Compliance

Higher-priced home purchase loans rose 172% last year among the 10 leading national mortgage lenders, according to a study of federal Home Mortgage Disclosure Act data by Traiger & Hinckley LLP, a New York-based law firm.The firm said diminishing home equity and rising loan-to-income ratios were important factors in the increase. The study also showed that minority and white borrowers paid approximately the same average rate spread on higher-priced loans. "We interpret the growth in rate-spread loans as an attempt by lenders to manager increased credit risk without dashing the American dream of homeownership," said Warren Traiger, a partner in the law firm. "This strategy has not adversely impacted minority groups. On the contrary, lending to minority homebuyers has increased significantly and, despite the greater volume of higher-cost loans, the average price of those loans was consistent across different racial and ethnic groups." The law firm can be found online at http://www.traigerlaw.com.

Legislation awaiting the president's signature would give the secretary of the Department of Veterans Affairs the authority to change the VA's hybrid ARM program so that it conforms to the industry norm.But the secretary is ready to act as soon as President Bush does, according to Keith Pedigo, director of the VA's Loan Guaranty Service. The bill allows the agency to insure five-year or longer hybrids with 2% annual rate caps and 6% life-of-loan rate caps "at the secretary's discretion," but "the plan is to fix the hybrid ARM problem right away" by making the switch from 1% annual caps, Mr. Pedigo said at the Mortgage Bankers Association's Government Housing Finance Conference. The VA official also said his office will soon begin testing a program that will allow veterans to determine their eligibility for VA-insured mortgages online and on their own. He told the meeting he's "not too" concerned with the recent dropoff in the agency's loan volume. "I think it will come back," he said. The VA backed 165,854 mortgages in fiscal 2005, down from the most recent high of nearly 500,000 in fiscal 2003 and an all-time high of some 600,000 in 1994.

Even though the first major overhaul of the Federal Housing Administration's mortgage insurance program in a decade has a long way to go in a short time, the agency is already thinking about how to implement the proposed changes, officials said Tuesday.If Congress should allow the FHA to switch to risk-based pricing, the agency would like to create a "little premium calculator" as a simple means of determining what the FHA would charge to insure a particular loan, according to Meg Burns, director of the FHA's Office of Single-Family Program Development. The agency also plans to move condominiums into the standard 203(b) program to eliminate the "long, drawn-out" approval process, and to either completely revamp the Title I home improvement loan program or drop it altogether, Ms. Burns told the Mortgage Bankers Association's Government Housing Finance Conference in Washington. She said the plan is to remove condos from a "very onerous, time-consuming" clearance process by allowing lenders to certify condo loans directly based on a streamlined checklist. The envisioned premium calculator would compute the cost of the insurance premium based on the borrower's credit score, the term of the mortgage, whether it has a fixed or adjustable rate, the loan-to-value ratio, and whether it is a purchase-money mortgage or a refi, the FHA official said.

FHA Commissioner Brian Montgomery maintains that a recent IRS revenue ruling that downpayment assistance providers are not nonprofit corporations will give a shot in the arm to efforts to revamp the government's oldest housing program.Noting that 25%-30% of the FHA's volume is from loans in which the seller "donates" all or part of the downpayment through a third-party entity, Mr. Montgomery said he's "not sure what will fill the void" if Congress fails to give the FHA permission to back 100% mortgages. While the ruling is "not a complete death knell" for downpayment assistance, "it highlights the need" for lawmakers to act, he told the Mortgage Bankers Association's Government Housing Finance Conference. The FHA commissioner said he thinks "we have a real shot at modernization," adding that he was "encouraged" and "truly surprised" by bipartisan support in the House, where 61 members have signed on to a bill that has been cleared by the House Financial Services Committee. And he said he is "seeing growing enthusiasm in the Senate." Conventional and subprime lenders have been eating away at the FHA's bread-and-butter market of low- and moderate-income borrowers, and the agency's market share has dropped from 13% in 1990 to just 3.5% last year, said Martha Simmons of SunTrust Mortgage, vice chair of the MBA's Residential Loan Committee.