GSEs Release HVCC Updates; Broker Compensation & YSP Clarification; 15 Year Prison Sentence for Mortgage Fraud
There will be no civil fraud trial for Angelo Mozilo. On Friday he agreed to settle fraud charges with the U.S. Securities and Exchange Commission by paying a fine of $67.5 million. It is the highest fine ever for an executive of a public company, although critics are quick to point out that in 2007 alone Mozilo took in $121.5 million from exercising Countrywide stock options and was awarded another $22.1 million of compensation.
The SEC's director of Enforcement said, "Mozilo's record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model."
In an unrelated, but interesting to compare, story, Peter Bakowski (a mortgage banker in Tampa, Florida) was sentenced by a federal judge to more than 15 years in federal prison with a fine of $16.1 million after he pleaded guilty on charges related to a mortgage fraud scheme. "Officials say the Tampa resident was involved in a $20 million mortgage fraud Ponzi-type scheme. More than 30 victims, including investors and institutions, were affected, as were more than 150 properties. Officials say Bakowski sold the same mortgage to multiple people, and then paid returns on the preceding investor's investments with money from later investors."
As we near the end of HVCC, it is good to remember that in late 2008 HVCC was not really considered a regulatory requirement - it was more of a compromise between the agencies and New York attorney general Cuomo. The Code of Conduct was included in the agreements with Fannie Mae and Freddie Mac, and their new regulator the Federal Housing Finance Agency. The revised HVCC is a de facto regulatory action, and although critics quickly found a large number of problems with it, the industry has survived.
On Friday both Freddie and Fannie released information on what the appraisal process will look like after November 1. Freddie is "implementing several changes to our appraisal, credit, and counterparty eligibility requirements that align with risk management practices appropriate for today's marketplace. These changes allow Freddie Mac to more effectively address market risks as we continue to support a stable mortgage industry and long-term homeownership success." Starting Friday Freddie is adopting "appraiser independence requirements that maintain the spirit and intent of the HVCC. Freddie Mac has worked with the Federal Housing Finance Agency and Fannie Mae to develop appraisal independence requirements to replace the HVCC, which is expected to sunset this month. Effective for mortgages with applications dated on or after February 1, 2011, we are requiring specific photographs of the subject property's interior for all appraisals requiring interior and exterior inspections. Today's Bulletin also includes important reminders about our current appraisal requirements for comparable sales and the appraiser's opinion on market value."
Starting November 1, Freddie is revising the cash adjustor value required for fixed rate Relief Refinance Mortgages, and anyone delivering loans under MIDANET will have a new process. In addition, starting for loans settling out in February, Freddie is instituting a number of credit score, foreclosure & short sale, bankruptcy time frame, reserve requirements, maximum number of financed properties, etc. Net worth requirements will ratchet higher in September 2011 ($2 million) and again in June 2012. For the latest details please see THE FULL RELEASE
Fannie also told its clients that the "Appraiser Independence Requirements" replace the HVCC. "These updated requirements maintain the spirit and intent of the HVCC and continue to provide important protections for mortgage investors, home buyers, and the housing market. The HVCC is being replaced by the Appraiser Independence Requirements; however, all conventional, single-family mortgage loans with application dates on or after May 1, 2009, must additionally comply with the HVCC until the earlier of the release of the Interim Final Rules by the Federal Reserve as required by the Dodd-Frank Wall Street Reform" legislation. Go to FANNIE'S BULLETIN for more details.
Wholesaler Plaza Mortgage publicly dipped its toe into the broker compensation issue by beginning a discussion of its steps being made for next April. "You may have heard that the new regulations will result in a dramatic reduction in total broker compensation and that Yield Spread Premiums are going away. That is not what the regulation says. This is what it does say: no caps will be set on the amount of compensation that a loan originator may receive (other than our current caps already in place), the mortgage broker or loan originator is permitted to negotiate origination fees directly with the consumer in situations where the fees are paid directly by the consumer, and payments to the loan originator that are based on the loan's interest rate or other terms are prohibited, but compensation may be based on the amount of the loan."
The broker will have the option of negotiating compensation directly with the borrower or with us, the lender. However, you will not be allowed to receive compensation from both the borrower and the lender. "You may have heard that brokers will no longer be able to receive Yield Spread Premiums as part of their total compensation. That is not what the regulation says. This is what it does say: Mortgage brokers or loan officers are prohibited from receiving payments directly from a consumer while also receiving compensation from the creditor or another person, and the lender's compensation to the loan originator must be pre-determined and fixed for any particular loan, but can be re-negotiated periodically in light of market conditions. This means that YSP may continue to be used to pay for borrowers closing costs as is the case today, and that you may be compensated by Plaza based on a percentage of the loan amount" and that "Plaza anticipates negotiating our broker compensation plans once per quarter. We plan on sharing with you our analysis of the compensation you've received on transactions closed this year at Plaza."
For bank closings on Friday we had WestBridge Bank and Trust (MO) taken over by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver who in turn entered into a purchase and assumption agreement with Midland States Bank (IL). Premier Bank (MO) had a similar fate, and is now being run by Providence Bank (MO). And Security Savings Bank (KS) was closed by the OTS, the FDIC came in as receiver, and Simmons First National Bank (Arkansas) assumed all of the deposits.
Wells Fargo's correspondent channel told its clients that it will accept, with certain requirements, appraisals completed by LandSafe for Bank of America for closed loan packages delivered to Wells Fargo on or before December 31, 2010. "This policy applies to Conventional Conforming Delegated Loans only; the policy does not apply to Loans submitted through our Prior Approval underwriting process. The Seller, and not the Third Party Originator, must include a Home Valuation Code of Conduct (HVCC) compliance certificate, delivered directly from Bank of America to the Seller, in the Closed Loan Package, to indicate the appraisal has been originated in compliance with HVCC guidelines. Sellers must comply with all HVCC guidelines, including Wells Fargo-specific requirements. The Seller assumes all responsibility for the accuracy of the appraisal and agrees to honor all Representations and Warranties regarding appraisal value, accuracy and compliance with HVCC."
Flagstar came out with something similar, making an exception to its appraisal portability policy to accommodate Bank of America appraisals from LandSafe. The appraisal and process must meet several requirements, and then "All requests to accept an appraisal that was ordered from another lender should be sent to Appraisal.Review@flagstar.com."
Citigroup came out with its 3rd quarter results - does it make any difference now with the foreclosure uncertainty hanging over the large servicers? Revenue was about $20.7 billion, earnings per share (at 7 cents) were better than expected, and credit losses appear to be declining with $2 billion of loan loss reserves were released.
On Friday Ben Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high. Is this late breaking news? No, it is not. Of slightly more interest was the fact that he didn't offer new details on how the Fed would undertake those strategies or give assurances the central bank will act at its meeting in a few weeks. The FOMC is considering ways they can stimulate the economy - but of course one guy can't motivate the entire economy to grow. Much of expansion will depend on banks and companies using the trillions of dollars they are sitting on, and consumers picking up their spending. Overall inflation is low, but commodity prices are on fire and gold prices continue to set new highs. The U.S. dollar, the global reserve currency, keeps sinking amid expectations that the Federal Reserve will dilute the existing stock starting in a few weeks. On the fixed-income side, "junk bond" issuance already set a record for the year, with demand for high-yield debt narrowing spreads to Treasuries. Investors are pouring money into emerging markets debt issued in local currencies by less-developed countries.
With that as a back drop, Friday we had the New York Fed's Empire State Manufacturing Survey that showed a pick-up in activity to its highest level since June, but the University of Michigan Consumer Sentiment Index dropped slightly. Mortgage securities worsened by 25 to 50bps, depending on coupon, supply picked up a little with $3.2 billion of MBS's being sold, and U.S. 10-yr and 30-yr securities also dropped in price on the news. Besides, rates have come down in recent weeks, so one would expect to see a little bounce in the other direction. Economic news this week is pretty light. This morning we'll have Industrial Production and Capacity Utilization. Tomorrow we'll see Housing Starts and Building Permits. Wednesday the Fed's Beige Book (discussing economic conditions in the Federal Reserve districts) and the mortgage application numbers, Thursday is the Philly Fed and Leading Economic Indicators, and on Friday zip. HERE IS THE FULL EVENTS CALENDAR FOR THE WEEK AHEAD
Jeb Junior goes over to Billy Ray's farm one day to pick up some moonshine and he hears some strange noises coming from the barn. He goes to investigate and finds Billy Ray hootin' and hollerin' and doing a slow and sensual striptease in front of an old John Deere.
Jeb watches quietly from the door to see Billy Ray pushing away his suspenders and tearing off his shirt to reveal his manly chest. Then he swivels his hips and removes his belt. Finally Billy Ray drops his drawers and taunts the old machine with what God gave him.
"What on earth are you doing Billy Ray?" Jeb calls out.
"Jeez Jeb Junior, ye frightened the livin' be'jasus out of me," says an obviously embarrassed Billy Ray, quickly pulling on his clothes.
"Whut was you doin'?" Jeb asks again.
"Well if you must know, me and the missus been having some trouble lately in the bedroom department and we went to see a therapist. The darn fool suggested I do something sexy to a tractor."