Compliance

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.

A new GSE regulator could establish annual limits on the size and growth of Fannie Mae's and Freddie Mac's giant portfolios through a rulemaking process, according to James Lockhart, director of the Office of Federal Housing Enterprise Oversight.The OFHEO director told the National Economists Club that the $700 billion mortgage portfolios are too large and should be reduced gradually to a level the regulator determines is appropriate after weighing safety-and-soundness and systemic risk concerns. "If done properly, the reduction of the portfolios would be through a transparent rulemaking process," he said. And after a gradual reduction, the government-sponsored enterprises could "grow with the market," he added. The process Mr. Lockhart outlined reflects a proposal floated by Treasury Department officials to break a deadlock in the Senate over the issue of portfolio limits. No agreement on a GSE regulatory reform bill has been reached yet. "I believe the two sides are not very far apart at all," the OFHEO director said.

Members of minority groups constituted the fastest-growing segment of homebuyers obtaining new home-purchase mortgages in 2005, according to Genworth Mortgage Insurance and Compliance Technologies.In a report released at the Second Annual Mortgage Lending Industry Diversity and Emerging Markets Conference & Career Fair in Washington, conference co-sponsors Genworth and ComplianceTech said the percentage increase for minority loans in high-volume areas was three times greater than for white households in the top 20 metropolitan areas for mortgage growth. Using newly released Home Mortgage Disclosure Act data for 2005, the report ("The 2005 Minority Home Buying Surge") analyzes the change in minority home-purchase loans from 2004 to 2005 in 388 metro areas. "We are now witnessing the positive effects of the growth in immigrant households who want to own a piece of the American Dream," said Michael Taliefero, managing director of ComplianceTech, which prepared the report. "While immigration is part of the story, the lower homeownership rates among African-Americans and Hispanics represent pent-up mortgage demand that is starting to be filled." Genworth can be found online at http://www.genworth.com.

Interest-only and payment-option ARM lenders will have to qualify borrowers at the fully indexed rate with potential negative amortization added to the loan amount under final federal regulatory guidance issued Friday.Banking regulators rejected industry complaints that the new underwriting guidelines will be too restrictive. Under the mandate, payment-option adjustable-rate mortgage servicers must include in the monthly mortgage statement an "explanation" that if borrowers chooses the minimum monthly payment -- which many do -- it would increase their loan balance. "The regulators stuck to their guns," said Howard Glaser, a former Department of Housing and Urban Development attorney who runs a consulting practice. ".... It is rare for federal regulators to step in and regulate a specific product. They are doing so here out of concern that they need to protect both the borrower and the bank." According to the Alternative Products Quarterly Data Report, the largest option ARM lenders include Countrywide Home Loans, Washington Mutual, and Golden West, among others. The regulators also issued model consumer disclosures for IO and option ARM products for public comment.

Kirkpatrick & Lockhart Nicholson Graham LLP, which has a large mortgage banking and financial services practice, is in merger talks with a Seattle-based law firm that is focused on the technology industry.Preston Gates & Ellis and K&LNG are in "discussions aimed at a possible combination of their firms by year-end," the two companies said in a statement. Kirkpatrick & Lockhart merged with the London-based Nicholson Graham in January 2005.

The Office of Thrift Supervision Director John Reich has decided to bring the agency's Community Reinvestment Act requirements back in line with those of the other federal banking regulators, and the OTS will start a rulemaking process soon.Under former Director James Gilleran, the OTS expanded the small-bank CRA exemption to $1 billion and relaxed the community investment and services tests for larger institutions. The other banking regulators responded by creating a community development test to reduce the CRA burden on institutions with $250 million to $1 billion in assets. But they did not weaken the investment and services tests for larger banks. "Since joining OTS, I have come to appreciate that, in addition to effective community lending, thrifts continue to make investments and services that promote community development in all markets, particularly low- and moderate-income areas," Mr. Reich said. "Regardless of the rules, thrifts will continue to be leaders in key CRA activities."

Mortgage fraud resulted in losses of $545.9 million during the first half, and the losses are on track to outpace last year's total, according to newly released government figures.According to the Federal Bureau of Investigation, mortgage fraud losses totaled $1 billion in fiscal 2005, more than double that of the year before. Financial institutions engaged in mortgage activity filed close to 17,000 suspicious activity reports with the FBI during the first half. In 2005, 21,994 SARs were filed. (For more details, see the Oct. 2 issue of National Mortgage News.)

SouthStar Funding LLC has agreed to pay $500,000 to settle a complaint that its restrictive policies on funding row house loans discriminated against blacks and Hispanics.The Atlanta-based wholesaler has agreed, as part of the settlement worked out by HUD, to drop its policy of not funding loans on row houses in Baltimore and not funding row house loans in other areas when the property value is under $100,000. "SouthStar is pleased that it has reached a settlement with NCRC regarding the complaint [and] looks forward to working with NCRC to promote fair housing policies nationwide," said Toni Ward, SouthStar's vice president for compliance. The Department of Housing and Urban Development, which investigated the complaint filed by the National Community Reinvestment Coalition in March, is urging leaders to review their row house policies. "Our hope is that other mortgage companies will take note and examine their policies that impose similar restrictions," said HUD's assistant secretary for fair housing, Kim Kendrick. The NCRC has filed similar complaints against three other lenders with restrictive row house policies. SouthStar will pay $500,000 over four years to fund the NCRC's efforts to combat discrimination and educate housing counselors.

Rep. Spencer Bachus, R-Ala., plans to circulate a draft of a predatory lending bill soon, but he has clarified that the draft is not the product of a bipartisan agreement, although he hopes to reach such an agreement next year."The bill Congressman Bachus is drafting is simply his attempt at the next step in an ongoing process of reaching consensus on subprime lending legislation," a statement issued by Rep. Bachus' office says. The chairman of the financial institutions subcommittee held discussions with key Democratic members of the House Financial Services Committee earlier this year. However, Rep. Bachus issued the clarification after Democrats pointed out that they have not participated in the drafting and don't know what is in his bill. "Rep. Bachus has worked with us in good faith, and I look forward to continuing to do that next year," Rep. Brad Miller, D-N.C., said in an interview with MortgageWire. "But it is not the consensus or compromise bill at this point."

House Financial Services Committee members have come very close to reaching a bipartisan agreement on predatory lending legislation, and they plan to circulate a draft of the bill soon for discussion purposes and to set the stage for committee action next year."I think we are awfully close [to an agreement]," Rep. Spencer Bachus, R-Ala, told reporters. The chairman of the financial institutions subcommittee acknowledged that the bill would impose a suitability standard on lenders making mortgage loans, but declined to provide other details. Rep. Barney Frank, D-Mass., noted that some conservative Republicans have problems with the bill. But he said mainstream Republicans on the committee are "ready to make the deal." In separate interviews, Reps. Bachus and Frank said that no matter which political party controls the House after the November elections, a predatory lending bill will be on the committee's agenda next year.

Federal regulators on Wednesday criticized the residential finance industry for aggressively marketing "exotic" mortgages without making full disclosures on the payment shock associated with some of the loans.At a jam-packed hearing before the Senate Banking subcommittee on housing, Sandra Thompson of the Federal Deposit Insurance Corp. told elected officials that in the monthly mortgage statements they send out, some lenders encourage borrowers "to make the minimum payment," adding that payment-option adjustable-rate mortgage customers "are not getting enough information" early in the application process. Also on Wednesday, the Government Accountability Office issued a report on "alternative mortgage products" (exotics), saying that some recent borrowers now lack sufficient equity in their homes to refinance out of the loans. The report notes that in their advertisements, "some lenders and brokers emphasize the benefits of AMPs without explaining the risks associated." According to exclusive survey figures compiled by National Mortgage News and Alternative Products Quarterly Data Report, mortgage bankers funded $264 billion in option ARMs and interest-only loans in the second quarter, or 31% of all mortgages funded.