The House has passed a bill that prohibits commercial firms, such as WalMart and Home Depot, from gaining control of state-chartered industrial loan companies and entering the banking business.The bill (H.R. 698), passed by a 371-16 vote, also restricts ILCs currently owned by commercial firms from branching across state lines. "This bill will preserve the distinction between banking and commerce that is necessary to protect the integrity of the banking system," said House Financial Services Committee Chairman Barney Frank, D-Mass. "I hope to work with the Senate to forge a compromise bill that the president can sign." But it does not appear that the Senate Banking Committee will act on an ILC bill soon. The Federal Deposit Insurance Corp. has imposed a moratorium on ILC applications to give Congress time to address the issue.

Ellie Mae, a Dublin, Calif.-based provider of software and services for the mortgage industry, has released Dynamic Loan Screening, which it touts as the industry's first virtual inter-operable platform that matches loan applications with the products and services of lenders, investors, and settlement service providers.The platform automatically identifies matches between borrower data and products, services, and promotions of participating lenders, investors, and service providers as an originator enters data into Encompass, Ellie Mae's mortgage management system. "As the originator inputs loan data into Encompass, that data is continuously monitored, and when a 'match' occurs, an offer is automatically displayed on the originator's loan origination system screen," said Jonathan Corr, Ellie Mae’s chief strategy officer. "For lenders and service providers, it's like having an account executive sitting on the originator's desktop." Dynamic Loan Screening can also screen for compliance and fraud as well as prepayment and early delinquency risks. Ellie Mae can be found online at http://www.elliemae.com.

Addressing pain points currently haunting the mortgage industry, Fort Worth, Texas-based Rapid Reporting has announced major initiatives addressing fraud prevention and buybacks.Rapid Reporting has partnered with collateral valuation and fraud specialist Magellan Lender Services, San Francisco, to give mortgage lenders a complete solution that checks the validity of both borrower and collateral-related data used to evaluate and approve mortgage loan applications. Rapid Reporting will provide borrower-related verifications and Magellan will provide collateral-based verifications to deliver one-stop coverage. Rapid Reporting said it is also offering a Stated Doc Report providing additional IRS-verified information to determine whether information on stated-income loan applications is corroborated by Internal Revenue Service data. No actual numerical data are released in Rapid Reporting's Stated Doc Report, so the integrity of stated-income loans can be maintained.

Originators who made loans knowing that borrowers would not be able to pay were called out by an MBA official in the opening general session of the Mortgage Bankers Association National Secondary Market Convention as among the factors responsible for the subprime sector's woes.Loans that go wrong "after the fact, we can live with," said MBA chairman-elect Kieran Quinn, calling out "people who only care about their commission" and make loans without regard for the borrower's ability to repay. He said the regulatory response to subprime concerns has been "measured" so far, in part due to productive industry dialogue with officials and market participants. But he also noted that while underwriting has tightened, loan performance concerns in general are not over. Early indicators such as statistics in the economically troubled Midwest and California's short-term delinquencies "do not bode well," Mr. Quinn said.

Senate Banking Committee Democrats are prodding the Federal Reserve Board and the other banking regulators to issue subprime guidance on adjustable-rate 2/28 and 3/27 mortgages as quickly as possible.In a May 17 letter, Banking Committee Chairman Christopher J. Dodd, D-Conn., and four other senators urge the regulators to put aside their concerns that tighter underwriting standards will make it difficult for trapped subprime borrowers to refinance. "Frankly, we find this objection as an admission that the original subprime ARM was inappropriate," the letter says. "It stretches credulity to argue that the path out of a poorly underwritten loan is another unaffordable loan underwritten on the same faulty basis." The proposed guidance requires lenders to underwrite subprime ARMs at the fully indexed and fully amortizing rate. The senators note that the Mortgage Bankers Association, along with major lenders and servicers, has adopted principles to pursue loan modifications if borrowers cannot afford their payment after the ARM resets. "These kinds of modifications offer a real alternative to foreclosure for borrowers, and we urge you to encourage servicers to pursue this course of action," the senators say.

Mortgage lenders support the efforts of federal regulators to strengthen underwriting standards on subprime loans and will help troubled borrowers avoid foreclosure, according to a joint statement issued by five industry groups.The trade groups have been very wary of proposed subprime guidance the banking regulators are expected to finalize soon, and they are very concerned about proposed legislation aimed at providing relief for subprime borrowers facing foreclosure. "We believe the efforts of our members, together with the actions of the regulators, will be effective in dealing with current problems in subprime mortgage lending," the joint statement on responsible subprime lending says. "We urge the federal regulators to ensure that the proposed statement on subprime lending strikes a careful balance that provides enhanced consumer protections without unintentionally limiting the availability of home ownership to creditworthy borrowers." The Financial Services Roundtable, the American Bankers Association, the Mortgage Bankers Association, the Consumer Bankers Association, and America's Community Bankers signed the statement.

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.