Look what’s in store for you at the upcoming TAMP Convention & Marketplace!
September 9-11, 2010 – Hilton Austin Hotel

Education

Education courses designed to help you stay current and increase business! 

●       Federal FHA/HUD

●       Good Faith Estimate/ RESPA/ECOA

●       The “New” Credit Scoring

●       FHA for Originators and Processors

●       TDSML & What’s NEW on the Horizon

●       How to Develop Your Business! Presented by “The Marketing Animals”

●       What’s New with CALYX 7.3

●       The 7 Tactics to Exam Success

●       NMLS National Exam Prep Course (Thursday 8 hour class)

Marketplace

The only exposition in Texas specifically for the mortgage originator industry.

Networking

There’s no better place to “see and be seen” than at TAMP in Austin.

Convention events and Marketplace will be held at the Hilton Austin Hotel.

Call now for hotel reservations:

(512) 482-8000

TAMP discounted room rate:

$179.00 Single/Double Occupancy

WATCH your mail and email for registration brochure…coming soon!
For EXHIBITOR materials log on to www.ttamp.org

American Banker  |  Tuesday, July 13, 2010
By Andrew Johnson    

Banks are looking for more data to help them make lending decisions, beyond the simple matter of whether prospective borrowers pay their bills on time.

The focus on “alternative” data to credit scores in underwriting is not new but has intensified after the lessons banks learned from the credit bubble.

“In the marketplace right now everyone is talking about rethinking underwriting,” said Peter Carroll, a partner in the retail and business banking practice of the management consulting firm Oliver Wyman.

“Everyone realizes that credit scores, as clever as they are, have in some respects left out of the credit-assessment equation certain aspects of the borrower,” Carroll said.

Though more data about people is available today than ever before, sifting through it is arduous.

“Basically people are saying we can either go back to human underwriting, which is cost-prohibitive and not that good anyway, or we can find data sources that potentially shed light on these other dimensions of the borrower,” Carroll said.

Banks are especially interested in ways to improve their identity-verification processes, said Michelle Reinhard, the senior vice president of quality risk management for Huntington National Bank, the banking subsidiary of Huntington Bancshares Inc. in Columbus, Ohio.

“Having a larger tool for risk management is really where I think the whole industry is going, where you can clearly identify your customer,” Reinhard said.

For example, a customer may have applied for credit, listing his home phone number on the application, and later applied again listing a mobile phone number. Reinhard said the discrepancy could trigger a red flag. “The institution may have had to work harder to verify that the consumer information was accurate,” she said, but better identity-verification capabilities could have made this extra work unnecessary.

She said Huntington is trying to fine-tune its decisioning techniques.

Zoot Enterprises Inc. is expanding the data its credit decisioning software can use to help its bank customers evaluate applications. “We find that right now in the market there is a hunger for other data and additional intelligence,” Tom Johnson, Zoot’s vice president of product development, said in an interview.

In February the Bozeman, Mont., technology company struck a partnership with LexisNexis Risk Solutions, which it has worked with previously, to incorporate information from the New York data aggregator’s public records vault into its prescreen applications; it expects to begin marketing the capability as part of its Prescreen 3.0 product this quarter. LexisNexis is a subsidiary of the London information company Reed Elsevier Inc. Zoot has used LexisNexis data in the past with other products but is expanding its relationship with the company through its new agreement.

Johnson said the details in the Lexis data can augment credit bureau files and other information sources that banks commonly use when deciding to extend credit or send prescreened offers to consumers. The potential outcome for banks is better-performing credit portfolios and identification of new customer prospects who previously were denied products, he said.

Carroll said the LexisNexis data included “fundamentally different” details that are “additive” to, “not competitive” with, traditional credit bureau reports.

For example, credit card issuers have long marketed their cards with direct mail. “If you look at everyone in the bureau file and pick the subset that you want to mail to, there’s a whole bunch of people” with no file, he said. “If you’ve got another source of data like LexisNexis … you can use this to pick out good people who would previously have been no hits and thin files.”

That also creates an opportunity to potentially market to underbanked customers, Johnson said.

Zoot also sees opportunities for banks to lower their screening costs by ruling out a credit applicant sooner.

“Every data source that you pull has costs associated with it,” Johnson said. “The sooner in the process you can make a decision … the less expensive the transaction is going to be.”

LexisNexis uses public records and other sources to track bankruptcies and liens — which will usually included in a standard credit report — and plenty of other things that often are not, according to Grayson Clarke, the senior director of credit risk decisioning with LexisNexis Risk Solutions.

This could include details about property values and ownership, an applicant’s educational background, professional licenses, phone service history, subprime credit information such as a payday loan and ownership of other assets, such as boats and airplanes.

“Traditional bureau data captures whether or not someone is repaying an obligation,” Clarke said, while the LexisNexis’ data includes other indicators of a person’s credit risk.

For example, Clarke said people who hold certain professional licenses have proven to be more stable credit risks than those without.

And while those people already may have been deemed good credit risks based on traditional data sources, the ability to tap into such additional details to reinforce that can make a bank’s underwriting stronger and help with segmenting customers for marketing purposes, he said.

All this provides “an additional layer of data to the credit bureau files that improve the acceptance rates and improve” accuracy, said Zoot’s president, Dennis Dixon.

Alan Riegler, a partner and senior consultant with the financial services consulting firm CCG Catalyst in Los Angeles, agrees that giving banks new types of data to evaluate can help mitigate risk, though he said the current economic climate might make it hard for some financial companies to buy new analytics software.

“You can determine from a credit score if [a person] has had a bankruptcy,” Riegler said. “What is not as likely to be determined … is have you committed fraud.”

American Banker  |  Friday, July 16, 2010
By Stacy Kaper

WASHINGTON — Although the Senate finally voted Thursday to send regulatory reform to the president’s desk, policy circles are already abuzz about what changes to seek in a “corrections” bill to fix problems with the legislation.

Top lawmakers have acknowledged another bill will be needed to clean up their bill to overhaul the financial system, in which many complicated provisions were decided near the end of a marathon 20-hour session.

“Everybody knows that there are many technical changes that will need to be made,” said Cornelius Hurley, a banking and financial law professor at the Boston University School of Law. “Anytime that you slap stuff together at 5 in the morning, mistakes get made and need to be corrected.”

The corrections would be yet another step in the marathon process to overhaul the financial system. On Thursday the Senate passed, 60 to 39, the version completed last month by a conference of members from both chambers.

But how far the corrections bill could go remains a question. Some said it may be confined to technical changes to better reflect congressional intent; others see an opportunity to make more substantive alterations.

Despite concerns raised by fellow lawmakers, Senate Banking Committee Chairman Chris Dodd and House Financial Services Committee Chairman Barney Frank refused to reopen the bill after making last-minute changes designed to ensure the legislation had enough political support.

Instead, the two chairmen said there would be a future bill to make corrections, and tried to reassure lawmakers that they have plenty of time to enact a bill before the regulatory reform legislation goes into effect.

“Anytime you have a 2,000-page bill there’s always a technical corrections bill that comes at some point, because … there’s always some things you want to look at,” Dodd told reporters after wrapping up the conference committee at the end of June. “As I pointed out on this particular provision, none of the provisions go into effect for another year, so we have some time.”

But Frank hinted during the final conference session that the next bill may go beyond “technical” repairs. The Massachusetts Democrat did not elaborate and told reporters he was unsure what issues would be tweaked or how in later legislation.

“I don’t know yet,” he said. “There were a couple of drafting errors. … Look, these people who work here do an enormously complicated job very well. There are some typos, some that would be considered technical, some which can’t be considered technical and go beyond that. I don’t know what the answer to that is yet … but yeah, you’ll need a minor corrections bill, you always do for something this big.”

How much lawmakers will be willing to tinker with the bill after it passes is unclear.

“There are two kinds of corrections you can do,” said Oliver Ireland, a partner with the law firm Morrison & Foerster. “One of them is you do a corrections bill that is a cleanup and noncontroversial. You make a list of all the corrections with explanations and you send it around and if anybody on your committee objects, you take it off the list. But the idea is that you do a corrections bill on things that need real corrections: They got the wrong page, the wrong cross reference, something like that. On those corrections that would be noncontroversial there are probably a lot of them.”

But there is another possibility, Ireland said.

“There are things that other people will call ‘corrections,’ like they’ll look at a substantive word someplace and say that should have gone out; or an ‘and’ should be an ‘or’ or vice versa,” he said. “Those can be pretty substantive and make a real difference.”

Democrats and the Obama administration are counting financial reform as a major victory and would be unlikely to allow any changes to go through that could be perceived as watering the bill down.

Several observers said they expected lawmakers would have little appetite to touch it again before the elections unless some noncontroversial alterations were immediately pressing.

“Obviously there’s a million loose ends. There’s a million things people will want to change,” said Kip Weissman, a partner with Luse Gorman. “We are really running out of time before the elections. … The only kind of technical corrections you would think you would see is something that everyone readily agrees kind of helps everybody.

Financial services lawyers, regulators and analysts are still poring over the legislation and identifying places where language is ambiguous, conflicting or does not correctly define or describe what it intends.

But deciding where to draw the line will be difficult. Even a change as simple as inserting or striking a word could have a big impact and once any corrections bill delves into making substantive changes, every interested lobbying group will be going to the mat for its issues.

“We would vehemently be opposed to the industry undercutting the bill,” said Ed Mierzwinski, the consumer program director for U.S. Public Interest Research Group. “They are going to try to do that.

But that isn’t stopping industry groups from drawing up a wish list and hoping they can refight lost battles.

Though no industry representative interviewed for this story sounded optimistic about the prospects of rolling back a provision to let the Federal Reserve Board regulate interchange fees for debit cards, the issue remains a priority for credit unions and banks alike.

Other targets are likely to include provisions dealing with derivatives; implementation of the Volcker Rule to ban proprietary trading and limit investments in hedge funds; the elimination of trust-preferred securities as Tier 1 capital; and autonomy given to the new consumer regulator.

Ed Yingling, the president and chief executive of the American Bankers Association, said his group is still analyzing the massive bill to find areas that need to be corrected. The problem, he said, is that a technical corrections bill that gains momentum instantly becomes a target for more controversial, substantive changes that can stop a bill dead in its tracks.

“There are dozens of changes we would like, but they’re not technical corrections,” Yingling said. “The scary thing is that even if you had a bill that had a lot of items that everybody agreed needed to be corrected, we’ve all seen how any bill at any time can be held hostage.”

Yingling said he doubts lawmakers will have much appetite to reopen legislation this year unless there are some widely agreed-upon tweaks.

Still, he said a bill next year could benefit the banking industry if Republicans, as expected, pick up more congressional seats in both chambers.

“In the next Congress, you would at least have the opportunity, and we will certainly be looking at things we want to have changed,” he said. “Next year you will get into — with a new Congress — that’s where the line between technical corrections and substantive changes will come into play.”

Yingling said that if any other group appears to be inserting its wish lists into a purported technical corrections bill, the ABA would follow suit.

“Part of it is always this issue of once we open the door to nontechnical, where do we stop?” he said. “And obviously if anybody else were to go up and seek a substantive change on a technical corrections amendment, we would be first in line with a long list, so that’s the issue that you have and that’s the danger where even a technical bill gets caught up.”

Yingling placed eliminating or weakening the interchange amendment at the top of his list, followed by concerns over a proposed safe harbor in the risk-retention provision that he said left too much uncertainty and could reduce access to credit.

Camden Fine, who heads the Independent Community Bankers of America, said his group would also like to see the interchange amendment struck. Also on his wish list were putting more constraints on the consumer bureau by giving the prudential regulators more authority in its rulewriting and knocking the consumer director off of the board of the Federal Deposit Insurance Corp.

“There needs to be much more defined language for the prudential regulator to have input in the rules that are by the consumer bureau,” Fine said. “I think the prudential regulators should have more say in how those rules are created.”

Fine said that as soon as 30 days after reg reform is enacted, corrections bills could pop up.

Meanwhile, opponents of the bill said the need for ample corrections demonstrates flaws with the underlying bill.

“I would presume they would are going to be back correcting this bill every year for the next 10 years because the problems this bill is going to create are going to far exceed the benefits its going to generate,” Sen. Judd Gregg, R-N.H., said in an interview Thursday.

By Paul Muolo
Paul Muolo

Fannie Mae and Freddie Mac—the Congressionally chartered mortgage giants that provide liquidity for 70% of all residential loans funded in the U.S.—are done. They have no friends in Congress and Republicans (and plenty of Democrats) blame them for creating the housing bubble.

Even their regulator at the Federal Housing Finance Agency, Ed DeMarco, thinks they have no future. Otherwise, he would never have pulled their shares off the New York Stock Exchange while refusing to answer questions about a reverse stock split. (It worked for AIG. Why not the GSEs?)

In six months the White House is scheduled to release its plan on what to do with Fannie and Freddie with a nod toward creating a housing finance system for the 21st century. All eyes will be on the Obama administration, which is already being tarred and feathered by bankers who expect to see their future earnings snipped by 20% or so thanks to the new regulatory reform bill. (If you think that piece of legislation was contentious, wait until you see GSE reform. I’m sure there are plenty of banks that would like to see the value of their GSE preferred stock come back to them in full.)

It might be said that the Fannie/Freddie “question” looms on the horizon, not unlike the BP oil slick, waiting to reach land and destroy what it hasn’t already. And you can pretty much guess that in the fall, the GSEs will be part of a political litmus test where politicians running for office try to prove how tough they tried to be on FanFred in the past, but were blocked by housing liberals, read: Democrats.

It’s easy to kick the GSEs when they’re down. After all, unlike the auto companies, AIG and the megabanks, the billions Fannie and Freddie have received to maintain a positive net worth position won’t eventually be recouped by Uncle Sam, at least it sure doesn’t look that way. But while it’s easy to stick your thumb in their eyes, a central question needs to be addressed: If the two eventually disappear, which firms will fill the void? At last check, Fannie and Freddie had a combined balance sheet of $1.6 trillion, mostly whole loans and MBS. They guarantee $5.5 trillion in residential product, or 55% of all housing debt in the U.S. If they go away, who takes their place?

It’s not a disingenuous question. As mortgage MBS co-inventor Lewis Ranieri once quipped, “Mortgages are about math.” You can’t replace $1.6 trillion of balance sheet capacity overnight. In fact, you can’t replace it within three years either. Those assets must reside somewhere. And if you think that our nation’s megabanks, the regionals and what’s left of the thrifts and credit unions will gladly sweep in to fill the void you’re mistaken.

The profit margin between a residential lender’s cost of funds and the yield on the mortgages they write is quite strong right now and looks to stay that way for 12 to 18 months, maybe even longer. The yield on the 10-year Treasury is in the basement but so is a lender’s cost of funds. (When’s the last time you checked CD rates?) But all this doesn’t mean that it’s safe for a depository to borrow short (deposit accounts) and lend long (30-year fixed-rate loans.) Actually, an argument might be made that borrowing short and lending long is a heck of a lot safer than anyone really thinks, but that doesn’t mean banks will do it or their regulators will it. If you recall your financial services history, the S&L crisis was caused by borrowing short and lending long (followed by unfettered asset deregulation).

But getting back to Fannie and Freddie. The balance sheet issue is only one part of the equation. It’s likely the White House and Congress will allow for some type of successor GSE, mandating that the institution have a small balance sheet for mortgage products that are less liquid. As for whether that GSE will be “on balance” for budget deficit calculations, that’s a different matter. If you put the GSEs’ guarantees “on budget” the potential obligations of the U.S. government just increased by $5.2 trillion. Our creditors may have something to say about that. Or maybe not.

But the guarantees on Fannie/Freddie MBS are a key issue because they account for half of all consumer housing debt. If a covered bond market for housing debt replaces the GSEs the issue of balance sheet capacity for the issuing commercial banks doesn’t go away. Holding residential mortgage assets still requires capital. One former Fannie Mae executive suggested to me that a new housing GSE could issue MBS guarantees and the money would be set aside in an insurance fund. “It would function like deposit insurance,” he said.

One thing the government is not likely to do is fire sale Fannie and Freddie’s assets, namely their MBS. If they do, it would cause MBS prices to crater while creating massive mark-to-market losses at banks, thrifts, insurance companies, pension funds, take your pick. The one asset the government could sell is their automated underwriting systems, Loan Prospector and Desktop Underwriter. 

Technology consultant Jeff Lebowitz estimates that revenue at DU and LP averages $200 million to $250 million a year. “You could sell them for one to two times revenue more or less,” he said. Of course, the money raised would be a drop in the bucket compared to the $140 billion Treasury has pumped into the two. Yes, Fannie and Freddie are done, politically speaking. But for now, they are here to stay

By Kenneth R. Harney

Saturday, July 3, 2010; E01 

With tougher mortgage underwriting rules a virtual certainty under Congress’s financial reform legislation, lenders have begun confronting still another vexing issue: Can homebuyers who have high credit scores be trusted not to pull the plug — strategically default — when the economy hits a rough patch and home values tank?

New research based on data from 25 million active consumer credit files suggests the answer just might be no. Although people with the highest-ranking credit scores are less likely to default on their mortgage compared with people with lower scores, when they do default, they are much more likely to do it strategically: They simply stop paying with little or no warning.

In a study released June 28, researchers from credit-bureau giant Experian and the Oliver Wyman consulting firm found that borrowers with “super prime” credit scores accounted for 30 percent of all mortgages outstanding in mid-2009 but produced just 5 percent of all serious mortgage delinquencies.

However, 28 percent of those elite scorers’ defaults were calculated and strategic, versus 18 percent for the overall population of borrowers in the sample. This pattern, in turn, is forcing lenders and the credit industry to seek new ways to evaluate risk beyond traditional credit scores.

Charles Chung, Experian’s general manager of decision sciences, said in an interview that “lenders not only are looking at creditworthiness,” as measured by traditional credit scoring models, but also at applicants’ likely “ability to pay” under scenarios in which real estate values drop. Lenders might need to adjust underwriting and risk-rating rules — requiring higher minimum-down payments or higher interest rates — to deal with loan applicants who fit the profile for walkaways in a depreciating real estate market.

The latest study, which follows up on research involving credit files where consumers’ personal identifiers had been removed, tracked strategic defaulters in 2009. By examining payment patterns in individual credit files, Experian and Oliver Wyman estimate that about 19 percent of all mortgage defaults last year involved intentional, strategic walkaways.

Although there was some evidence that total defaults might have peaked at the end of 2008, the walkaway issue remains a costly and controversial one for the mortgage industry. Fannie Mae announced late last month that strategic defaults have become such a problem that it is toughening its policy and will pursue walkaways for unpaid balances and penalties wherever permitted by state law.

The Experian-Oliver Wyman study confirmed that geography plays a significant role in the strategic default phenomenon. Homeowners in volatile boom and bust states. includings California and Florida, have been especially prone to walk away from deeply negative equity situations.

A separate study by three researchers at the Federal Reserve found that not only is geography crucial but also that state laws’ treatment of unpaid mortgage balances after a walkaway might play a major role. The Fed study examined 133,281 loan histories in Arizona, California, Florida and Nevada where borrowers were underwater on their loans.

According to the researchers, in California and Arizona, where state law restricts lenders’ abilities to collect post-foreclosure deficiencies on mortgages, borrowers were more prone to walk away from their homes at lower levels of negative equity than borrowers in Florida and Nevada, where lenders face fewer restrictions.

“This result suggests,” the Fed study said, “that borrowers may factor into the costs of default the potential legal liabilities resulting from a foreclosure.”

The Fed researchers concluded that the depth of borrowers’ negative equity is an important tripwire to their decision to send back the keys. Borrowers whose negative equity is relatively modest appear to be much less willing to strategically default, probably because they hold out hope that market conditions will improve enough to restore them to positive equity.

But as negative equity approaches 50 percent — and borrowers see no prospects for higher real estate values — roughly half of all defaults are strategic.

The Fed researchers cited a hypothetical case in Palmdale, Calif., to illustrate the economic logic of strategic defaulters: Purchasers there in 2006 paid $375,000 for a median-priced single-family home. By last year, it was worth less than $200,000. Meanwhile, a three- to four-bedroom house rented for $1,300 a month at the end of last year, far less than what the borrowers were paying.

Why stay in a hopeless situation? Both studies document that many borrowers asked themselves that — and decided to just stop paying.

American Banker  |  Wednesday, June 23, 2010
By Stacy Kaper and Cheyenne Hopkins

WASHINGTON — House and Senate conferees were set Tuesday to deal national banks a setback, agreeing on final language that would make it harder for federal regulators to preempt state consumer protection laws.

In the final scheduled week of negotiations, the panel also tackled a host of other issues and was expected to reach an accord on provisions that would create a consumer protection regulator, establish mortgage underwriting standards, and force lenders to retain some risk of mortgages they sell into the secondary market.

Although preemption was not debated on Tuesday, Senate conferees gave ground to a House proposal on the issue, agreeing to language that says the Office of the Comptroller of the Currency can only preempt state laws that “significantly” interfere with the business of banking. Preemption experts mostly agreed that the added language would make it harder for the OCC to preempt a state law and strengthen state regulators’ case in court.

“The ‘prevents or significantly interferes with’ language means that any state consumer financial protection laws that do not significantly interfere with national bank powers will continue to stand,” said Patricia McCoy, director of the Insurance Law Center at the University of Connecticut’s School of Law. “In other words, it’s not enough for a state law to interfere — it must interfere ’significantly.’ ”

The new language effectively overrules the 2004 preemption rules, which said that state law was automatically preempted if it “obstructs” or “impairs” a bank’s operations, a standard many critics considered too broad.

“It’s a win for the states,” said Arthur Wilmarth, a professor at Washington Law School at George Washington University. “It makes it even clearer the OCC’s 2004 preemption rules cannot apply … This is a much more demanding standard for finding preemption.”

Although industry representatives continue to vigorously oppose the new language, the OCC apparently agreed to it. Some observers said it was the best deal the agency was going to get. The House had been seeking additional language that would have forced the OCC to prove a substantive federal standard existed before preempting a state law on a particular consumer issue — an even tougher standard that would have been harder to meet.

“At times in the legislative process one realizes that the language you are confronted with is the best you are going to get, so you might as well embrace it,” said L. Richard Fischer, a lawyer at Morrison & Foerster LLP.”The Federal Reserve has been doing this for nearly 12 months, and now it appears that the OCC has finally learned this lesson.”

Other observers suggested that banks had already lost once it was clear Congress was going to craft a new preemption standard.

“The national banks — at least the handful to whom consumer finance actually matters — are likely to see this as a defeat,” said Raj Date, chairman and executive director of the Cambridge Winter Center for Financial Institutions Policy. “But, realistically, preemption is a complicated and high-stakes field, so the banks were likely to continue to litigate borderline cases irrespective of the outcome here.”

Conferees also were poised by Wednesday to finalize language on other consumer protection provisions.

As expected, the House agreed to the Senate’s structure for a new consumer regulator, which would be an autonomous unit inside the Federal Reserve Board.

House and Senate conferees were also expected to finalize a deal struck Monday between Sen. Richard Durbin, D-Ill., and House lawmakers to allow the central bank to ensure interchange rates on debit cards are “reasonable and proportional.” Although the wording is opposed by the banking and credit union industries, it now appears the final regulatory reform bill will include the provision.

Under conference committee rules, the House makes an offer to change the bill, which the Senate conferees can accept, reject, or counter. Once the two sides agree, the bills must still be approved by the full House and Senate.

House Financial Services Committee Chairman Barney Frank said Tuesday he wanted to ensure the conference is finished by Thursday so that President Obama can bring a final blueprint for overhauling the financial system to the Group of 20 meeting this Saturday. Lawmakers are hoping to have a final bill passed before the Fourth of July recess.

Much of the debate Tuesday concerned proposed risk-retention requirements. House conferees sought to strike a provision added to the Senate bill that would let banking regulators define and exempt a class of qualified mortgages from the bill’s requirement that lenders retain 5% of a loan’s risk when packaging it into a security.

While Frank noted the House version would also allow regulators to reduce or waive the risk-retention standard, he objected to exempting a specific class of loans. “We do want to give the regulators the power to go to zero,” he said. “If you can prove to the regulators that you have designed a product that is a very safe and sound one, the regulators could say your risk retention is zero.”

But Frank said the Senate measure went too far. “I don’t want to have that too rigid,” he said. “I don’t want to make it too easy for anyone to get around. That’s why I don’t want to remove risk retention from a class of loans.”

Conferees did agree to exempt federally insured loans from the risk-retention requirement such as those backed by the Federal Housing Administration and the Veterans Administration.

The Senate also agreed to accept much of the House’s language to establish underwriting standards for all mortgages. The language is largely based on legislation that passed the House multiple times that would force regulators to set standards and ensure borrowers have the ability to repay their loans.

The House conferees also adopted a proposal from Rep. Scott Garrett, R-N.J, that would establish a comprehensive framework for a covered bond market in the U.S. to provide liquidity for home mortgages, commercial real estate and public sector financing. It would specifically create a covered bond regulator within the Treasury Department. It would also define the eligible asset classes to be included in the “cover pool”; establish criteria for issuers interested in offering covered bonds; detail the process of transferring the covered assets to a separate estate in the event of an issuer insolvency; and appoint an administrator to oversee and manage the separate estate.

While the Senate did not vote on the issue late Tuesday, Senate Banking Committee Chairman Chris Dodd and Sen. Bob Corker, R-Tenn., expressed support for the measure.

The conference is expected to address prudential regulation on Wednesday, including provisions dealing with charter approvals, conversions and industrial loan companies. The Senate is also expected to offer language to beef up provisions to implement the Volcker Rule, which would ban proprietary trading.

American Banker  |  Monday, June 28, 2010
By Paul Muolo and Sara Lepro      

Federal Housing Administration mortgage volume could get a boost from regulatory reform, because loans insured by government agencies are fully exempt from the bill’s risk-retention requirement.

The legislation finalized by the conference committee late last week would require originators to retain at least 5% of the credit risk in loans they securitize unless the assets meet a “qualified mortgage” test. All loans backed by the FHA, the Department of Veterans Affairs or the Rural Housing Service will automatically meet that test.

“FHA gets a pass,” said David Kittle, senior director of industry relations for IMARC, a mortgage fraud investigation company, and a former chairman of the Mortgage Bankers Association. “Does it give them an advantage? Well, sure. Anytime you are carved out of something that can be onerous for everybody else, then certainly you benefit.”

Certain — and possibly most — loans securitized through Fannie Mae and Freddie Mac will also be eligible for securitization without risk retention.

“I believe chances are very good that in the future almost every mortgage that Fannie and Freddie either buy or securitize will be qualified mortgages under the risk-retention provision,” said Glen Corso, managing director of the Community Mortgage Banking Project, a trade group.

But without an automatic exemption, lenders will have more hoops to jump through when they make loans headed to Fannie or Freddie, giving FHA an edge.

How many hoops will ultimately depend on how a “qualified” mortgage is defined. Under the final bill, federal banking agencies, the Securities and Exchange Commission, and Federal Housing Finance Agency will draft rules establishing underwriting standards and allowable product features for these fully documented loans. Qualified mortgages also have to meet a new and tougher “ability to repay” standard in the bill along with a 3% limit on points and fees and a separate 2% limit on bona fide discount points. Regulators have the flexibility to set risk-retention requirements lower than 5% for residential loans that don’t meet the qualified mortgage test.

Balloon, negative amortization, and most interest-only notes will be excluded from the definition but debt-to-income ratios and verification practices must be defined by regulators and could change. The bill, as expected, gives little boost to a revival of the private-label securitization market.

“Time and time again we keep hearing that we need the private sector to jump in, yet all the regulations that are being passed are keeping them out of the game, on the bench, on the sidelines,” said Sylvia Alayon, senior vice president of national operations at due diligence firm Capital Markets Assessment Corp. “We do need the private sector because many loans, like jumbo loans, can never be absorbed by the government agencies, and they represent a significant part of the market.”

Still, mortgage veterans were relieved on Friday that the bill will not force them to retain risk on all securitizations, regardless of loan characteristics, as in the initial language they had lobbied against.

“It’s nice to win one,” said Lewis Ranieri, co-inventor of the mortgage-backed security.

Dow Jones  |  Wednesday, June 23, 2010
By Jessica Holzer

WASHINGTON — The share of performing mortgages increased slightly during the first quarter of 2010 for the first time since March 2009, although loan performance was still down from a year ago, federal bank regulators reported Wednesday.

The share of current and performing mortgages climbed to 87.3% at the end of March, up from 86.4% at the end of last year. Meanwhile, the share of seriously delinquent loans dropped to 6.5% in March from 7.1% in December, with delinquencies improving across all risk categories.

However, first-quarter loan performance was still worse than a year ago, when 89.8% of mortgages were performing and 4.8% of loans were seriously delinquent. The share of foreclosures in process also jumped to 3.5% in March from 2.5% a year ago.

The results were due to a combination of factors, Office of the Comptroller of the Currency Deputy Comptroller for Large Banks Joe Evers said in a press call with reporters. Mortgage loan performance usually enjoys an uptick during the late winter and early spring, he said, but these numbers were not adjusted for seasonality.

Meanwhile, the decline in delinquencies reflects improving efforts by mortgage servicers to help borrowers stay in their homes. When a loan is modified, it is reset from “delinquent” to “current.”

Bruce Krueger, a mortgage expert at the OCC, said the data isn’t adjusted for seasonality because there are already too many factors affecting the numbers. He argued the improving loan performance was due to other factors than just the seasonal impact.

“Something is happening here that is over and above seasonality,” Krueger said.

Wednesday’s report is compiled by the OCC and the Office of Thrift Supervision. It covers roughly 34 million U.S. home mortgage loans totaling nearly $6 trillion in unpaid principal balances.

Loan modifications and other efforts by mortgage servicers to help borrowers, including trial period plans under the Obama administration’s Home Affordable Modification Program, or HAMP, jumped in the first quarter. However, modified loans continued to re-default at high rates.

Loan modifications, trial period plans and payment plans climbed by more than 5% in the first quarter from the previous quarter and by more than 61% from a year earlier. Mortgage servicers implemented 629,678 such actions, including nearly 100,000 loan modifications and almost 190,000 trial period plans under HAMP.

Actions by servicers to keep people in their homes continued to outpace foreclosures during the quarter, with the number of modifications and payment plans totaling 1.7 times the number of foreclosures.

Still, foreclosures started by servicers during the quarter jumped to 370,536, up 18.6% from December. Modified loans continued to perform poorly. A year later, more than half of modified loans were 60 or more days past due.

However, mortgage servicers seem to be getting better at modifying loans. Of the 587,097 modifications completed in 2009, more than half were current at the end of March. That’s compared with just 27% of loans that were modified in 2008.

By Kenneth R. Harney

Saturday, June 5, 2010; E01

Though the Wall Street and banking features of the giant financial industry overhaul bill taking shape on Capitol Hill have drawn most of the attention, home buyers and mortgage applicants should be major winners when the legislation is finally signed into law, probably early next month.

Not only will the zero-down, funny-money loans and slipshod underwriting that triggered the housing bubble and bust be virtually eliminated from the marketplace, but so will the “steering” practices used by loan officers to earn extra fees by putting unsuspecting borrowers into poisonous mortgages.

Conferees from the House and the Senate are negotiating the differences between their bills, but on the key consumer fundamentals, it’s not too early to project the probable results.

Here’s a quick overview of what’s likely to go the president’s desk affecting housing and mortgage finance:

– A new consumer-protection agency — armed with broad powers to rein in bad mortgage products and predatory lending practices anywhere in the country — is now a certainty. The House bill would create a stand-alone independent federal entity, and the Senate bill would establish a consumer financial product safety “bureau” housed in the Federal Reserve. Rep. Barney Frank (D-Mass.) the House Financial Services Committee chairman, said he expects the conference to approve his stand-alone concept. But either way, consumers will for the first time have regulators and investigators watching out for the latest scams and gimmicks in the home loan industry.

– Uniform minimum standards for mortgages and underwriting practices. Though such bubble-era favorites as “stated income,” “pick-a-pay” and negative amortization loans are not prohibited by the legislation, lenders will be powerfully motivated to offer fully documented, verified-income mortgages with down payments sufficient to ensure that borrowers have a stake in the deal. There also will be mandatory determinations by lenders that applicants can afford to repay the mortgage debt, insurance and taxes on time.

– Prohibition of prepayment penalties on nontraditional loans that are not fully documented, not fixed-rate and which don’t carry standard amortization schedules. This would prevent, for example, the sort of “gotcha” adjustable-rate mortgages of the boom years, in which consumers found themselves trapped by fast-rising payments and heavy penalties if they tried to refinance early. Prepayment penalties would still be permitted on income-verified standard loans, but lenders would be required to offer alternative financing without penalties for early payoffs.

– Mandatory provision of credit scores when mortgage applicants are turned down. Though this appears only in the Senate version, it has a strong chance of ending up in the final bill in some form, given the pro-consumer composition of the majority of the House negotiating team in the conference. Since lenders often place great weight on credit scores, the idea here is to provide unsuccessful applicants with the score that contributed to the loan rejection. Along with the score itself, lenders would be required to provide the name and contact information of the score provider, typically a credit reporting agency, plus brief descriptions of the negative information in their credit bureau files that led to the low score. Consumers already have the right under federal law to free credit reports when they are rejected for a loan, but they don’t get free credit scores.

– Restrictions on mandatory arbitration clauses embedded in many contracts for mortgage and other credit. Both the House and the Senate bills contain provisions on this. The House bill would empower the Consumer Financial Protection Agency to restrict lenders’ use of mandatory arbitration requirements if it finds them to be harmful to borrowers. The Senate version would require the consumer agency to conduct a study of mandatory arbitration clauses before taking action to restrict them. Either way, there could be important changes in industry practices.

– Real estate appraisal improvements. The House bill would give the new consumer protection agency oversight on home mortgage appraisals and the power to create rules and standards to guarantee “appraiser independence” from pressures by lenders, realty agents and others. It also would require that once the new rules are adopted, the controversial “Home Valuation Code of Conduct” mandated last year by Fannie Mae and Freddie Mac be terminated. The code has been criticized by consumers, realty agents, builders and appraisers for encouraging lowball appraisals and the use of inexperienced appraisers willing to work for low fees. The Senate bill does not have appraisal provisions, but a bipartisan push is under way to convince conferees to adopt the House version.

May 21, 2010

Dear NAMB Member,

Last night, the Senate passed S. 3217, the “Restoring American Financial Stability Act of 2010,” by a vote of 59-39, sending it to Conference Committee, where members of both chambers of Congress will work to reconcile this bill and House passed bill H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009.”  NAMB will continue advocating on behalf of its members to protect their profession as the legislative process moves forward.  

I.          FAQ

1.      As a mortgage broker, can I still offer zero cost loans?

YES.  As currently written, the legislation does not restrict originators from offering zero cost loan products.  The mortgage originator may receive their compensation via an increase in the par rate but no additional compensation is permitted.  This is the direction the new Federal Reserve Board regulation was taking.  NAMB expressed our concerns with this approach as we did when the FRB issued their proposed rule.  Also remember, on the new GFE it can be argued mortgage brokers disclose all their compensation in Block 1 and the consumer receives a credit for the higher interest rate that can be used as they see fit.   What is being removed from the system is mortgage originator (mortgage brokers and loan officers at a bank or lender office – overages are banned) pricing discretion and incentive payments for a particular loan type (the regulators must deal with incentive payments to lenders from Wall Street, which remain permissible).

2.      How will this legislation affect YSP (Merkley (D-OR)/Klobuchar (D-MN) Amendment)?

Provisions in the Merkley (D-OR)/Klobuchar (D-MN) amendment will prohibit the total amount of direct and indirect compensation paid to mortgage originators from varying based on the terms of a loan.  The compensation can be based on the amount of the loan.  To be consistent with the RESPA Final Rule, mortgage brokers will have the ability to receive compensation (either all upfront or all on the backend) since indirect compensation and other costs of the closing is fully credited to the borrower on the GFE.  One could argue that HUD has solved the problems that this amendment seeks to correct.  There are also issues of concern for small loan amounts ($150,000 and below) created by the 3% safe-harbor provisions of this amendment.  The 3% safe harbor (consumers “ability to repay”) for fees and expenses will hurt low-income, minorities, first-time home buyers and rural areas since these property prices tend to be lower than $150,000.  There are also concerns with this amendment in terms of affiliated business arrangements and steering.  Consumer advocates could argue that all transactions between affiliated businesses are suspect of steering and violate this amendment.  

3.      Is the term “loan originator” defined as individuals, or does it include companies?

As currently written, the term “loan originator” is defined as a “person,” which under TILA includes companies, and is not confined to only individuals.  NAMB is advocating for the “loan originator” definition to be consistent with the definition included in the S.A.F.E. Mortgage Licensing Act, which defines “loan originator” as the individual.   

4.      The Casey (D-PA) Amendment to sunset the HVCC and create strong appraisal independence rules was not included, what now?

Language already exists in the House passed bill, H.R. 4173, offered by Reps. Kanjorski (D-PA), Childers (D-MS), Miller (R-CA), Manzullo (R-IL), and Bachmann (R-MN).  NAMB is advocating that these provisions should be retained in Conference Committee during reconciliation of the House and Senate bills.  NAMB, alone, fought for these provisions in the House passed bill and will continue to fight to keep them in the conference report.

5.      Why did the Senate vote on H.R. 4173 yesterday evening instead of S. 3217?

Procedurally, H.R. 4173 was offered but stripped completely and replaced with the language included in S. 3217.   

6.      What happens next?

The House and Senate will enter into Conference Committee to reconcile differences between S. 3217 and H.R. 4173.  Once a single bill is agreed upon in Conference, it is sent back to both the House and Senate for a final vote.  If passed by both chambers, the bill is enrolled and sent to the President to be signed into law.   

7.      Who will be chosen for the Conference Committee?

House Committee on Financial Services Chairman Barney Frank (D-MA) is expected to preside as Chairman over the Conference Committee.  House leadership has not indicated when they’ll announce conferees officially, but some have speculated as early as next week.  Conferees are likely to include senior members of the House Financial Services Committee along with some members from the House Agriculture Committee, to address the derivatives component of the bill.  We expect at least twelve Senate conferees to be officially announced Monday, with five Democrats and four Republicans from the Senate Committee on Banking, Housing, and Urban Affairs, and two Democrats and one Republican from the Senate Committee on Agriculture, Nutrition, and Forestry.  Chairman Frank (D-MA) and Chairman Dodd (D-CT) have made it clear that they would like to get a reconciled bill the President by July 4^th.

II.        More information on NAMB concerns:

1.       Conflicting underwriting standards created by inconsistencies between the Merkley (D-OR)/Klobuchar (D-MN) and Landrieu (D-LA)/Isakson (R-GA) amendments.  

Under the present construct with the two amendments, a loan could be exempt from the 5% risk retention requirements but not pass the ability to repay safe harbor section of the Merkley/Klobuchar amendment.  Creditors will have conflicting underwriting standards with which they must comply being written by two different agencies and banking regulators.  A resolution to this issue would be to create a safe harbor in the Merkley/Klobuchar amendment for having met the ability to repay standards if the mortgage meets the criteria for qualified residential mortgages as defined in the Landrieu/Isakson amendment.  This approach will remove any chance of a conflict between loan products referenced under the Landrieu/Isakson amendment and loan products referenced in the Merkley/Klobuchar amendment.  Rule writing should be left with the banking agencies as set forth in the Landrieu/Isakson amendment.

2.      Provisions to sunset the HVCC and strengthen appraisal independence standards are not included.

NAMB supported an amendment offered by Senator Casey (D-PA) that would have, upon enactment, sunset the controversial HVCC prior to its expiration date and replaced it with a more coherent and workable appraisal independence solution.  It also required the GAO to conduct a study on the effects the HVCC has had on mortgage brokers, other small business professionals and consumers.  The amendment would have also created strong appraisal independence rules; imposed greater scrutiny on industry participants in the appraisal process; provided greater protections to consumers who engage in the mortgage process; and provided strong federal standards for the AMCs.  Language already exists in the House passed bill, H.R. 4173, offered by Reps. Kanjorski (D-PA), Miller (R-CA), and Childers (D-MS).  NAMB believes these provisions should be retained in Conference Committee during reconciliation of the House and Senate bills. 
CONTACT YOUR SENATORS IMMEDIATELY to protect your profession and stay in business!