With the severe housing recession having created a more than abundant supply of poorly performing mortgages that will likely linger for years, “step servicing,” or varying compensation based on the amount of servicing work performed, may well be the wave of the future. “Currently, many in the industry are proposing step servicing fees for transactions including newly originated prime jumbo product,” said Kathleen Tillwitz, senior vice president of U.S. and European structured finance for DBRS, in a recent analysis. “As a result, the servicing fees we are seeing for prime jumbo loans are currently ranging anywhere from...

Total single-family originations could drop another 20 percent or more in 2012, following a similar decline this year, according to mortgage industry economists. The consensus forecast from Fannie Mae, Freddie Mac and the Mortgage Bankers Association is that $1.28 trillion in home loans will be originated in 2011, a decline of 22 percent from last year’s estimated volume. But 2011 will prove to be just a prelude to another sharp decline in production next year. Despite the fact that mortgage rates are expected to stay at...

One of the goals in the recent revisions to the Home Affordable Refinance Program is to stimulate more interest among lenders, largely through relaxed requirements on representations and warranties and some streamlining of the process. But HARP 2.0 also includes new guidelines on soliciting potential customers, both from the lender’s own portfolio and from borrowers currently serviced by another firm. A handful of lenders have begun touting the expanded program to consumers. The new program includes specific refi solicitation practices that lenders must...

Employment and income fraud risk has been steadily rising since 2009. Analysts at Interthinx attribute the growing risk to the misrepresentation of borrower data to meet the tighter debt-to-income ratios that lenders now demand. The Mortgage Fraud Risk Report shows that employment and income fraud risk in the third quarter was up 8.8 percent from the same period last year, and up 50.0 percent from the third quarter of 2009. One thing that doesn’t change is the states that have the highest exposure to this fraud; Nevada, the riskiest state, has an index value of 255, and Arizona comes in a close second with an index of 243. These...

The regulatory burden of the Dodd-Frank Act creates pressure on community banks to hire additional compliance staff instead of customer-facing staff, reducing resources that could be directly applied to serving a bank’s customers, resulting in fewer mortgages getting made, slower job growth and a weaker economy, according to Steve Wilson, the American Bankers Association’s immediate past chairman. The Dodd-Frank provisions he cited as particularly troubling for community banks include risk retention, higher capital requirements, narrower qualifications for capital, and doubling the size of the deposit insurance fund – taking as much as $50 billion out of the earnings and capital of the industry in the process. “The Dodd-Frank Act also requires 20 new Home Mortgage Disclosure Act reporting obligations,” Wilson said in a speech last week. “These and other reporting requirements will add considerable compliance costs to every bank’s bottom line.”

Calls increased last week for Republicans in the Senate to drop their opposition to an up-or-down vote on President Obama’s nomination of Richard Cordray to be the first director of the controversial Consumer Financial Protection Bureau. What’s noteworthy is that one Republican in the Senate, Scott Brown from Massachusetts, broke ranks with the rest of his party in saying he supported the nomination. Brown may be feeling the political heat of his challenger for the Senate seat he holds, Harvard professor Elizabeth Warren, the architect of the CFPB and the first special advisor to the Treasury hired to get the new bureau up and running after its creation by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Consumer Financial Protection Bureau is about to begin its Consumer Risk Assessment process, one of the key components of the agency’s Supervision and Examination Manual. This process evaluates CFPB-supervised entities based on the amount of risk their activities pose to consumers, identifies the various sources of risk, and assesses the quality of risk controls they’ve put in place. This process is definitely something that those who have been concerned about the expansive powers of the bureau should ready themselves for, according to attorneys in the mortgage banking and consumer financial products practice at the law firm of K&L Gates.

The Consumer Financial Protection Bureau, in a conciliatory gesture to a wary industry, recently announced the existence of a formal Early Warning Notice process that will provide advance notice of potential enforcement actions to individuals and firms under investigation. The process is modeled on similar procedures that have been successful at other federal agencies, according to the CFPB. It starts with the bureau’s Office of Enforcement explaining to individuals or firms that evidence gathered in a CFPB investigation indicates they have violated consumer financial protection laws. Recipients of an Early Warning Notice are then invited to submit a response in writing, within 14 days, including any relevant legal or policy arguments and facts. The Early Warning Notice process “strikes a balance between the goal of fairness to those being investigated and our mission to protect consumers,” said Raj Date, special advisor to the secretary of the Treasury for the CFPB. “This process will help us fulfill our commitment to transparency in enforcing the law.”

Federal Housing Finance Agency.Office of the Comptroller of the Currency. Single Uniform Audit Program discussed. Representatives of mortgage servicing and foreclosure law firms met with officials from the Federal Housing Finance Agency and the Office of the Comptroller of the Currency recently to discuss development of a Single Uniform Audit Program to replace the individual servicer reviews of foreclosure law firms as required by the bank regulators’ consent orders and regulatory directives. Industry reps are said to be developing a straw-man proposal.

The Government Accountability Office recently confirmed the view widely held in the mortgage finance industry that federal regulators are not doing enough to analyze the cost and other effects of implementing the Dodd-Frank Act. “Little is known about the actual impact of the final Dodd-Frank Act rules, given the short amount of time the rules have been in effect,” the GAO said. The government watchdog noted that federal financial regulators are required to perform a variety of analyses, but the requirements vary and none of the regulators are...