FILE – In this file photo taken July 21, 2010, a “bank owned” sign is seen on a home that is listed as a foreclosure on a HUD website, in Hawthorne, Calif. Nearly half of the homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out. (AP Photo/Reed Saxon, file)

WASHINGTON (AP) – Nearly half of the 1.3 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out.

The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.

More than 2.3 million homes have fallen into foreclosure since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics.

Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry. They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report. That’s about 48 percent of the those who had enrolled since March 2009. And it is up from more than 40 percent through June.

Another 421,804, or roughly 32 percent of those who started the program, have received permanent loan modifications and are making their payments on time.

RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 percent from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says.

Lenders have historically taken over about 100,000 homes a year, according to RealtyTrac.

Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales – when lenders let homeowners sell for less than they owe on their mortgages.

Zandi predicts another 1.5 million foreclosures or short sales in 2011.

“We still have a lot more foreclosures to come and further home price declines,” Zandi said. He said home prices, which have already fallen 30 percent since the peak of the housing boom, would drop by another 5 percent by next spring.

Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.

The banking industry said borrowers weren’t sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers’ monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. Those who have successfully navigated the program to reach permanent modifications have seen their monthly payments cut on average by about $500.

Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. But in practice, the process has taken far longer.

The more than 100 participating mortgage companies get taxpayer incentives to reduce payments. As of mid-June only $490 million had been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures.

American Banker  |  Wednesday, August 18, 2010
By Donna Borak

WASHINGTON — Although there were sharp disagreements at a Treasury Department conference Tuesday about what kind of role the government should take in the future of housing finance, one idea in particular seems to be gaining momentum: creating an insurance fund to back mortgage-backed securities.

Under a plan advanced by several participants, Fannie Mae and Freddie Mac would be replaced by privately capitalized, federally chartered companies that buy mortgages from the primary market and deliver them into a federally guaranteed mortgage-backed security.

The new companies would pay a risk-based fee used to establish an insurance fund, similar to that of the Federal Deposit Insurance Corp., which would cover catastrophic losses on MBS.

Although details of the plan vary, the idea has won considerable support.

“Any guarantee should be explicit and the government should charge a fee to create a reserve fund to cover potential losses,” said Ingrid Gould Ellen, a professor at New York University’s Wagner Graduate School of Public Service and co-director of the Furman Center for Real Estate and Urban Policy.

To be sure, others offered differing visions of the GSEs’ future, with Bill Gross of Pimco calling for full nationalization and Alex Pollock of the American Enterprise Institute suggesting a more private-market-oriented approach.

But amid the various ideas, the insurance fund was the subject of a surprising consensus.

The basic thrust of the plan involves an explicit, narrowly targeted government guarantee that would be used to cover “catastrophic” losses on certain kinds of MBS. For example, the government would give a guarantee only to 30-year fixed mortgages with significant down payments.

“Public participation should be limited to providing only a layer of guarantee and setting credit standards for tightly defined conventional mortgages behind the borrower down payment, private mortgage insurance, and layers of reserves and capital at whatever future entities play this limited role,” said S.A. Ibrahim, chief executive of the private mortgage insurer Radian Group Inc. “Public participation can be paid for through fees and further protect taxpayers through sound underwriting and appraisals, while additionally limiting the government guarantees to a historically safer catastrophic loan-to-value gap of, say, 70% or lower.”

The idea has already been endorsed by several groups and companies, including the Housing Policy Council, the Mortgage Bankers Association and Wells Fargo & Co.

Speaking at the conference Tuesday, Mike Heid, president of Wells Fargo Home Mortgage, said a government guarantee is “required to ensure that there’s a reliable flow of mortgage credit across the whole wide range of economic cycles we will experience in the future.”

“I want to emphasize that the guarantee itself should only apply to the performance of the mortgage security itself,” he said. “It should not apply in any shape or form to the particular entity that’s involved in the securitization process itself.”

Susan Wachter, Richard B. Worley Professor of Financial Management, professor of Real Estate, Finance and City and Regional Planning at the University of Pennsylvania’s Wharton School, agreed. “There is a role for a government guarantee that is very limited in successor entities such as Fannie and Freddie,” Wachter said. “There should be perhaps successors not solely, in my mind, in the government, but outside the government, with a limited role for a government guarantee with private capital in the first-loss position.”

She, too, said the government should not guarantee debt of any new entities, but only the security.

Barbara Desoer, president of Bank of America Home Loans, said the government’s role in housing finance needs to be cleared up. Fannie and Freddie were considered implicitly backed by the government, a role that allowed them to sell their debt for cheaper because of a perceived government guarantee but not technically be on the government’s books. “The future role for the government must be transparent and clear,” Desoer said. “Institutions or products will either need to be explicitly guaranteed or not guaranteed at all.”

Although Treasury Secretary Tim Geithner moderated the panel, which included in-depth discussion of the insurance fund idea, he did not take a position on it. Instead, he said he favored some type of government role in housing finance. The administration is due to unveil its own plan in January.

“The question is really about whether the government — in order to make sure that Americans can borrow at reasonable interest rates to buy a house even in a deep recession — has to provide a form of guarantee or insurance against losses,” Geithner said. “I believe there is a strong case to be made for a carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns.”

The challenge is “to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure,” Geithner said.

One participant pushed for a much more substantial role for the government. Gross, a co-founder and co-chief investment officer of Pacific Investment Management Co., said all government programs should be combined into Ginnie Mae. “We should consolidate all of the agencies into one true Ginnie Mae, a government national mortgage association — one agency,” he said. “We are skeptical of other public-private models currently being considered, discussed today, because they’re more expensive primarily, resulting in higher mortgage rates and therefore favoring Wall Street as opposed to Main Street.”

Gross said several options would essentially create “clones” of Fannie Mae and Freddie Mac.

“Private mortgage insurance, for instance, is untrustworthy and comes at a very expensive costs going forward,” Gross said. “We need one national agency with sufficient backing, down payments and guarantees going forward.”

He was balanced out by Pollock, who said Fannie and Freddie should be split into three parts: a private company that provides a guarantee, a government agency that provides housing subsidies and a liquidating trust to run off continuing losses from the existing GSEs.

One option that does not appear to be on the table: returning Fannie and Freddie to the structure they had before they were seized by the government two years ago. In his remarks, Geithner specifically rejected the idea.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support,” he said. We will not support a return to the system where private gains are subsidized by taxpayer losses.”

Legislative Alert

April 7, 2010

Dear NAMB Member,

In conjunction with the Legislative Alert sent yesterday, please find below some clarifications on the new FHA Final Rule, to be published shortly, on mortgage broker FHA-approval eligibility.  Stay tuned for emails from NAMB with more information on this issue:

1.         If you are presently a mortgage broker approved by HUD for 2009, you can operate as in the past until the end of this year?  Yes 

Do I need to get an audit for 2010?  No audit required.  All you must do is re-certify through FHA Connection and pay the fee.  FHA will extend your approval through 12/31/2010. 

What will be the policy after 12/31/2010?  You must secure a lender approved by FHA to sponsor you to originate FHA loans.

2.         If you are not an approved FHA mortgage broker today, then you may originate FHA loans via a lender sponsor without the need for any FHA approval, audit, fee, etc. soon after the rule becomes final (FHA is in the process of making system modifications to facilitate non-approved broker originations.  Non-approved brokers must wait until these changes are made before they can participate.  A Mortgagee Letter will be sent out once the final rule is published providing implementation time frames).  The lender is completely responsible for the mortgage broker oversight and mortgage broker qualifications. 

3.         What if there was a gap?  If you were FHA approved, then you let your approval lapse, can you get FHA approved for the remainder of this year?  No.  FHA will not extend the approval to those loan correspondents/mortgage brokers that are not in good standing for fiscal years prior to and including 2009.   For this purpose, good standing means submission of acceptable audited financial statements, re-certification and payment of the recent fee.

4.         What happens to the mortgage brokers in the pipeline today who have submitted for approval prior to the rule being released in the Federal Register?  Two choices:  (a) stay in the pipeline for approval.  FHA will continue processing applications received prior to the publication of the final rule;  (b) However, should those mortgage brokers with pending applications choose to withdraw their application, FHA will return the application package and fee.

Geithner offered no specifics on the future of Fannie Mae and Freddie Mac. Instead, he broadly endorsed some kind of government role in the housing market, even while he appeared uncertain how expansive it should be.

He also rejected the past GSE model, declaring that it was a partial cause of the current crisis and saying a total revamp is necessary.

“There is a quite strong economic case, quite strong public policy case for preserving [and] designing some form of guarantee by the government to help facilitate a stable housing finance market,” Geithner said. “But it can’t be the one we have today. It can’t be the one we lived with over the last decade. It’s going to be significantly different.”

Geithner’s timetable for reform appeared to be a long one. He repeatedly made it clear that the administration was only starting to examine the issue, and no concrete reform plan was in the offing.

“Realistically, it’s going to take several months to do a careful exploration of the problems, solutions, alternative models, and to try to shape legislation that could command consensus,” Geithner said. “But I don’t see why this should take years. There’s a huge compelling need to make sure we can design the successor system, and it’s very hard … for anybody to argue that we can live the with the system as it is now indefinitely in the future.”

House Financial Services Committee Chairman Barney Frank agreed that the effort had just started. “I stress this is the beginning of this process,” he said.

That left many Republicans outraged. Several GOP lawmakers noted that it has been a year and a half since the government seized the GSEs — and said that to start work on a plan now was far too late. “It’s unacceptable that more than 18 months after the GSEs were placed in conservatorship that the Treasury Department still does not have a plan for Fannie and Freddie,” said Rep. Spencer Bachus, the panel’s lead Republican. “Without reform, the bailouts will not stop, the housing market will not find its footing, and the American economy will not recover.”

Rep. Bill Posey, R-Fla., appeared frustrated, telling Geithner, “We can’t wait forever to find out” about the administration’s plan.

Geithner attempted to reassure lawmakers that the administration did not intend to drag the process out. He insisted it had been busy responding to the financial crisis, and that it has to be careful that whatever plan it develops will not upset the still-fragile housing markets. The administration plans to publish a list of questions by April 15 seeking comment on the right role for the government in the housing finance system.

But Geithner also ruled out several alternatives that have been offered on the future of the GSEs. For example, he rejected both nationalizing Fannie and Freddie or splitting them into several smaller entities.

“I think the two options you laid out at the beginning — full nationalization or creating a whole new class of GSEs to compete with each other — those do not look like appealing options to me,” Geithner said in response to questions from Bachus.

He also appeared to reject an idea being pushed by the Federal Home Loan banks to recreate Fannie and Freddie in the Home Loan banks’ image. Unlike Fannie and Freddie, which were public companies that answered to shareholders but were chartered by the government, the 12 Home Loan banks are cooperatives owned by their member institutions.

Rep. Mike Castle, R-Del., noting that the Home Loan banks have fared better than Fannie or Freddie, asked Geithner if it was worth considering using them as a guide. “Using the Federal Home Loan bank model, is that something you could actually substitute for all this in terms of what we’re doing or not doing as far as the future’s concerned?” Castle asked. “They don’t seem to have had the problems that the other GSEs have had.”

Geithner responded that the Home Loan bank system “is not without challenge today.” Still, he maintained that the Home Loan banks must be included in any revamp of the housing finance system. “When you look at the housing finance markets and reform of the GSEs, you have to look at the FHLB structure as well to make sure that it can play the role it’s designed to play, again, without leaving us with too much risk in the future that the government’s going to have to come in, to step in, to underwrite those losses,” he said.

Geithner did say he would consider a model offered by former Treasury Secretary Henry Paulson to regulate the GSEs like public utilities.

But Democrats rejected attempts by Republicans to unwind Fannie and Freddie before a replacement system is in place. “You can’t really tear down the old jail until you’ve built the new one,” Frank said. “We will simultaneously, I hope, be figuring out how best to wind down Fannie Mae and Freddie Mac and make sure that before that is completed, we are ready to replace the functions they are now performing in the economy without leaving this great vacancy.”

In September 2008, the government seized Fannie and Freddie and kept them afloat with $127 billion in federal aid. Reversing its original plan, the Obama administration pledged late last year to cover unlimited losses through 2012 for the enterprises, removing the earlier cap of $400 billion.

Republicans accused the administration of propping up the GSEs for its own purposes, including using them to support a program designed to increase loan modifications. “It appears to many of us … that what we now have is the GSEs are essentially an instrumentality of the administration to fund taxpayer funds to a failed foreclosure mitigation plan, with nothing else in sight,” said Rep. Jeb Hensarling, R-Texas.

Rep. Randy Neugebauer, R-Texas, warned that the longer a new plan for Fannie and Freddie is delayed, the more dependent the housing market will become on a nationalized Fannie and Freddie, echoing a point made by many analysts.

“It’s kind of like a muscle,” Neugebauer said. “The doctors tell you the longer that you don’t use a muscle and you keep your arm in a sling, which is where we got the housing finance market today, … the harder it is to rehabilitate that arm once you take it out of the sling.”

Geithner said the administration was conscious of the need to act but said doing so too quickly could make things worse. “We do not want these markets dependent excessively on government support in the future,” he said.

But he warned that in areas like housing that have been so badly damaged, “that process of repair is going to take a long time.”

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.

The FAQs specifically address questions surrounding the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement, with the most recent draft issued on Nov. 19, which includes nine new FAQs. Just two days prior, HUD released an FAQ with 13 new questions. Many people are sitting on the edges of their seats waiting for their questions to be included with the periodically released revisions, while others scrutinize HUD’s answers and attempt to implement any changes into their systems to reflect the new guidance before the nearing Jan. 1 implementation deadline.

This report is addressing the Nov. 17 FAQ release, listing all the new FAQs issued on this date, plus a close look at some of the problems one attorney thinks some of the new FAQs might cause.

Can I change the font size?

According to Howard Lax, a partner with Mich.-based Lipson, Neilson, Cole, Seltzer & Garin PC, there are many places throughout the rule in which HUD hasn’t provided enough guidance. He worries that this will lead to inconsistencies on how various lenders and closing agents will fill out and interpret the line items.

These predicted inconsistencies are contradictory to one of HUD’s original reasons for issuing the RESPA final rule, which is to provide clarity and standardization throughout the industry for consumers, Lax said. HUD has indicated that other reasons for creating the new forms is to save the consumer money, provide an easier way for the consumer to shop for a loan and to avoid significant differences in settlement costs between the GFE and HUD-1.

One inconsistency Lax refers to is the point size of the form. HUD says the following in an FAQ: “The Rule does not state a minimum font size that may be used on the GFE, HUD-1 or HUD-1A.”

Why does the point size matter?

“It defeats the whole purpose of the disclosure in the first place,” Lax said. “It’s supposed to be clear. I think that you will have some that will be unreadable. The print will be so small, that the consumer won’t be able to read it.”

Lax added that with the number of services some loan originators will “stuff” into Block 3 on Page 2 of the GFE, “Required services that we select,” many will have to decrease the point size of the GFE font in order to keep the form to HUD’s mandated three pages. He is concerned that with a smaller point size than the current 9 point that the form has, some consumers, especially senior citizens, will confuse matching the fees to the correct service.

HUD’s early advice to add lines to the GFE would result in narrowing the spacing between lines. The choice HUD had was to either 1) allow for an attachment to the GFE or an additional page to list all of the services and fees, or 2) give the loan originator free range on the point size, with the danger that some may make it unreadable, Lax said.

HUD also permits loan originators to create more columns in Blocks 3 and 6 of the GFE. According to Lax, this advice comes too late to change loan origination software and forms now being printed and shipped to loan originators.

“I do not see how this is going to prevent our clients from going to 6 point print or smaller in the form,” he added.

What can I put on lines 104 and 105 of the HUD-1?

In another FAQ, HUD says lines 104 and 105 on the HUD-1 should be used to disclose “additional items owed by the borrower that are not on the GFE and items paid by the seller prior to settlement and being reimbursed to the seller from the borrower at settlement.” According to Lax, HUD should have restricted this statement to include a caveat that says, “according to the terms in the purchase agreement.”

“It’s a wild card type of thing,” Lax said. “HUD’s answer is open-ended. It says that basically, anything that you want to put in the 100 section, you can stick in the 100 section. If you have additional items that aren’t in the GFE, such as taxes, then they can probably go in this 100 series, rather than in the 210 section.”

Examples of fees that would be listed on lines 104 and 105 are the cost of a home inspection, or a situation where the buyer has agreed to reimburse the seller for a carpet that the seller installed.

According to Lax, the issue here is that by opening up these lines to anything, it will make the use of the form inconsistent.

“Part of the reason for having a HUD-1 in the first place was so that you have consistent settlement statements,” Lax commented. “You have consistency so that the consumer, if he knows there is a certain charge, would see it in a certain place. We are losing that consistency by the way HUD is giving us instruction in the FAQs to create certain wild cards.”

Lax said he recommends that HUD limit the purpose of lines 104 and 105.

“The purpose of that section is the gross amount due to the borrower: the contract sale price, the cost of personal property and the total of the settlement charges. It’s designed to be a broad-based general summary of the cost of the home before you have credits and debits and HUD isn’t using it for that,” he said.

Can I attach additional pages to the GFE?

Lax pointed out another FAQ that needs further clarification. HUD answers the following question on Page 9 of its FAQ report.

“May additional pages be added to the GFE to allow for all charges to be shown? If so, is it an addendum or an extension of page 2?”

HUD’s answer: “No. Additional pages or addendums may not be added to the GFE. The standardized GFE form set forth in Appendix C to the Rule is the required GFE form and must be provided exactly as specified, except that Blocks 3, 6 and 11 on Page 2 may be adapted to use in particular loan situations, so that additional lines may be inserted there, and unused lines may be deleted.”

Sources have indicated that in a live educational presentation, Ivy Jackson, director of the Office of RESPA and Interstate Land Sales at HUD, said you can add a page to the GFE in a situation where the lender or broker would like to include a statement explaining to the borrow why certain fees, which may be paid by the seller in a particular transaction, are listed as buyer-paid fees on the GFE. This is unconfirmed and HUD has not yet responded to RESPA News for clarification.

According to Lax, regardless of Jackson’s statement, the FAQ is contradicting other HUD guidance, because HUD mandates that you add a list of settlement services providers for the consumer. To clarify, Lax said what he believes HUD doesn’t want you to do is make references back and forth between pages on the GFE and other information provided in addition to the GFE.

“In other words, you are going to give them lists of providers, but you are not going to have references back and forth between the lists and the GFE and vice versa. You’re not going to write on the GFE, ‘see attached sheet’ and you’re not going to have on the list, ‘see Block so and so for fees,’” Lax noted. “You are also not going to help consumers to shop for settlement service providers by placing contact information and fees in your lists of available service providers.”

Who needs to keep information to justify changed circumstance?

In the Nov. 17 FAQ report, HUD added the following to its “changed circumstances” section:

“If there is a changed circumstance, do the mortgage broker and the lender both need to retain documentation of the reasons for any revised GFE?”

HUD’s answer: “Yes. If there is a changed circumstance resulting in a revised GFE, loan originators (mortgage brokers and lenders) both must retain documentation of the reasons for providing the revised GFE for no less than 3 years after settlement.”

According to Lax, this is unnecessary redundancy and contradictory to the rule itself.

“Only the party that’s issuing the revised GFE should be responsible for justifying that decision,” Lax opined. “I think it’s equally poor for HUD to impute knowledge of the broker to the lender and vice versa, because you’ve only got three days from the date that either one learns of the changed circumstances to issue the revised GFE.”

Lax added that in the rule, there is no requirement that both the lender and broker have to keep the GFE.

“If there are changed circumstances, either the broker or the lender can issue a revised GFE, but only one of them has to keep it — whoever issues it. HUD is not only adding the rule, they’ve only added half way. They’re saying both the lender and broker have to keep all of the information that would justify the changed circumstance, but they’re not saying you both have to keep the GFE,” Lax noted.

Another FAQ Lax commented on was regarding where to put homeowners association (HOA) transfer fees. According to HUD, the charge for this fee will not be disclosed on the GFE, unless it is a service required by the loan originator. The charge for the HOA transfer fee may be shown on a blank line in the 1300 series on the HUD-1.

According to Lax, this will “blindside” the buyer at the closing and could end up in a transaction that doesn’t close or an unhappy consumer. Lax said because this fee, which can sometimes be substantial, will not be disclosed on the GFE, by the time the consumer gets to the closing table, it’s going to be too late for the consumer to discuss this fee with the seller

Full list of new FAQs included in HUD’s Nov. 17 release:

Q. What is the minimum font size that may be used on the GFE, HUD-1 or HUD-1A?

A. The Rule does not state a minimum font size that may be used on the GFE, HUD-1 or HUD-1A.

Q. May additional pages be added to the GFE to allow for all charges to be shown? If so, is it an addendum or an extension of page 2?

A. No. Additional pages or addendums may not be added to the GFE. The standardized GFE form set forth in Appendix C to the Rule is the required GFE form and must be provided exactly as specified, except that Blocks 3, 6, and 11 on Page 2 may be adapted to use in particular loan situations, so that additional lines may be inserted there, and unused lines may be deleted. Lines may be added to Blocks 3, 6 and 11 vertically and horizontally.

Q. If a loan originator permits a borrower to shop for “Title services and lender’s title insurance,” should the “written list” consider “Title services and lender’s title insurance” one service or would all of the sub-services (such as conducting the settlement) be listed as separate services?

A. “Title services and lender’s title insurance” is a category that comprises services within the defined term “title service,” including conducting the settlement. Sub-services included within “Title service and lender’s title insurance” may not be listed as separate services on the “written list.”

Q. If there is a changed circumstance, do the mortgage broker and the lender both need to retain documentation of the reasons for any revised GFE?

A. Yes. If there is a changed circumstance resulting in a revised GFE, loan originators (mortgage brokers and lenders) both must retain documentation of the reasons for providing the revised GFE for no less than 3 years after settlement.

Q. If the borrower selects a service provider that was not selected or identified by the loan originator, is this considered a changed circumstance?

A. No, if the borrower selects a service provider that was not selected or identified by the loan originator it is not considered a changed circumstance.

Q. If the borrower initially selects a service provider not on the loan originator’s written list, but then chooses to use a service provider identified by the loan originator, is this a changed circumstance?

A. No. If the borrower initially selects a service provider not on the loan originator’s written list, but then chooses a service provider identified by the loan originator, this is not considered a changed circumstance.

Q. If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, may the settlement agent mark the HUD-1 as “Amended” to distinguish from the original HUD-1?

A. Yes. If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, the settlement agent may mark the HUD-1 as “Amended” to distinguish it from the original HUD-1.

Q. May a credit for a tolerance cure be listed on Page 1 of the HUD-1?

A. The cure for a potential tolerance violation may be listed as a credit to the borrower on Page 1 of the HUD-1 with a description of the service(s) the credit is applied to. If the tolerance cure is applied to the overall tolerance category “Charges That in Total Cannot Increase More Than 10%,” the tolerance cure credit may be listed as a “lump sum” amount on a blank line in Lines 204 thru 209 with a description of the tolerance category cure. The comparison chart on Page 3 of the HUD-1 should reflect the credit given for that service to cure the potential tolerance violation in the appropriate tolerance category.

Q. What are examples of charges that would be listed in Line 104 and Line 105 on the HUD-1?

A. Lines 104 and 105 on the HUD-1 are for additional items owed by the borrower that are not on the GFE and items paid by the seller prior to settlement and being reimbursed to the seller from the borrower at settlement.

Q. May a real estate agent rebate a portion of the agent’s commission to the borrower? If so, how should the rebate be listed on the HUD-1?

A. Yes, real estate agents may rebate a portion of the agent’s commission to the borrower in a real estate transaction. The rebate must be listed as a credit on Page 1 of the HUD-1 in Lines 204-209 and the name of the party giving the credit must be identified. Real estate agent or broker commission rebates to borrowers do not violate Section 8 of RESPA as long as no part of the commission rebate is tied to a referral of business.

Q. If the settlement agent hires or pays a third party to facilitate electronic filing, where would that charge be shown on the HUD-1?

A: If the settlement agent uses a third party to facilitate electronic filing and the third party is not a governmental entity, the service to facilitate electronic filing is considered an administrative or processing fee included in the charge for “title services” in Line 1101 on the HUD-1.

Q.  If it is required by state or local law for a seller to pay a portion of the total charge for transfer taxes, on what line should the seller’s charge be listed on the HUD-1?

A. If it is required by state law for a seller to pay a portion of the total charge for transfer taxes and therefore not on the GFE, the seller’s charge should be listed as a charge in the seller’s column in Lines 1204 and 1205 on the HUD-1, and the total charges for transfer taxes should be itemized to the left of those columns (see HUD FAQ report for example).

Q. Where should the charge for the Homeowners Association (HOA) transfer fee be disclosed on the GFE and HUD-1?

A. The charge for the HOA transfer fee, unless it is a service required by the loan originator, need not be disclosed on the GFE. The charge for the HOA transfer fee may be shown on a blank line in the 1300 series on the HUD-1.

Will Congress extend the wildly popular $8,000 home-buyer tax credit beyond its Nov. 30 expiration date?

That’s a question generating huge pressure on Capitol Hill from would-be buyers who haven’t found the right house, realty agents, builders, lenders and squads of lobbyists working on their behalf.

Here’s the first hint of an answer: On Sept. 17, the leadership of Congress’s primary tax-writing committee introduced a tax credit bill that’s likely to zip through the House and quickly move to the Senate. House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) sponsored the bipartisan Service Members Homeownership Tax Act (H.R. 3590), which would extend the credit 12 months for thousands of military, Foreign Service and intelligence agency personnel who have been posted abroad in 2009.

Rangel’s bill, with 29 co-sponsors, would keep the credit alive through Nov. 30, 2010, for service members who had at least 90 days of overseas duty assignments in 2009 and who otherwise meet the eligibility tests for the credit. The bill would also prohibit the Internal Revenue Service from “recapturing” the $8,000 credit when service members are forced to sell or rent out their houses because they are ordered to deploy to a different duty station.

Under the rules of the program, buyers who obtain the credit must use their houses as a principal residence for 36 months or repay the credit to the IRS. As a result of the 36-month rule, many military and diplomatic employees have been hesitant to buy a house and claim the credit, or are worried that their absence from the country could force them to repay the money.

For example, the spouse of a Foreign Service officer posted to the Philippines this summer for a two-year assignment wrote to Rep. Earl Blumenauer (D-Ore.) to alert him to a flaw in the tax-credit program. The Oregon couple bought their first home earlier this year, encouraged by affordable prices and the $8,000 credit. But having now been posted abroad, they cannot claim to occupy the house as their principal residence. Under current rules, they even face recapture of the full credit.

Blumenauer, who is a member of the Ways and Means Committee, said, “It is absurd that thousands of Americans serving our country, away from friends and family, must choose between their service work and homeownership.” He wrote corrective legislative language that ultimately was incorporated into Rangel’s tax bill.

Though nothing is guaranteed on Capitol Hill, legislation eliminating tax penalties on the military during wartime looks like a good bet for early passage in both houses. Equally significant: It now appears likely that there will be an $8,000 tax credit available a year from now — at least for some purchasers. That raises the question: Why not leave it in place for all first-time buyers?

There’s growing support for that on both sides of the Capitol, but there are also some complicating issues. In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but to raise the maximum to $15,000, and make it available to all home buyers next year.

But recently, key Senate Democrats produced their own version of an extension, limited to six months, retaining the ceiling at $8,000 and targeting only first-time purchasers. The bill’s primary sponsor is Sen. Benjamin Cardin (D-Md.). Democratic co-sponsors include Majority Leader Harry M. Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.

In a statement, Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: cost. “A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective homebuyers off the sidelines,” he said.

Estimates of the revenue costs of the current credit vary widely, from $3 billion to $8 billion and higher. How do you pay for any extension without worsening the budget deficit? The new Rangel bill includes an answer: You raise taxes somewhere else — you “pay as you go.” The Rangel bill pays for most of the service members’ credit extension by increasing IRS penalties on taxpayers who fail to file partnership or “S” corporation returns.

This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.

September 11, 2009

U.S. District Judge Catherine C. Blake sentenced Deborah Williams, a title company owner from Pasadena, Md., to 84 months in prison for mail fraud and diverting settlement funds for her benefit. Williams was ordered to forfeit $3.4 million. Williams was the sole officer and director of Day Title, a title company with offices in Severna Park, Md., that conducted real estate closings and issued title insurance policies. According to Rod Rosenstein, U.S. attorney for the District of Maryland, Williams concealed her illegal transactions by falsely representing on settlement documents that her company had paid off lien holders and then sent the falsified settlement documents to the lender by commercial carrier. She initiated stop payments of payoff checks that had been disbursed or intentionally failed to mail the payoff checks to the lien holder.

FNC Hires New President

September 11, 2009

FNC Inc., a real estate collateral technology provider based in Oxford, Miss., has hired Glen Evans as president. Most recently, he was a senior vice president at FTN Financial, a subsidiary of First Tennessee Bank. Mr. Evans, who has been in the business for 25 years, will report directly to FNC CEO and co-founder, Bill Rayburn. “FNC has grown beyond its start-up phase,” Mr. Rayburn said. “Glen’s background and industry knowledge will help us expand our mortgage clients and our business.” FNC’s new president previously ran FTN Financial’s correspondent services division. The company said Mr. Evans’ primary goal will be to help the firm meet its revenue goals.

Fitch Cites Negative Equity/Job Losses for Downgrades

September 11, 2009

A continuing rise in negative home equity and unemployment has led to rating actions on 581 prime residential mortgage-backed securities transactions issued between 2005 and 2008, according to Fitch Ratings, New York. “While actual loan losses to date remain low on average for the transactions reviewed (36 basis points), average delinquency has almost doubled since the start of the year to 11% and continues to grow due to high average roll-rates from performing to delinquency,” Fitch said in a report. About 45% of the borrowers in the private-label MBS reviewed by Fitch owed more on their mortgages than their homes were worth, according to Grant Bailey, a senior director at the rating company.

GAO Throws Cold Water on GSEs Becoming Utilities

September 11, 2009

The Government Accountability Office, in a new report, has entered into the debate over the future of Fannie Mae and Freddie Mac, blistering some of the most widely discussed options for revamping the two. Though the watchdog agency did not take a formal position on what policymakers should do with the GSEs, it essentially declared two ideas unworkable — fully privatizing Fannie and Freddie or turning them into public utilities. Those options could spur inefficiencies, raise mortgage rates and take banks out of the business of offering traditional mortgages, the GAO concluded. The report offered detailed pros and cons of other options including nationalizing Fannie and Freddie, simply restoring the firms to their previous status, breaking them up into multiple entities or turning them into cooperatives. In the year since the federal government seized the GSEs, options for how to deal with them have multiplied, even though the Obama administration has said it will not deal with the issue until 2010. While many Republicans and other conservatives have pushed for years to privatize the GSEs or eliminate them, the GAO found only one benefit to such an approach: enhanced market discipline. But the agency warned that it was not clear if privatized GSEs could support the mortgage market during a crisis.

Homebuyer Tax Credit Boosted Sales by 314,000

September 11, 2009

Introduced earlier this year as part of the president’s economic stimulus bill, the $8,000 first-time homebuyer tax credit, to date, has prompted 314,000 additional consumers to get off the fence and purchase a home, according to new figures released by the White House. The National Association of Realtors estimates that the tax credit will boost home sales by an additional 350,000 by the time it expires on December 1. Overall, 1.8 million first-time homebuyers may take advantage of the tax credit, according to NAR economists. Meanwhile, homebuilders, Realtors and other housing groups are trying to get the word out that buyers must go to closing by November 30 to take advantage of the tax credit. In mid-October, housing groups will mount a public campaign to extend and increase the tax credit and possibly expand it to all homebuyers. But for now, the lobbying is low key so potential first-timers won’t get the idea they can sit back and wait for an extension. In July, 30% of existing home sales were by first-time buyers.

Lone Star Unit Buys Assets from AZ Mortgage Banker

September 11, 2009

Caliber Funding, which is controlled by private equity firm Lone Star Funds, has agreed to acquire what it calls “certain technology and operational assets” from StoneWater Mortgage for an undisclosed sum, according to a source close to the deal. Both non-depository lenders are based in Arizona. Caliber expects to retain most of StoneWater’s employees. No further information was available on the deal, including figures on the firms’ origination and servicing volumes. A spokesman for Caliber confirmed the transaction. The Dallas-based Lone Star has been bottom fishing in the mortgage market the past year. A year ago the private equity firm made headlines when it paid 22 cents on the dollar ($6.7 billion) for $30.6 billion in mortgage CDOs held by then struggling Merrill Lynch & Co. (This was prior to Merrill’s sale to Bank of America.) The PE firm also bought CIT’s home lending business.

Wilbur Ross Bidding on MI United Guaranty?

September 11, 2009

Investor Wilbur Ross, one of the most active bidders on distressed mortgage assets, is gearing up to make a run at mortgage insurance giant United Guaranty Inc., a unit of American International Group, according to MI and investment banking sources. One investment banker described Mr. Ross — a principal in WL Ross & Co., New York — as the leading bidder on UGI, the nation’s fifth largest MI in terms of policies-in-force. (Figures courtesy of the Quarterly Data Report.) However, it’s unclear if Mr. Ross is bidding on all or part of the company and whether he has partners on the deal. Spokespersons for both AIG and UGI had no comment. Mr. Ross had not returned a telephone call as National Mortgage News went to press. Over the past 18 months he has acquired two large non-prime residential servicing portfolios. Ross was part of an investor group that bought failed Florida bank BankUnited FSB, a large player in the payment option ARM market. He also recently hired James Lockhart, former director of the Federal Housing Finance Agency, who is familiar with the MI industry and its role in guaranteeing loans sold to Fannie Mae and Freddie Mac. “Ross’ interest in the MI business is very important,” said one MI executive. “It shows the importance of this business. He can be an important part of the MI business moving forward.”

Real Estate Investor Convicted of Fraud

September 10, 2009

Mario Bernadel, a real estate investor from Phoenix, has been convicted of running a mortgage fraud scheme involving at least 32 residential properties in the greater Phoenix area. According to John J. Tuchi, interim U.S. attorney for the District of Arizona, participants in the scheme recruited unqualified straw borrowers, submitted fraudulent loan applications on their behalf, obtained mortgage loans in excess of the selling price and then took the excess amount of the loans out through escrow. Bernadel recruited and trained mortgage brokers, straw buyers and an escrow officer in the scheme and, following the funding of the loans, received cash back. The homes purchased through the scheme have been foreclosed or sold at a loss. Seven other co-conspirators were also charged and have pleaded guilty and await sentencing. The scheme resulted in $20 million in loans obtained by fraud and a loss of more than $2 million. Bernadel’s conviction is part of “Operation Cash Back,” in which 40 defendants were indicted and arrested. Bernadel is the 20th defendant to date who has been convicted. U.S. District Judge Stephen M. McNamee set sentencing for Nov. 30.

Reverse Lender Gets New Leader

September 10, 2009

Generation Mortgage Co., Atlanta has named Scott Peters president and chief executive, replacing Joe Morris. Mr. Morris, who served as president and CEO since the company’s inception in 2006, will take on the role of executive director, industry relations, where he will represent Generation Mortgage as an industry advocate to play a stronger role with organizations such as the National Reverse Mortgage Lenders Association, lend support to wholesale relationships and will also be active legislatively. Mr. Peters joins Generation Mortgage from Nortel Networks Corp., where he led the Global Business Services division. He also held senior leadership positions within General Electric Capital Corp., MassMutual, BellSouth Corp., The Profit Recovery Group International and CompuCredit Corp.

Beige Book Reads Well for Home Sales in Some Areas

September 10, 2009

The Federal Reserve, in its new Beige Book report, says home sales are increasing somewhat in the Boston, Chicago, Richmond and San Francisco districts but the housing sector in general is not out of the woods yet. The St. Louis area has seen no noticeable improvement in housing conditions and most Fed districts reported that sales were “below the levels of a year earlier.” The central bank noted that housing demand “remained stronger at the low-end of the housing market.” As for home construction, the news is bleak with only Chicago and Dallas reporting small increases in housing activity. In the commercial real estate market, construction remained at low levels overall, “although Chicago and Dallas reported a small increase in activity” the Fed said. Overall, the central bank said economic activity is stabilizing or improving in the vast majority of the country and that the worst recession since the 1930s may be over

By Aleksandrs Rozens

Henry Kaufman_Kaufman has never been a fan of floating-rate financing, and to illustrate why, he related an anecdote about Alan Greenspan.

The former Federal Reserve chairman famously suggested in 2004 that some families might save money by opting for adjustable-rate mortgages. In an interview at his Midtown Manhattan office last week, Kaufman, the renowned economist and a longtime critic of the Fed and its response to the credit crisis, recalled asking Greenspan about his tacit advocacy of floating-rate financing.

“He blurted out, ‘Well, I guess I said that, but in my own housing finance I have always used the fixed rate,’ ” Kaufman said.

As everyone in the industry now knows, in the current maelstrom many homeowners have been trapped in mortgages with higher rates because they wrongly expected to be able to readily refinance out of one ARM into another.

But Kaufman, 81, has been wary of floating-rate loans since the 1980s.

“My first concern then was that floating financing rates would take commercial banks out of the credit-restraint process,” he said. “When it comes to floating-rate financing, the only sector that can really pay the floating rate is the federal government because it can always raise taxes.”

Kaufman is a former economist with the Fed and the former vice chairman and head of research at Salomon Brothers. He has been referred to as Dr. Doom long before Nouriel Roubini earned the sobriquet.

One of his criticisms of the Fed is that like other regulators, it has been too chummy with financial services firms.

“The supervisor and the regulator cannot be a folk hero. He can’t be a friend of financial institutions and markets,” Kaufman said. “Good supervisors and regulators are like parents to a child. They are not friends. They are guardians who expect the child to adhere to certain standards of behavior.”

Greenspan, Kaufman said, “was not a good parent.”

Kaufman’s belief that the Fed may have to offer some tough love and behave more like a parent crops up in his latest book, “The Road to Financial Reformation: Warnings, Consequences, Reforms.” In it he republishes a series of essays warning about the dangers of debt for corporations and consumers that were first delivered in the mid-1980s.

As part of his tough-love approach, Kaufman is no fan of the Fed’s gradualism — the practice of not aggressively raising rates by increments of 100 basis points and resorting to quarter-point or half-point rate increases when putting the brakes on the economy.

That approach, he said, “doesn’t restrain anyone in the financial system. The financial system arbitrages that.”

When it comes to the current head of the Fed, Ben Bernanke, Kaufman was more charitable: “He is somebody who studied the Great Depression at great length, but it took him quite a while before he recognized the extraordinary problem in the financial markets. He did not come and meet this problem head-on. He met it belatedly.”

Kaufman said he believes securitization is here to stay but that it will be more closely regulated when it returns. Leveraged buyouts “will not come back quickly to the level we attained three or four or five years ago,” he said.

LBOs have been an important tool for financiers since the 1980s, but Kaufman has never been a proponent. “The most important aspect of many LBOs were financial considerations,” he said, adding that his skepticism about them was rooted in “the very simple reason it operated on the assumption that the entity that was going to be acquired was going to have a thin sliver of equity and huge amount of debt.”

Kaufman said the U.S. economy remains fragile in spite of some positive signs because bank lending is still limited. With the recent gains in U.S. stock prices as well as improved credit market conditions, he also worries that lawmakers and regulators may not have the stomach to go through with reforms in banking and financial markets.

“I am a little fearful that if equity markets continue to rally … the fervor to restructure the financial system will diminish,” Kaufman said.

Aleksandrs Rozens is the managing editor of Investment Dealers’ Digest.

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