The VA’s use of residual income to qualify borrowers for mortgages should be incorporated in the ability-to-repay rules for qualified mortgages, according to some industry participants. Lender trade groups and consumer advocates each suggested the standards last week in comments submitted to the Consumer Financial Protection Bureau. In June, the CFPB sought comments on the relation between debt-to-income ratios and borrower performance. “Residual income standards supersede DTI in the VA’s underwriting decision tree ...

The Consumer Financial Protection Bureau re-opened the comment period on rules for “qualified mortgages” in June after receiving data from the Federal Housing Finance Agency that showed the relation between delinquencies and borrowers’ debt-to-income ratios. The CFPB asked for similar data on FHA loans. The FHA provided the CFPB with such data last week for fiscal years 2004 through 2008, excluding Home Equity Conversion Mortgages and mortgages with seller-funded downpayment assistance. During that period, 63.3 percent of ...

A number of lender trade groups suggested last week that federal regulators should establish standards for “qualified mortgages” for government loans that are separate from rules to be issued by the Consumer Financial Protection Bureau. The ability-to-repay rules were required by the Dodd-Frank Act. The FHA, VA, Department of Agriculture and Rural Housing Service can establish their own QM requirements in consultation with the CFPB. Before last week, there had been little discussion about separate QM standards for ...

The Federal Reserve is pondering the potential of another round of MBS purchases if Fed officials collectively decide that more bond buying is required to spur growth, but industry observers say that the central bank’s repeat of such a course of action will have a marginally helpful effect at best. The Fed has been sending out signals that it is considering taking further action to encourage the sputtering recovery, including Chairman Ben Bernanke’s testimony before both chambers of Congress this week in which he said the central bank is “prepared to take further action as appropriate,” although he wouldn’t commit to a specific action. “There are a range of possibilities. A logical range includes...

Bank of America shareholders may proceed with their securities fraud lawsuit which claims that BofA concealed its potential problems with the Mortgage Electronic Registration System, exposing investors to risky mortgage securities, a federal judge ruled last week. However, U.S. District Judge William Pauley of the Southern District of New York determined that the shareholders, led by the Pennsylvania Public School Employees’ Retirement System, can move forward only against the company itself and not against BofA executives. The investors filed suit in September 2011 alleging they had been misled into...

Securitization representatives are forcefully pushing back against a proposal under review by three jurisdictions in California to use eminent domain to seize performing, underwater mortgages out of non-agency MBS pools, renegotiate them on terms more favorable to the borrowers, and repackage and sell them off to another group of private investors. Last Friday, a joint powers authority created by San Bernardino County and two of its cities, Ontario and Fontana, formally convened for the first time for an organizational meeting. Two groups that represent the securitization industry, the American Securitization Forum and the Securities Industry and Financial Markets Association, expressed their opposition during the meeting. The ASF said that “this inappropriate use of government power,” which is based on a plan by San Francisco-based Mortgage Resolution Partners, a private investment firm, was “designed...

Mortgage loan fraud was the most frequent type of suspicious activity reported by depository institutions involving real estate title and escrow related business throughout much of the past decade, according to a new study by the Financial Crimes Enforcement Network. FinCEN’s analysis of suspicious activity reports identified “thousands of instances” where financial institutions – particularly banks and money services businesses – filed SARs involving title and escrow companies “often in connection with mortgage fraud” from 2003 through 2011. “Over 82 percent of the SARs reporting real estate title and escrow related businesses included...

The mortgage industry is facing mounting legal challenges to force-placed insurance practices as evidenced by two class-action lawsuits filed or advanced last week while state and federal policymakers look for ways to reduce homeowner costs on lender-placed insurance. A Florida homeowner filed a class-action lawsuit in federal court in Fort Lauderdale against Wells Fargo Bank, accusing the lender of engaging in a pattern of “unlawful and unconscionable profiteering and self-dealing” by charging inflated force-placed insurance premiums to homeowners who had allowed their coverage to lapse. Ira Fladell, a lawyer representing himself, claims the bank breached its contract with him and acted in bad faith and that the lender bought...

Officials with the Department of Housing and Urban Development confirmed this week that they are working on ability-to-repay and “qualified mortgage” standards for FHA loans. However, they remained tight-lipped about whether they will craft a QM standard for FHA loans that differs from the Consumer Financial Protection Bureau’s standards, as requested by some lender trade groups. The Dodd-Frank Act requires HUD (for the FHA), the Department of Veterans Affairs, the Department of Agriculture and the Rural Housing Service to develop QM standards for the respective government mortgages that they oversee – in consultation with the CFPB. “Such rules may revise, add to, or subtract from the criteria used...

After just a week of sifting through the massive new mortgage disclosure proposed rule released by the Consumer Financial Protection Bureau, mortgage industry officials have already found a lot of problems and will probably find more issues in the months ahead. Rod Alba, senior counsel for mortgage policy at the American Bankers Association, said implementing the CFPB’s proposal as it is right now would be like trying to replace a human being’s skeleton while the person is still alive and functioning. “Just look at the sheer scope of it: 1,100 pages, where every single disclosure that mortgage loan originators and bankers must rely on when they engage in mortgage lending is going to change,” Alba said. “The system is going to...