The government-sponsored enterprises’ increased subprime activity in the mid-part of the last decade was driven by compensation incentives for former executives, the Securities and Exchange Commission claims. The allegations were included in recent lawsuits filed by the SEC regarding Fannie Mae’s and Freddie Mac’s disclosure of non-prime activity. In December, the SEC filed securities fraud lawsuits against six former GSE executives. The SEC claims the executives – including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron – knew of and approved misleading statements in 2007 and 2008 claiming that the companies had minimal holdings of higher-risk mortgages. ...

Loan modifications with principal reduction have significantly increased in the past year, with servicers seeing improved performance compared with other types of mods. The mods remain concentrated on securitized non-agency mortgages as well as portfolio loans, but performance varies considerably. After falling to a 2.7 percent share in the fourth quarter of 2010, principal reduction mods have accounted for a growing share of bank and thrift mod activity, according to the Office of the Comptroller of the Currency. Principal reduction was used in 7.8 percent of the mods completed by nine major bank and thrift servicers in the third quarter of 2011. ...

The FHA has extended for one more year a temporary waiver of a regulation prohibiting property flipping in order to facilitate faster sale of its bulging real estate-owned inventory. The agency hopes that having the waiver in place until Dec. 31 will stimulate the rehabilitation of foreclosed and abandoned homes for another year, including properties being resold within 90 days of acquisition. The waiver is not limited to the resale of foreclosed properties. “Property flipping” occurs when a property acquired at a discounted price is resold for a considerable profit with an...

The Department of Housing and Urban Development has entered into a partnership agreement with the National Community Stabilization Trust to facilitate the implementation of a “first look” program that will give preference to certain purchasers to acquire FHA real estate-owned properties. In a notice published in the Federal Register, HUD announced the issuance of a universal Name and Address Identification Number (NAID) to the NCST to assist eligible buyers in purchasing REO properties under the National Stabilization Program’s “First Look Sales Method.” The NAID requirement for purchasers is...

President Obama this week moved to break a GOP blockade in the Senate by making a recess appointment of Richard Cordray to become director of the Consumer Financial Protection Bureau, a political maneuver that defies 20 years of precedent and may set the stage for a legal challenge. The Obama administration claimed that it is fully within its Constitutional authority to place the new director into his position, dismissing as a gimmick the pro-forma sessions Republicans used to block the nomination. A number of consumer groups came out in support of the appointment. The president’s allies in Congress were...

There’s a very good chance the final disposition of securities fraud charges leveled by the Securities and Exchange Commission against six former Fannie Mae and Freddie Mac top executives could be determined at trial rather than by a pre-trial settlement, thanks in part to a recent adverse SEC court decision, according to one legal expert. On Dec. 16, the SEC filed suit in the U.S. District Court for the Southern District of New York, alleging that former Fannie and Freddie executives made material misstatements to the public, investors and the media about the two government-sponsored...

Bank of America reached a landmark $335 million agreement with the Department of Justice to settle allegations that Countrywide systematically discriminated against African-American and Hispanic borrowers during the housing boom, manipulating them into taking subprime loans when they were qualified for prime financing. It’s the largest settlement ever for a residential fair lending claim. The case also marks the first time the Justice Department has alleged and obtained relief for borrowers who were steered into mortgages on the basis of their race or national origin, a practice that placed...

Risk-sharing programs that have already been tested and proven effective could be dusted off and made the focal point of efforts to steer the mortgage finance system to a more sustainable, less volatile foundation, investors say. There is widespread agreement that private capital needs to play a much greater role in the mortgage finance system that has been dominated by Fannie Mae, Freddie Mac and the government mortgage-insurance programs since the financial crisis of 2008. There is no consensus on how to do that, and little likelihood that Congress will agree to a solution any time...

The one category of distressed loan that the federal government has the most control over – mortgages insured by the FHA and VA – continues to show the worst success rates for loan modifications. After 12 months of post-modification seasoning, over half (51 percent) of government-insured loans were 60 days or more past due, according to a report issued this week by the Office of the Comptroller of the Currency. That compared to an overall 60+ re-default rate of 39 percent. Fannie Mae and Freddie Mac mortgages, along with loans held in the servicer’s portfolio, showed the best...

The timing and method of disposing of real estate owned properties will have significant implications for home prices, according to Fitch Ratings analysts. The supply of REO homes is unprecedented, with the large overhang of distressed properties in the housing market and weak demand, analysts said. The REO industry estimates that more than 2 million properties nationwide are in foreclosure and that 25 percent to 35 percent of all home sales are related to properties whose mortgages have defaulted. In a recent home-price projection report, which uses the rating agency’s Sustainable Home...