Archive for February, 2010

How Key Issues May Play Out in Reg Reform Debate

Friday, February 19th, 2010

American Banker  |  Friday, February 19, 2010

By Stacy Kaper  

WASHINGTON — With Congress set to return to work on Monday, Senate Banking Committee Chairman Chris Dodd is pushing an ambitious agenda in an attempt to build momentum behind a regulatory reform bill.

The Connecticut Democrat is hoping to introduce a revised bill next week, and hold a panel vote during the first week in March.

Yet the fate and makeup of a revised reform bill is unclear. With that in mind, we offer the following frequently asked questions.

Is anything actually settled yet?
So far the most set part of the legislation appears to be language to strengthen the government’s resolution powers over institutions whose failure would pose a risk to the economy. Sen. Bob Corker, the only Republican still willing to negotiate with Dodd on reform at the moment, has been hammering out resolution authority with Sen. Mark Warner.

Essentially, the two want to ensure that a systemically important firm must first exhaust bankruptcy proceedings if it appears ready to fail, but allow the government some leeway to seize and dismantle a firm if it must do so to protect the economy. The bill is likely to make it extremely difficult — if not outright impossible — for the government to keep any failing firm afloat, including not allowing it to place a systemic company into conservatorship.

Are there any issues with that?
Getting into bankruptcy rules gets tricky, because that is the purview of the Senate Judiciary Committee, not the banking panel. There’s also a question of how the government would pay to resolve a failing big firm. The House reform bill would create an industry fund ahead of time, while the Senate bill is unlikely to follow suit.

What about the systemic-risk council?
The New York Times caused a few waves when it reported that Dodd is leaning toward letting the Treasury Department oversee a council designed to oversee systemically important firms. The Connecticut Democrat told the paper that the Treasury secretary could serve as chairman of the council, while the chairman of the Federal Reserve Board would serve as vice chairman.

What’s that really mean?
Not much. Dodd has long made it clear that he favors a systemic-risk council over giving greater authority to a regulator like the Fed. Most observers presumed the Treasury would be the logical choice to lead it. The more important question is who enforces what the council recommends. The most likely candidate is whatever primary regulator already oversees the firm.

What about the Fed?
There are a lot of moving pieces here and one big mystery is how far the Senate will go toward stripping the central bank of its power. Dodd’s original bill called for eliminating the Fed’s supervisory authority and leaving it focused solely on monetary policy — a position the Fed and the Obama administration adamantly oppose.

One potential compromise is to let the Fed have an active role in regulating just the most significant systemically important firms, instead of all bank holding companies and state-chartered member banks. This would greatly reduce the number of companies the Fed oversees, yet still let the central bank have some direct window into the largest firms. It is unclear if anyone — the administration, the Fed or the Banking Committee — likes this idea, however.

Who would regulate the rest of the bank holding companies?
The betting right now would suggest that the Federal Deposit Insurance Corp. would regulate all state-chartered banks and their holding companies, while an empowered Office of the Comptroller of the Currency would oversee all federally chartered banks and their holding companies. The Fed would either be left with just the systemically significant firms, or potentially lose any role in supervision.

What about strengthening consumer powers?
For right now, that issue is tabled. Corker, in agreeing to work with Dodd, said the other issues should be worked out first, which is still happening. How much progress the two will make before next week is anyone’s guess, but they are both traveling together on a trip to Central America as part of their work on the Senate Foreign Relations Committee. In theory, they could work a lot out over a plate of pupusas.

Sen. Richard Shelby, the panel’s lead Republican, however, is working on his own substitute legislation. How either bill will resolve the issue is unclear.

Dodd is likely to propose an independent division within a bank regulator but Republicans are concerned over how much power it should have.

Tags: ,
Posted in RESPA | No Comments »

Fannie, Freddie No Longer Fight Each Other for Lenders’ Business

Friday, February 19th, 2010

American Banker  |  Thursday, February 18, 2010

 Fannie Mae and Freddie Mac, once fierce rivals for mortgage lenders’ business, have been forced into a kinship of sorts under federal conservatorship.

Eighteen months after the government seized them, the secondary-market giants no longer focus on gaining market share or cultivating partnerships with originators. Their main priorities today are preventing foreclosures and saving taxpayers money. To help do the latter, the government-sponsored enterprises have been forcing lenders to buy back greater numbers of defective loans, a trend that has ruptured relationships.

With the Federal Housing Finance Agency coordinating policies and initiatives, Fannie and Freddie often appear to be working in tandem. It is a far cry from the days when Fannie and Freddie fought for volume by offering price breaks to the top lenders.

“Definitely the competitiveness is out of the relationship,” said Brad Nease, the president of Mortgage Capital Management Inc., a San Diego secondary-market consulting firm.

“With both of them out of capital and supported by the government, they really have blended into the same entity,” he said.

This month American Banker interviewed more than two dozen mortgage bankers, former GSE executives and other industry members, most of whom did not want to be identified. They painted a picture of radical change in the corporate cultures at Fannie and Freddie, and resulting frustration at their lender partners, who complained that the GSEs have become too risk-averse and bureaucratic.

There is not much lenders can do besides grumble if they want an outlet for their loans. Fannie and Freddie financed or guaranteed 78% of new, single-family mortgage production in the first nine months of last year, up from 54% for all of 2006, according to the FHFA.

Fannie and Freddie would not comment for this story and referred questions to the FHFA, their regulator and conservator.

Stefanie Mullin, an FHFA spokeswoman, said that, though each company operates independently, they are working toward a common goal.

“Credit-loss mitigation is an essential goal of the conservatorships, and in that area, the two companies have worked together with FHFA and the administration to develop and implement the Making Home Affordable Program,” she said.

Underscoring the new nature of Fannie and Freddie, Edward DeMarco, the FHFA’s acting director, said in a letter to lawmakers this month that he had barred the GSEs from developing new products.

Neither Fannie nor Freddie had even asked for the agency’s permission to pursue product development since at least July 2009, when a public review process was established.

The GSEs, DeMarco wrote, should “concentrate on their existing core businesses, including minimizing credit losses.”

To that end, tighter guidelines have made it more difficult to sell loans to the GSEs.

“An adverse consequence of conservatorship under Fannie and Freddie is that if the loan is not perfect, they won’t buy it,” said a banker who sells loans to both GSEs and compared them to the Post Office.

“They’re essentially saying, ‘don’t sell to us.’ So the effect is … that lenders will not originate anything other than loans whose borrowers have a high credit score and a big down payment.”

Perhaps the biggest headache for mortgage lenders doing business with the GSEs now is the surge of loan-buyback requests that began in earnest in 2008.

In its third-quarter report, Freddie said that servicers had repurchased $960 million of loans from it during the period, nearly double the amount a year earlier. Fannie does not disclose its volume of repurchase requests but said in its third-quarter report that repurchases were expected to remain high into 2010.

Loans that were originated four or five years ago and performed well until the borrowers lost their jobs are being sent back to originators, lenders complain. An army of contractors and outsourced third-party firms working for Fannie and Freddie are auditing loan files, looking for reasons — such as an inaccurate debt-to-income ratio or an investment property that the loan applicant claimed was to be a second home — to push a file back to a lender.

“The old rules in which they had relationships with lenders is gone,” said another lender. “The buyback issue is totally selective. It’s good for them and bad for lenders.”

As instruments of the Obama administration’s housing policies, the GSEs move in lockstep more often than before they entered conservatorship.

For example, on Dec. 17 Fannie and Freddie made nearly identical announcements that they would suspend evictions of tenants living in foreclosed properties.

When the administration introduced the Making Home Affordable Program in March, Fannie was named its primary administrator, collecting monthly loan-level data from servicers. Freddie was appointed the compliance agent, overseeing how loan modifications were being executed by servicers and ensuring the development of quality assurance programs.

However, last week brought a flashback to the days when the GSEs would sometimes upstage each other.

On the morning of Feb. 10, Freddie announced a plan to buy back from its securitized pools all the loans that were 120 days or more past due.

It was big news for the mortgage-backed securities market. Investors had been wondering whether and when the GSEs would undertake such buybacks, which accelerate prepayment of bondholders’ principal.

For much of the day, analysts were still wondering what Fannie would do.

“Freddie beat them to the punch,” Walt Schmidt, senior vice president and manager of structured product strategies at First Horizon National Corp.’s FTN Financial Capital Markets in Chicago, said around midday.

Finally, at 2:30 p.m., Fannie announced a similar buyback plan in a press release that appeared to have been hastily put together, with several typos. (The buyouts will save the GSEs money since they will no longer have to advance mortgage payments to security holders.)

Two Washington sources later said Freddie had by accident sent out its release prematurely that morning, forcing Fannie to scramble. Michael Cosgrove, a Freddie spokesman, denied that the announcement had been sent by mistake.

If there was a glitch at Freddie, it would have been the exception that proves the rule: Fannie and Freddie do not do anything big without FHFA’s say-so.

But David Lykken, the president of the Austin consulting firm Mortgage Banking Solutions, offered a different interpretation.

The incident shows that, in one sense, “the rivalry is as alive as ever,” he said.

Policymakers have discussed a range of outcomes for the GSEs, many of which — such as turning them into public utilities — would keep the companies separate.

But in Lykken’s view, “only one of the two entities is going to survive.” The GSE left standing “will be the one who can manage risk most effectively,” he said.

Hence, though under conservatorship “they’re absolutely less competitive, without question,” Fannie and Freddie still have a reason to try to differentiate themselves from each other, Lykken said.

“This is a game of chess right now, and it’s all about survivability,” he said.

Posted in RESPA | No Comments »

HUD continues guidance on new RESPA forms; Delivers more FAQs four weeks after rule effective date

Wednesday, February 3rd, 2010

Issue Date: RESPA News Monthly
January 2010, Posted On: 2/2/2010
In-Depth Reports

Late last year, many industry professionals predicted that the Department of Housing and Urban Development (HUD) would continue releasing more rounds of RESPA final rule frequently asked questions (FAQs) well into the New Year. This prediction was validated on Jan. 28 when HUD issued yet another revision to its already massive document. The guidance is intended to help industry members with questions as they implement the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement forms. The forms went into effect on Jan. 1.

 

In this new round of FAQs, HUD added some new questions and made some revisions to existing FAQs. On Page 4, HUD added language to its answer for the following question: May a loan originator require the use of its affiliate for the tax service or flood certificate? HUD originally stated, “No, a loan originator may not require the use of its affiliate for tax service or flood certificate.” It has added the following: “But a loan originator may require the use of a non-affiliated provider.”

HUD added several new FAQs that addressed questions about the formatting of the new forms. It clarified the following:

  • Changing the pagination of the GFE is not permitted;
  • The GFE may be on legal size paper;
  • Shading and margins may be changed on the HUD-1; and
  • Lines may be added to the HUD-1 and a blank line within a series may be deleted from the form.

HUD also provided an answer to the question on whether an FHA loan correspondent is considered a broker or lender if he closes a loan in his name and is not table-funded by his sponsor, but rather is funded from his own funds or from a warehouse line of credit which he controls. According to HUD, in this scenario, the correspondent is considered to be a lender.

HUD also noted that if a mortgage broker provides the initial GFE and the lender accepts the loan, the lender cannot issue a new initial GFE, but rather is bound by the terms disclosed to the borrower by the broker.

In addition, there is a new FAQ that says loan originators cannot require borrowers to sign consent forms as a condition of issuing a GFE.

“A loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator (see 24 CFR § 3500.7(a) (5) and (b) (5)),” HUD said. “However, the borrower may voluntarily sign consents prior to the issuance of the GFE to facilitate the loan process.”

On Page 8 of the FAQs, HUD clarified that if a borrower locks the interest rate after a GFE has been issued, a revised GFE must be issued within three days of the interest rate lock. This revised GFE would reflect the date that the interest rate lock is good through by putting this information in line 1 and putting “N/A” in line 4 of the “Important dates” section on Page 1 of the form.

“Any interest rate-dependent charges (block 2, line A and block 10 on the GFE) and terms that changed must also be updated on the revised GFE,” HUD said.

HUD also included more guidance on disclosing appraisal management fees. However, according to some chatter among lender compliance professionals on a real estate blog, this guidance may not be all that helpful.

“We have conflicting new FAQs,” one blogger wrote. “If an appraisal management company retains independent appraisers to perform the appraisal, the portion of the fee retained by the appraisal management company for management of the process of obtaining the appraisal may have to be folded into block 1 of the GFE and line 801 of the HUD-1. And, only the portion of the fee retained by the appraiser may be disclosed in block 3 and on line 804 of the HUD-1.”

On Page 26, the FAQ states:

“Q: What charges are part of the charge in block 1 of the GFE, ‘Our origination charge?’

A: Block 1, “Our origination charge” on the GFE contains all charges for origination services performed by or on behalf of a lender and/or a mortgage broker. Origination services includes, but is not limited to, the following: taking of the loan application, loan processing, underwriting of the loan, funding of the loan, acting as an intermediary between a borrower and lender, obtaining verifications and appraisals, and any processing and administrative services required to perform these functions.”

The phrases “services performed by or on behalf of a lender” and “obtaining verifications and appraisals,” are what seem to be troubling and one blogger wrote that HUD contradicts itself in a separate FAQ on Page 46. The FAQ reads:

“Q: If an appraisal is ordered through XYZ appraisal vendor management company and the appraisal is subcontracted to ABC Appraisal Company, what name is identified in line 804 on the HUD-1?

A: XYZ appraisal management company must be identified on Line 804.”

“So which is it? Is the portion of the fee for referring out the appraisal an administrative fee (and is this a violation of Section 8(a) and 8(b) of RESPA for taking a referral fee and taking a split of the appraisal fee without providing appraisal services), or is putting the appraisal management company on the HUD as the appraiser kosher? Note that if the title agent farms out the closing or a portion of the closing, the fee paid to the closer is disclosed on line 1102. Why should the appraisal be handled differently,” the blogger questioned.

Moreover, on Page 11, HUD addresses the question of whether or not a loan originator has to show an appraisal fee (or other fee) paid to a third party on the GFE and HUD-1, even if the loan originator wants to cover 100 percent of the fee. HUD says yes.

“The loan originator must list all required third-party services on the GFE and HUD-1 regardless of whether the charge is paid by the borrower, seller, loan originator or any other party (except for administrative and processing services),” HUD said. “If any party other than the borrower is paying for a service that was on the GFE, such as the appraisal fee, the charge remains in the borrower’s column on the HUD-1. A credit from the paying party to the borrower to offset the charge should be listed on the first page of the HUD-1 in lines 204-209 and, if the service was paid by the seller, lines 506-509 respectively.”

Regarding the written list of service providers that the loan originator must give to the borrower, on Page 15, HUD clarifies that a loan originator may include a statement on this document that the listing of a service provider on the “written list” does not constitute an endorsement of that service provider.

On Page 28, question seven asks if the yield spread premium can be shown as “paid outside of closing” on the GFE and the HUD-1? HUD says no.

“The yield spread premium is applied as a credit to the borrower in block 2 on the GFE and in line 802 on the HUD-1,” HUD noted.

HUD also provides more guidance on “changed circumstances,” the “Important dates” section, where to disclose an escrow waiver fee, condominium certificates, the disclosure of third-party services, transfer taxes, curing tolerances and seller-paid items.

HUD issued its first round of FAQs in August. At that time, the guidance spanned 16 pages and provided insight on a little less than 100 questions. Now, the document is 57 pages and includes a table of context that categorizes about 275 Q&As. For a copy of the latest FAQ report, go here.

Tags: , , , , , ,
Posted in Mortgage Texas, RESPA | No Comments »