Francisco-based Wells Fargo & Co., has announced the settlement of a class action lawsuit involving its nonprime mortgage lending practices in California.Under the proposed settlement with law firms Cotchett, Pitre & McCarthy, Burlingame, Calif., and Miner, Barnhill & Galland PC, Madison, Wis., the company said it pledges to continue for three years certain improvements it had already put into practice and to enact a default relief program for qualifying class members. The relief program earmarks $2.4 million to provide relief to qualifying class members whose loans have become more than 60 days delinquent, and up to $4.4 million for cash payments to class members who submit claims. Class members are certain California customers who entered into real-estate-secured loans with Wells Fargo Financial between Dec. 18, 1999, and Nov. 20, 2005. The Association of Community Organizations for Reform Now, a party to the suit, had alleged that the company failed to adequately disclose points and prepayment penalties and inaccurately reported the loan balances of some California customers to credit reporting agencies. The settlement is subject to approval by the San Francisco Superior Court. The company can be found online at http://www.wellsfargofinancial.com.

The Mortgage Bankers Association considers a GSE regulatory reform bill introduced by four Republican senators to be "well-crafted" but says it cannot go along with the limits on the Fannie Mae and Freddie Mac mortgage portfolios.In a letter to Senate Banking Committee leaders, the MBA says it "strongly supports" the regulatory regime contained in a government-sponsored enterprise bill (S. 1100) sponsored by Sens. John Sununu (N.H.), Chuck Hagel (Neb.), Elizabeth Dole (N.C.), and Mel Martinez (Fla.). But that support does not apply to the section that says Fannie and Freddie can only add affordable housing loans to their mortgage portfolios. "It is appropriate to encourage the GSEs to use their investment portfolios in furtherance of affordable housing; however, we believe the regulator should have broad authority and flexibility to determine the type and amount of assets the GSEs hold in portfolio," the MBA says. The association said it is more comfortable with the portfolio language in a GSE bill that the House is expected to pass in May and has the support of the Bush administration.

Rapid Reporting, Fort Worth, Texas, has announced a partnership with Calyx Software, a broker loan origination vendor based in San Jose, Calif., to help brokers detect fraud earlier in the process.Rapid Reporting said it will offer mortgage fraud detection capabilities to users of Calyx's core group of products and services, including the company's flagship loan origination application, Calyx Point. As part of the agreement, Calyx Software users will be able to interface to Rapid Reporting's Web-based IncomeChek and DirectChek tools. Through established relationships with both the Internal Revenue Service and the Social Security Administration, Rapid Reporting enables users to detect and reveal potential mortgage fraud associated with deceptive income and identity information, the company said. Rapid Reporting can be found on the Web at http://www.rapidreporting.com.

Banks and thrifts can earn Community Reinvestment Act credit by placing their troubled subprime borrowers into newly refinanced loans, but not for ordinary workouts and loan modifications, according to regulators.When it comes to their own loans, "I don't think there is any question whether banks will do workouts and accommodate those individuals appropriately," said Robert Mooney, acting deputy director of the Federal Deposit Insurance Corp., at a CRA conference sponsored by the Consumer Bankers Association. The main thrust of the April 17 interagency statement is to encourage banks to work with nonprofit groups in helping subprime borrowers with adjustable-rate 2/28 and 3/27 mortgages that have been securitized. Mr. Mooney noted that a lot of the borrowers are trapped and facing foreclosure. And it isn't easy to "shake" those loans out of the securitizations so responsible banks can do the workouts, he said. Meanwhile, the regulators want to ensure that "you get the credit you deserve" in the CRA lending or service tests "for taking that extra step and going the extra mile," Mr. Mooney said. The CBA can be found on the Web at http://www.cbanet.org.

Democrats on the Senate Banking Committee are turning up the heat on the Federal Reserve Board, demanding that it establish an ability-to-repay standard on subprime mortgages and designate the failure to escrow homeowners' insurance and property taxes as a deceptive lending practice.Under pressure from the committee, Fed Chairman Ben Bernanke had agreed to review the board's power under the Home Ownership and Equity Protection Act. Now the Democrats are demanding at least some minimum action. "The Board should create a presumption that a loan that requires a borrower to pay more than 50% of his or her income to cover the cost of principal, interest, taxes, and insurance is not a sustainable loan" and fails the repayment test, the 10 Democratic senators say in a letter to the Fed. The Democrats also stress that the failure to escrow taxes and insurance puts homeowners at risk. "Subprime lenders and brokers seem to routinely quote monthly payments to prospective borrowers that do not include taxes and insurance as a way of deceiving the borrowers into thinking their monthly obligations will be lower than their true costs," the April 23 letter says. "This is clearly a deceptive practice."

Core Mortgage Risk Monitor's foreclosure index has "increased dramatically" in the second quarter, although the risk index overall is showing signs of stabilization, according to First American CoreLogic, a Sacramento, Calif.-based provider of mortgage risk assessment and fraud prevention systems.The foreclosure index posted a 10.5% quarterly increase that was attributed to rising delinquency rates in the subprime sector. "While house prices are stabilizing, we are transitioning the risks to a period of rising delinquencies and foreclosures that is going to have concentrated and contagious impact on local markets," said Mark Fleming, CoreLogic's chief economist. "Fraud and collateral risk has stabilized at a relatively high level not seen in recent years, and foreclosures are expected to continue to rise despite relatively unchanged employment conditions and stabilization of house prices." CoreLogic said the five U.S. markets currently most at risk are Detroit-Livonia-Dearborn, Mich.; Memphis; Warren-Troy-Farmington Hills, Mich.; Youngstown-Warren-Boardman, Ohio-Pa.; and Dayton, Ohio. CoreLogic can be found on the Web at http://www.corelogic.com.

Fannie Mae and Freddie Mac are some of the biggest investors in subprime securities, and their regulator -- the Office of Federal Housing Enterprise Oversight -- is looking for ways to ensure that their purchases of private-label securities comply with federal subprime underwriting standards."It would make a lot of sense if they can get a representation from the packagers of these securities that they are following reasonable underwriting standards," OFHEO Director James Lockhart told reporters. In a speech to the Independent Community Bankers of America, the OFHEO director said unregulated lenders and mortgage brokers largely contributed to the deterioration of subprime underwriting standards. "OFHEO is now working with the enterprises on guidance that would have the effect of applying -- through the GSEs' market activities -- the strictures of federal guidances on these unregulated firms," Mr. Lockhart said. Fannie chief executive Daniel Mudd told a congressional panel April 17 that his company will comply with the proposed subprime underwriting guidance issued by federal banking regulators in March. The comment period ends May 7.

Citing a need to improve accountability in the mortgage industry and keep families from losing their homes, Pennsylvania Acting Banking Secretary Victoria A. Reider has urged swift action on legislation to stop abusive lending practices blamed for many foreclosures.Legislation was introduced in the state House and the state Senate earlier this year. The six bills are the result of a 2005 Pennsylvania Department of Banking report on foreclosures, which cited abusive lending practices as a significant contributing factor to the state's above-average foreclosure rate. The bills would amend state laws to require individual licenses for mortgage professionals. Currently, the department has the authority to license mortgage companies, but not their employees. "In Pennsylvania, the people who cut your hair are licensed," Ms. Reider said. "The people who sell insurance and stocks are licensed. But the people who guide, for most of us, the largest financial transaction of our lives are not licensed. This legislation would create a new licensing category for individual mortgage loan originators."

The Department of Housing and Urban Development is getting closer to issuing a proposed rule for public comment that restricts downpayment assistance on Federal Housing Administration single-family loans if the funds come from a person or company selling the house.This proposal would prevent nonprofit groups from cycling funds from sellers to FHA homebuyers. It essentially incorporates guidance in the FHA Handbook that downpayment and closing cost assistance cannot come from a donor that has an interest in the sale of the property. HUD data show that defaults on FHA loans with downpayment assistance from nonprofits are twice as high as on other FHA loans and the claim rate is three times as high. The HUD inspector general has been very critical of these downpayment assistance programs. The White House Office of Management and Budget has cleared the proposal, and HUD is expected to send it to Congress for a 15-day review period soon.