Compliance

The California Association of Mortgage Brokers is promoting what it terms "a comprehensive solution to curbing abusive lending practices."The trade group has issued a "best-practices guide" and conducted a conference call on the subject. "Mortgage brokers are the bridge for consumers in the loan process because they provide loan options that meet the exact needs of the borrower," said CAMB president Jack Williams. "Like a fine tailor, quality mortgage brokers go the extra mile to find a loan that fits the borrower's financial needs or objectives." The guide calls for: uniform licensing standards with mandatory pre-education, continuing education, and criminal background checks for all loan originators; updated information booklets and key disclosures to address nontraditional mortgages; the enforcement of existing abusive lending laws; workplace efforts on integrity and consumer education; and expanded financial literacy programs. Michael Faust, the CAMB's government affairs chairman, said the guide grew out of the recent dialogue over nontraditional products and abusive lending practices. But that dialogue, he said, "has broken down, with everyone taking their sides and screaming their interest points as loud as they can," affecting the ability to reach a compromise.

Countrywide Home Loans chief Angelo Mozilo on Wednesday defended payment-option adjustable-rate mortgages, saying the product is performing well but that he fears new regulatory guidance on the loans will create an "unlevel" playing field that favors lenders owned by Wall Street.Speaking before the National Association of Home Builders, Mr. Mozilo said regulatory guidance that requires lenders to consider potential negative amortization when qualifying option ARM borrowers, favors unregulated mortgage bankers owned by investment bankers such as Bear Stearns and Lehman Brothers. "It has created a terribly unlevel playing field," Mr. Mozilo said, adding that unregulated institutions are not putting the product on the balance sheets of their depositories, which are regulated. (For the full story, see the Oct. 30 issue of National Mortgage News.)

Street Resource Group Inc., an Atlanta-based provider of technology and software for mortgage warehouse lending, has announced that its clients will now have access to DataVerify Corp.'s data integrity verification and fraud prevention platform product.The product -- DRIVE, for data risk integrity verification engine -- provides automated tools designed to replace manual verifications of such information as employment and income while "dramatically" reducing loan default costs, DataVerify said. "In an environment in which most lenders are tightening their budgets while suffering significant increases in fraud-related losses, we strongly believe that the combination of our online credit and collateral fraud-prevention solutions and SRG's online automated mortgage warehouse solution adds value to both our clients' bottom lines by both streamlining their internal processes and increasing the quality of their loans," said Steve Halper, founder and chief executive officer of DataVerify. The companies can be found online at http://www.streetresource.com and http://www.dataverify.com.

Fannie Mae and Freddie Mac must create and maintain a record retention program that provides examiners with ready access to complete and accurate records, according to a final rule approved by the Office of Federal Housing Enterprise Oversight."With this regulation, the enterprises will have an obligation to maintain and promptly produce records needed for regulatory examinations and other proceedings -- an essential element of safe and sound operations," OFHEO Director James Lockhart said. OFHEO is giving the two government-sponsored enterprises 120 days to implement their record retention programs before taking enforcement actions for noncompliance. The regulator acknowledged that the GSEs are in the process of developing and upgrading their record management systems. 'To that end, both during the 120-day implementation period and afterwards, OFHEO encourages each enterprise to submit relevant materials to and confer with its examiner-in-charge as needed to ensure that its record retention program is compliant," the final rule says.

Agoura Hills, Calif.-based Interthinx, a provider of fraud prevention, compliance, and decision support tools, has launched an online testing mechanism in conjunction with its fraud detection training film, FSI: Fraud Scheme Investigation.The FSI video is a mortgage fraud detection training tool produced by Interthinx. The film parodies CSI: Crime Scene Investigation, the popular prime-time television series, to demonstrate the characteristics and "red flags" of a complicated property-flipping scheme, the company said. FSI was inspired by actual events and is free to the mortgage industry. The free online FSI Exam Program will provide a means to measure learning achieved by watching the FSI film. The announcement of the online testing mechanism was made at the Mortgage Bankers Association's 93rd Annual Convention. The company can be found on the Web at http://www.interthinx.com.

CoreLogic, a Sacramento, Calif.-based provider of mortgage risk assessment and fraud prevention systems, has released findings from its broker management database indicating that 7% of brokers account for 63% of early payment defaults, with the riskiest 0.5% of brokers accounting for 70% of all losses.CoreLogic said its broker database tracks more than 38 million loans and 190,000 brokers and is the engine powering ThirdParty Scorecard, a Web-based software tool that helps residential mortgage lenders evaluate and manage the risk associated with their broker network. The most recent statistics illustrate the key role brokers play in the risk management chain and why broker monitoring and management tools are critical to the financial prospects of wholesale originators, the company said. Core Logic made the announcement at the Mortgage Bankers Association's 93rd Annual Conference & Expo in Chicago. The company can be found on the Web at http://www.corelogic.com.

Doral Financial Corp., the troubled mortgage lender based in San Juan, Puerto Rico, has reported a net loss of $33.8 million ($0.47 per share) for the first six months of 2006.Noting that it has filed its Form 10-Q for the period with the Securities and Exchange Commission, Doral said the loss reflects "significant" restatement- and re-engineering-related expenses; an $8.2 million charge related to the restructuring of certain prior transfers of mortgage loans to local financial institutions; and a $12.3 million charge related to the transfer of some mortgage loans held for sale to its loan receivables portfolio. In September, Doral announced an agreement with the SEC under which the mortgage lender will pay a $25 million civil penalty in connection with the SEC's probe of Doral's restatement of financial results for 2000-2004. Doral said it had agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of certain provisions of the securities laws. Doral's restatement slashed $694.4 million from its retained earnings through the end of 2004 to correct the accounting for certain mortgage loan sales and the valuation of its interest-only strips. In March, the company signed consent orders with banking regulators that restrict its payment of dividends and require it to review its mortgage portfolio and submit plans on maintaining capital adequacy and liquidity. Doral can be found online at http://www.doralfinancial.com.

Mortgage Builder Software Inc., Southfield, Mich., has announced an interface with ComplianceEase that it says will enable its customers to determine whether their loans comply with federal, state, and local regulations.ComplianceEase's flagship product, ComplianceAnalyzer, reviews loans for a variety of multijurisdictional compliance regulations. "Mortgage Builder provides the required data, allowing ComplianceEase to perform the testing procedures ensuring the loan is compliant, and then ComplianceEase returns the results via HTML, where they can be viewed and stored for future reference," said Keven Smith, president of Mortgage Builder. The announcement was made at the Mortgage Bankers Association annual convention in Chicago. The companies can be found online at http://www.mortgagebuilder.com and http://www.complianceease.com.

Fannie Mae and Freddie Mac intend to win back some of the market share they have ceded to private-label conduits while laboring through their respective accounting scandals.A large part of how well the two government-sponsored enterprises will be able to duke it out with totally private entities remains to be seen, as lawmakers continue to argue whether the agencies need a new regulator and under what kind of rules they will have to operate. But whatever happens on Capitol Hill, Freddie Mac chairman Richard Syron told the Mortgage Bankers Association's annual convention in Chicago that his company is "determined to be as competitive as it can be." Mr. Syron said that for the last several years, both Fannie Mae and Freddie Mac have "been in the penalty box" and have been playing mostly defense. Private-label issuers now control an estimated 55%-60% of the mortgage-backed securities market. Fannie Mae chairman Daniel Mudd conceded that his company hasn't been innovative enough, especially while it has been dealing with its accounting irregularities. The company has also been too slow and bureaucratic, he said. But while Fannie has "been working to get our house in order," the company has also been "rethinking a lot of things, including how we do business," Mr. Mudd said. Both executives maintained that their respective companies were designed for the turbulent and changing market that lies ahead.

Experian Group Ltd., Costa Mesa, Calif., has brought its Hunter fraud detection product to the United States, the company announced at the Mortgage Bankers Association annual convention in Chicago.The product has been available in the United Kingdom for the past 10 years. It was originally developed to combat mortgage fraud, but has expanded to other credit applications as well, KC Akerman, senior product manager of Experian Fraud Solutions, told MortgageWire. It has not been introduced in the United States until now because Experian redesigned it from a client-based application, and it is now available as a hosted application. Its primary use is to catch application fraud in the prefunding stage by looking for red flags using a customized rules engine. It can use both shared and third-party data that the user has access to, Ms. Akerman said. In the U.K., she noted, users of Hunter share data findings with each other as part of their fraud prevention efforts.

The new chairman of the Mortgage Bankers Association is calling for an "industrywide commitment to personal responsibility."Taking over the reins of the MBA at the group's annual convention in Chicago, John Robbins said the "industry must take a leadership role so our customers receive the best information possible, allowing them to make an educated decision on the mortgage program they have selected." If the business chooses to abdicate that responsibility, Mr. Robbins warned in opening the three-day conference, "then we deserve to be subjected to the unending stream of punitive legislation and regulation [that's] sure to follow." The chairman of American Mortgage Network, San Diego, said lenders should have the borrower's best interest at heart, not their own. The "simple litmus test" should be to "always make sure borrowers have what they need to make the right choice," he said. Unlike those who blame the news media for the black eye lenders have received from news stories about predatory lenders, the new MBA leader said the real culprits are those who wrote the loans. "They obviously put their personal compensation ahead of their borrowers' well being," he told the convention. Mr. Robbins also said the MBA could lose its well-earned credibility with news organizations, lawmakers, and regulators if its members don't hold themselves to a higher standard. There should be laws to punish the "few bad apples ... that will always exist in any group, no matter the profession." he said. The MBA can be found online at http://www.mortgagebankers.org.

Regina Lowrie, outgoing chairman of the Mortgage Bankers Association, has joined The Prieston Group, a Novato, Calif.-based provider of mortgage fraud insurance, as a principal.Ms. Lowrie, a 29-year veteran of the mortgage banking industry, is currently president and chief executive officer of RML Investments Inc., a consulting firm. She was previously the founder and president of Gateway Funding Diversified Mortgage Co., Horsham, Pa. "I believe mortgage fraud against lenders is one of the most troubling issues facing our industry today and that TPG's promotion of industrywide best practices is a key component in addressing this problem," Ms. Lowrie said. TPG, which also provides fraud-related training and loss mitigation, can be found on the Web at http://www.priestongroup.com.

The insurance commissioner for Washington state has issued a report maintaining that title insurers "routinely" break state law by allegedly using illegal incentives and inducements to attract business.The real shocker, said Mike Kreider, "was the scope and the extent of the abuse." Washington state law limits incentives and inducements to $25 per person per year. Even companies that received praise for being in substantial compliance had a number of violations over the 18-month period studied, the report said. The department said it will issue no fines, but will focus on prevention and compliance. Mr. Kreider also announced the formation of a work group to study issues such as whether Washington state should adopt a system similar to one used in Iowa, under which there is no title insurance but the state government provides title protection services. A statement from LandAmerica, one of the companies cited, said: "All too often, these laws and regulations are unclear at the state and federal level. There are many ambiguities in the current regulations regarding inducements, producing disagreement between the title insurance industry and the Washington DOI concerning what's proper and improper." Other national companies cited in the report are Fidelity, First American, Old Republic, and Stewart.

A nationwide class-action lawsuit has been filed against LendingTree LLC and its wholly owned subsidiary, Home Loan Center Inc., alleging that they have engaged in unfair business practices and false advertising.The suit, filed by the law firm of Teuton, Loewy & Parker LLP in Orange County Superior Court, notes that LendingTree's slogan is: "When banks compete, you win." With this slogan, LendingTree styles itself as an online lending exchange that connects borrowers to a network of lenders that allegedly "compete" for the borrowers' business, the suit says. However, the suit alleges that in thousands of cases there is no such competition and that LendingTree uses its website and false advertising to generate leads for its wholly owned direct-lending division. The lawsuit further alleges that LendingTree secretly diverts many LendingTree.com leads to its subsidiary, where unsuspecting borrowers are sold loans at inflated prices based on the materially false representation that "competition" has occurred among lenders. Rebecca Anderson, a spokeswoman for Lending Tree, said the suit arose out of the termination of a "disgruntled LendingTree employee who was let go after working with the company for nine months."

Fair Isaac Corp., Minneapolis, has filed a lawsuit in the federal district court in Minneapolis against the three major credit repositories, as well as VantageScore Solutions LLC, alleging that they violated antitrust laws and engaged in unfair competitive practices.A statement from Fair Isaac contends that the three repositories could manipulate the credit score price, sales, and distribution process to promote the VantageScore product over the FICO score or any other credit scoring product. Tom Grudnowski, chief executive officer of Fair Isaac, said the three credit reporting agencies "have been our primary U.S. distribution partners for Fair Isaac's scores for more than 15 years. Now, the credit agencies are using their position to drive adoption of their own score to the detriment of our competing FICO score product and in conflict with their obligations to distribute our product." A statement from Equifax said the suit is without merit and that it plans to defend itself and VantageScore Solutions, which markets the VantageScore product founded by the three repositories. It said VantageScore increases competition and gives consumers more choice. Calls to Experian, TransUnion, and VantageScore had not been returned by MortgageWire's deadline.

The trend among regulators in states such as New York, New Jersey, Ohio, and others is to make the mortgage broker, in essence, have a fiduciary duty to the borrower, according to E. Robert Levy, executive director of the New Jersey Association of Mortgage Brokers.Speaking at the group's annual convention in Atlantic City, Mr. Levy said the burden would therefore rest with the mortgage broker to select the loan product for the consumer. As a result, the mortgage broker could be held liable for making the wrong choice. He said consumer advocates are in favor of this position. Mr. Levy, who is also chairman of the advisory council of the American Association of Residential Mortgage Regulators, said it became clear in a meeting of that council that regulators were enamored with the "suitability test." However, Mr. Levy reminded the audience of New Jersey's experience with the original version of its predatory lending law, which contained a "net tangible benefits" test. That test closed the secondary market for loans in the state, and was eventually removed from the law.

State regulators are working on nontraditional mortgage guidance for state-licensed mortgage bankers and brokers, and they want to be consistent with federal guidelines on originating interest-only and payment-option ARMs.Federal banking regulators issued underwriting guidance Sept. 29 for federally insured banks and thrifts. Now the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators want to issue similar guidance in the next few weeks, according to CSBS vice president Michael Stevens. Mr. Stevens noted that the CSBS raised some issues about the strict underwriting requirements on option ARMs during the comment period on the federal guidance. "At this point in time, we think that it is important to have consistent guidance across all the financial providers," Mr. Stevens said.

The president-elect of the National Association of Mortgage Brokers has updated attendees at the New Jersey Association of Mortgage Brokers convention in Atlantic City on several national issues, including making it easier for mortgage brokers to originate Federal Housing Administration loans.George Hanzimanolis said the group has met with Department of Housing and Urban Development Secretary Alphonso Jackson and FHA Commissioner Brian Montgomery regarding the replacement of the audit requirement for mortgage brokers with a surety bond. An audit, Mr. Hanzimanolis said, is just a snapshot that a bad actor could manipulate. An option being discussed with HUD is to allow lenders to choose which brokers they want to work with, and not have a bond or audit requirement at all. Another issue he addressed is fiduciary duty or suitability requirements. Suitability is subjective, Mr. Hanzimanolis said, maintaining that there are too many unknown factors. The best way to protect consumers is by educating them, and the industry should have education and background checks, Mr. Hanzimanolis said.

The American Mortgage Law Group, a national law firm focused exclusively on the mortgage banking industry, has been formed in Novato, Calif., according to Arthur Prieston, founder of The Prieston Group, a mortgage fraud insurance provider that will work closely with the new firm.American MLG will be headed by partners James Brody and Ryan Thomas, who have moved to the new firm from the mortgage banking group of Lanahan & Reilley, Santa Rosa, Calif., which has worked with TPG on loss mitigation. "There is clearly a need for an experienced national law firm dedicated solely to serving the unique needs of all within the mortgage banking industry, from lenders to investors to servicers to other entities," Mr. Prieston said. "The marketplace has changed, not only leaving lenders more vulnerable to fraud, but also squeezing profits for all. It is vital that the industry have access to a law firm that can effectively address all their concerns, regardless of location." TPG can be found online at http://www.priestongroup.com.

Senate Democrats will be in no mood to compromise on GSE regulatory reform during the lame-duck session if they win control of Congress in the November elections, according to Sen. Christopher J. Dodd, D-Conn."I'm hoping both houses [the House and the Senate] are in different hands the morning of Nov. 8," Sen. Dodd told reporters. "If that is the case, I think we will have a rather short lame-duck session." If the Democrats don't win both houses, the ranking Democrat on the Senate Banking Committee indicated there might be time to negotiate. "It depends on what kind of a lame-duck session it is," Sen. Dodd said after speaking to a Congressional Hispanic Caucus conference. Supporters of government-sponsored enterprise reform are hoping the lawmakers can reach agreement and pass a bill to strengthen the regulation of Fannie Mae and Freddie Mac when Congress returns to Washington Nov. 13 for the lame-duck session. Sen. Dodd contends that Congress could have passed a GSE regulatory reform bill in September if the Bush administration had accepted the House-passed GSE bill. "I think the administration missed an opportunity," he said. "House Democrats and Republicans put together a pretty good bill." The Connecticut senator said he likes the House GSE bill (H.R. 1461) and will try to pass it next year if he chairs the Senate Banking Committee. Sen. Dodd is in line to be the chairman if the Democrats win control of the Senate.