Interthinx Inc., Agoura Hills, Calif., has expanded its PredProtect product to allow for loan-level regulatory compliance in order to respond to regional differences in limits for "mini-jumbo" conforming loans. The tool handles loans between $417,000 and $729,000 in California, Colorado, Hawaii, Maryland, New Jersey, New York, Virginia, and Washington, D.C., without waiting for system enhancements or upgrades, the company said. "The new 'mini-jumbo category was introduced to allow consumers to qualify for loans that could be purchased by Fannie Mae and Freddie Mac," said Roger Fendelman, vice president of compliance for Interthinx. "However, since the limits can vary by county or metropolitan statistical abstract, lenders have been faced with challenges to make sure that this new class of loans complies with the maze of existing federal, state, and local consumer protection laws, including anti-predatory-lending laws." Interthinx can be found on the Web at http://www.interthinx.com.

The Office of Federal Housing Enterprise Oversight has reversed course and decided to keep the conforming loan limit at $417,000 in "2009 and subsequent years" in using final guidance on calculating the loan limits for Fannie Mae and Freddie Mac. OFHEO initially proposed to lower the conforming loan limit if house prices declined by more than 1% nationally. Mortgage industry groups opposed the change, and OFHEO backed off as house prices started to decline. OFHEO's index shows that house prices have declined by 3% since January 2007. "The revised guidance responds to the comments that we received and OFHEO's belief that stability in the mortgage market is very important," OFHEO Director James Lockhart said. OFHEO said it will not raise the conforming loan limit "until cumulative increases in house prices exceed cumulative decreases since the $417,000 limit was first reached." The agency can be found online at http://www.ofheo.gov.

Compliance Coach Inc., San Diego, has launched Web-based software that enables compliance with a federal regulation that imposes new responsibilities on businesses to prevent consumer identity theft. The new FACT Act Identity Theft Red Flags Rule requires affected entities to perform a risk assessment and take steps to implement a written Identity Theft Prevention Program by Nov. 1, 2008. Failure to comply can lead to a civil money penalty for each violation, regulatory enforcement action, or private plaintiff lawsuits. Companies are required, among other things, to identify all accounts covered by the rule; perform a risk assessment of each covered account; identify "red flags" that may indicate identity theft; develop a written program; provide training to appropriate employees; and provide a compliance status report at least annually. CompliancePal walks the user through a series of questions to help users meet the requirements. The company can be found on the Web at http://www.compliancecoach.com.

The 12 Federal Home Loan Banks have been given a green light by their regulator to purchase over $100 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac over the next two years to provide additional liquidity for the MBS market. The Federal Housing Finance Board agreed by notational vote to raise the cap on MBS investments from 300% to 600% of capital as part of the government's effort to help stabilize the housing market. The FHLBanks held $136.4 billion in MBS as of Sept. 30. Fannie and Freddie will be testing the market soon with the issuance of jumbo MBS for the first time. In addition, the Finance Board said the FHLBanks can purchase agency MBS that are secured by subprime and nontraditional mortgages that meet federal regulatory guidance. "Increasing the agency MBS investment authority for the banks is another way in which the FHLBank System can perform its traditional mission," said Finance Board Chairman Ronald Rosenfeld. Fannie's and Freddie's regulator recently relaxed their capital requirements so the two government-sponsored enterprises could expand their investment portfolios and purchase $200 billion in mortgage loans and MBS.

Federally regulated lenders will file more than 60,000 mortgage-related suspicious activity reports this fiscal year, a federal crime fighter said at last week's Mortgage Bankers Association's National Fraud Issues Conference in Chicago. The Financial Crimes Enforcement Network fielded nearly 15,000 SARs in the first quarter of fiscal `08, according to FBI special agent Scott Broshears. And he expects the flood of filings to continue at the same pace as the year progresses. "We'll get over 60,000" reports from suspicious lenders, the FBI's mortgage fraud coordinator said. In fiscal `07, 46,717 SARs were filed, up from 35,617 in fiscal `06. The FBI is currently working on 1,284 cases. Last fiscal year, the unit worked on 1,210 cases, some of which are still open. According to Mr. Broshears, the investigations cover "approximately $3 billion" in mortgage losses, which is the highest government estimate yet of the impact fraud has had on the lending business.

Freddie Mac is seeking public comments until April 30 on the appraisal policies it agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo. Freddie Mac and Fannie Mae are slated to implement the new appraisal code by Jan. 1 under the March 3 settlement with Mr. Cuomo. "To implement the Code with minimum disruption to the market and, as required under the agreement, Freddie Mac is requesting comments on operational and implementation issues, as well as unintended consequences or risks you identify in connection with the requirements of the Code," Freddie said. The agreement bars Freddie and Fannie from purchasing mortgages from lenders that use in-house appraisers or subsidiary appraisal firms. On brokered loans, lenders must certify that the mortgage broker did not select the appraiser. Freddie Mac can be found online at http://www.freddiemac.com.

The Federal Deposit Insurance Corp. board of directors has decided to keep the assessment rates it charges banks and thrifts for deposit insurance unchanged for 2008 as it builds reserves to deal with more bank failures. The FDIC fund stood at 1.22% of estimated insured deposits at year-end 2007, and the agency wants the reserve ratio to reach 1.25% before the end of 2009. "We will closely monitor the progress of the fund along with the condition of the banking industry," FDIC Chairman Sheila Bair said. "As the fund reaches the 1.25% target, I expect the board to consider reducing rates to a maintenance level." The American Bankers Association contends that the FDIC has adequate reserves, and it wanted the assessments lowered. The ABA said it is "deeply disappointed" by the board's decision. "Every excess dollar pulled from bank capital into FDIC coffers means $10 of lending and related banking services that will not be available to support economic recovery," ABA executive vice president Wayne Abernathy said.

The Department of Housing and Urban Development has issued its long-awaited RESPA reform proposal, and it is more ambitious than the industry expected or wants to implement during the current market turmoil. Most observers expected HUD to issue a Real Estate Settlement Procedures Act proposal narrowly focused on providing consumers with concise and understandable disclosures of loan terms and settlement costs. However, HUD has "cast a wider net," according to RESPA attorney Phillip Schulman, who says the RESPA proposal is "complicated," "confusing," and "controversial." The RESPA proposal mandates the use of a standardized four-page good faith estimate that discloses loan terms and settlement costs, including the mortgage broker's compensation. HUD also wants the closing agent to read a closing scripting that summarizes important loan terms and highlights differences between the GFE and the HUD-1 settlement sheet. HUD Assistant Secretary Brian Montgomery expects industry opposition, but he told reporters it is "no longer acceptable" for industry to stand in the way of giving consumers clear disclosures. HUD has issued the proposal for a 60-day comment period. Seven major financial services trade groups, including the American Bankers Association and the Mortgage Bankers Association, have asked HUD to extend the comment period to 120 days.

Although Florida remains a hotbed for mortgage fraudsters, the crime is becoming more evenly spread among all states as opposed to being concentrated in just a few, according to the latest report from the Mortgage Asset Research Institute. MARI's 10th period fraud case report also found that while the most common types of fraud continue to involve erroneous employment histories and false income statements, the failure to disclose debts, liens, or judgments is an up-and-coming problem. "The tertiary issue of undisclosed or incorrect debts, liens or judgments increased 50% between 2006 and 2007," the report said. Merle Sharick, MARI's vice president of sales, told the meeting that "perpetrators are devising new and improved ways to beat the system." He also said that fraud for housing by individuals who fudge on their loan applications "is a much bigger deal that we thought it was." The report, which was issued in Chicago at the Mortgage Bankers Association's National Fraud Issues Conference, is based on 2007 data. But it stressed that many instances of fraud in last year's book of business have yet to be unmasked. "It will likely take three to five years to uncover most of the fraud and misrepresentation" in the `07 book, the report said.

While it has always been difficult to get a handle on the size of the mortgage fraud problem, a new report by a leading provider of fraud detection products indicates that the incidence of the crime may be much greater than anyone thinks. Analysts at Interthinx, Agoura Hills, Calif., say they found more than 42,000 mortgage applications in the second half of last year that contained significant misrepresentations of the borrowers' incomes. In total, the loans were worth nearly $11 billion. "I have no idea how many of the loans were funded, but I hope none of them," Ann Fulmer, the company's vice president of industry relations, said at the Mortgage Bankers Association's National Fraud Issues Conference in Chicago, where the six-month analysis was released. The questionable loans were discovered by Interthinx' income alert program, which warns clients that a borrower has submitted multiple loan applications and his income has jumped by at least 15% over a prescribed period. "Fraud is like water -- it always seeks the lowest level," Ms. Fulmer said. "That's why it is finding ways around the barriers lenders set up to uncover them." The company can be found on the Web at http://www.interthinx.com.

The FBI has set mid-June for another "national sweep" in its continuing effort to nab perpetrators of mortgage fraud. The new sweep, which involves law enforcement agencies at the federal, state, and local levels and has been dubbed "Operation Malicious Mortgage," is intended as "an important statement," according to John Arterberry, executive deputy chief in the Justice Department's Fraud Section. "We want to send the message that law enforcement takes mortgage fraud seriously," Mr. Arterberry said at the Mortgage Bankers Association's National Fraud issues Conference in Chicago. The planned sweep will be the FBI's third such effort. The first, in 2004, resulted in charges against 150 alleged criminals. The second was a year later and resulted in charges against 155 people. But this time, Mr. Arterberry said, the goal is to "double the number" of defendants. "We want to send a strong deterrent message," the Justice Department official told the conference. The MBA can be found online at http://www.mortgagebankers.org.

Refinance.com has received government approval to refinance subprime borrowers that are a few months delinquent into Federal Housing Administration-insured loans once the mortgage insurer, investor, or servicer makes up the necessary payments to bring the loan current. The New York-based lender received FHA approval a few weeks ago. "We have told our servicers and mortgage insurance companies of its availability," Refinance.com chairman and chief executive Nicholas Bratsafolis told MortgageWire. Mr. Bratsafolis noted that a lot of refinances will face loan-to-value problems, and he is encouraging servicers to use a shared-equity mortgage to reduce the principal amount of the mortgage to an affordable level. His branded "Appreciating America Second Mortgage" does not trigger a writedown until it is paid off or the property appreciates by 15%. FHA officials have "confirmed it would be appropriate" to use a shared appreciation mortgage in FHA refinancing, the CEO said. The borrower does not have to make payments on the SAM and receives a 30% share of the appreciation plus reimbursement for improvements when it's paid off. The company, also known as Homebridge Corp., is launching a marketing campaign for the Appreciating America Second Mortgage in a few weeks.

Treasury Secretary Henry Paulson continues to dismiss calls for helping borrowers with "underwater" mortgages through principal reductions that are being advocated by some federal banking regulators. It's not the "government's job" to help borrowers who would walk away from their homes because the properties' values have dropped and they don't want to pay the mortgage, Secretary Paulson told the American Bankers Association. The Treasury secretary played an important role in getting mortgage servicers to join the Hope Now alliance, which is focused on helping struggling homeowners who want to stay in their homes but can't afford their mortgage payment because of a change in their ability to pay or the reset of an adjustable-rate mortgage. He stressed that it is important for the Hope Now servicers to publicly disclose the results of their workout efforts so that everyone can see whether the servicers are following through on the commitments. "I won't look kindly on free riders," Mr. Paulson said. Last week, Federal Reserve Board Chairman Ben S. Bernanke called on lenders to make permanent reductions in the principal amount of a mortgage to help troubled borrowers stay in their homes or refinance into a Federal Housing Administration-insured mortgage.

In late 2006 Countrywide Financial Corp. chairman and chief executive Angelo Mozilo accelerated his insider stock sales just as the company had decided to spend $2.5 billion of its own money to buy back stock, according to the House Oversight Committee. At a congressional hearing on Friday, committee chairman Henry Waxman, D-Calif., questioned Mr. Mozilo about the buyback plan and his decision to exercise options and sell $150 million worth of stock just as Countrywide's share price was peaking. "Countrywide's stock has fallen almost 85% since February [2007, when it was $45 a share]," Rep. Waxman noted. "Why was the buyback plan in the best interests of the shareholders?" Mr. Mozilo defended his sales, saying there was "no relationship" between Countrywide's stock buyback plan and his exercising of options. Instead of selling his shares through a planned schedule, Mr. Mozilo said, "I could have sold them all at once." Countrywide's shares were trading at just over $5 on Friday, compared with a 52-week high of $42 and a low of $4. Bank of America is buying the company for about $7 a share. The company can be found online at http://www.countrywide.com.

The Federal Bureau of Investigation is working on 1,200 mortgage fraud investigations, a 50% increase from the level recorded in fiscal year 2006, FBI Director Robert Mueller told a Senate panel. "Roughly half of these cases have losses in excess of $1 million, and several have losses greater than $10 million," Mr. Mueller testified. The FBI director also told the Senate Judiciary Committee that the FBI is working with the Department of Justice and several law enforcement and regulatory agencies to target "systematic" mortgage fraud. "Together, we will build on existing FBI intelligence databases to identify large-scale industry insiders and criminal enterprises conducting systematic mortgage fraud," the FBI director said.

The Department of Housing and Urban Development has issued the new loan limits for Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages in high-cost counties of California and will soon release the loan limits for the rest of the country. Congress has temporarily increased the loan limits in high-cost areas to 125% of median home prices, up to a maximum of $729,750, until Dec. 30. Under this authority, lenders will be able to originate mortgages with a principal balance of $729,750 in the counties of Los Angeles, San Francisco, Orange, and Santa Barbara. HUD is also issuing a mortgagee letter that gives FHA lenders the green light to make the higher-balance loans. Lenders can check the new loan limits in their state by going to the FHA website, looking under "Hot Topics," and clicking on "Stay Informed of FHA Mortgage Limits." The FHA can be found online at http://www.fha.gov.

House Financial Services Committee Chairman Barney Frank, D-Mass., plans to circulate a bill next week that would create a government program to buy distressed mortgages that have been written down to an affordable level and meet Federal Housing Administration eligibility standards. Chairman Frank said he expects the mortgages to be purchased in an auction and that "we will buy the cheapest ones." He noted that his foreclosure prevention proposal is similar to one by the Office of Thrift Supervision, except that the government would take a "soft second" mortgage and share in any appreciation in the property. Rep. Frank has the backing of House Democratic leaders for the new program, which will require an initial $10 billion to $12 billion investment to start. He also told reporters that the bill might include a provision to shield servicers from investor lawsuits. Many servicers are reluctant to write down loans because of disgruntled investors. In related news, the committee chairman said a House/Senate conference on the FHA reform bill is going well and he expects to send the bill to the president in April.

FDIC Chairman Sheila Bair says she expects loan modifications to increase, but she is still concerned that servicers continue to rely too heavily on repayment plans. Repayment plans may be "unsustainable for borrowers and lead to delinquencies down the road and ongoing borrower distress," the Federal Deposit Insurance Corp. chairman told the Senate Banking Committee. Hope Now servicers reported that they modified 45,320 subprime loans in January and placed 48,155 subprime borrowers in repayment plans. The FDIC chairman testified that additional approaches may be needed to reduce foreclosures, including writedowns of the principal amount of the "underwater" mortgages. Meanwhile, Federal Reserve Board Chairman Ben S. Bernanke spoke favorably about an Office of Thrift Supervision proposal that would encourage writedowns by giving investors a share in future appreciation. "A writedown that is sufficient to make borrowers eligible for a new loan would remove downsize risk to investors of additional writedowns or a re-default," the Fed chairman told the annual convention of the Independent Community Bankers of America.

A judge in Massachusetts has temporarily barred Fremont Investment & Loan from initiating or advancing foreclosures on "presumptively unfair" mortgage loans unless certain conditions are met, according to Buckley Kolar LLP. However, in granting the state attorney general's motion for a preliminary injunction, a Suffolk County Superior Court judge found that there was no evidence that Fremont had made false representations or had violated any federal or state consumer credit law, the law firm reported. Rather, the court found that the loans at issue fell within the "penumbra" of a state predatory-lending law governing high-cost mortgage loans. The court defined a loan as presumptively unfair if it is an adjustable-rate mortgage with an introductory period of three years or less, has a teaser rate at least 3 percentage points lower than the fully indexed rate, and meets two other tests. The other tests are that it has a loan-to-value ratio of 100%, or carries a substantial prepayment penalty (or a prepayment penalty that extends beyond the initial period), and the borrower has a debt-to-income ratio that would have exceeded 50% if the debt had been measured by the amount due under the fully indexed rate. Buckley Kolar, which serves the financial services industry, can be found online at http://www.buckleykolar.com.

Senate Republicans have blocked Democrats from rushing to the floor a foreclosure prevention bill that allows bankruptcy judges to restructure subprime and certain nontraditional mortgages. Democrats mustered only 48 of the 60 votes needed to invoke cloture and start debate on the bill (S. 3221), which also provides revenue bonds for refinancing subprime borrowers and federal grants to purchase foreclosed properties. Senate Majority Leader Harry Reid called the vote a "big victory" for Wall Street, big banks, and mortgage bankers. But as for the millions of people facing foreclosure, "they lost," Sen. Reid said. The American Financial Services Association's top lobbyist, Bill Himpler, said the industry could support the foreclosure prevention bill if the bankruptcy provision is stripped from the package. With all the market turmoil, this is not the time to consider changes to the bankruptcy code that would "essentially undermine investor confidence in mortgage lending," he said. The Democrats will likely push for another vote before March 15, when the Senate takes a two-week break. Meanwhile, the Senate Judiciary Committee has scheduled a March 6 mark-up of two competing mortgage bankruptcy bills. The bill sponsored by Sen. Richard Durbin, D-Ill., was included in S. 3221. The other bill, sponsored by Sen. Arlen Specter, R-Pa., allows bankruptcy judges to reduce or freeze the interest rate on adjustable-rate mortgages.