A proposal from federal regulators to change servicer compensation on future Fannie Mae and Freddie Mac MBS to a fee-for-service model could also end up addressing a major investor beef about the non-agency MBS market: poor servicing of distressed loans and misaligned interests. The Federal Housing Finance Agency this week released a discussion paper outlining a radical change from an existing system that pays Fannie and Freddie servicers a minimum servicing fee regardless of the loan status. The proposed system features a low flat fee for handling performing loans with increased compensation for...

The share of mortgage loans that were held in portfolio rather than sold into the secondary market rose for the second consecutive year in 2010, but that may have more to do with the peculiarities of the rules for complying with the Home Mortgage Disclosure Act. A Federal Reserve analysis of the lastest HMDA data found that portfolio lending, especially involving owner-occupied refinance loans, has risen since the beginning of 2009 but is still far short of the levels portfolio lenders achieved in 2004 and 2005. Overall, originators held a total of 1.30 million mortgages in portfolio in 2010, with...

The Securities and Exchange Commission is considering launching a civil injunctive action against Standard & Poor’s Rating Services, alleging violations of federal securities laws with respect to the company’s ratings for a 2007 collateralized debt obligation. According to a Form 8-K filing this week by McGraw-Hill, the rating service’s parent, the federal agency is looking into S&P’s rating of Delphinus CDO 2007-1, which was to be mostly backed by non-agency residential MBS. “In connection with the contemplated action, the [SEC] staff may recommend that the commission seek civil money penalties, disgorgement of fees and...

The Securities and Exchange Commission this week approved a proposed conflict-of-interest rule that attempts to walk a tightrope between preventing abusive securitization practices and not interfering with legitimate competitive activity in the market. The agency got a lot of feedback on how to implement the Dodd-Frank Act conflict-of-interest provisions, including from the chief sponsors of the provisions in Congress. Senate Democrats Jeffrey Merkley (OR) and Carl Levin (MI) were largely inspired by dealings in which Goldman Sachs allegedly allowed a hedge fund to choose assets for a collateralized debt obligation and then...

Recent proposals by the Securities and Exchange Commission could eliminate or impose more regulatory burden on mortgage real estate investment trusts and complicate securitizations, experts warned. The SEC earlier this month launched a preliminary effort to reconsider the exemption that REITs currently have from the Investment Company Act. Although the agency did not propose any specific changes, the REIT industry and its supporters see the initiative as a potential game-changer for how they do business. The SEC concept release, at first blush, appears to “signal impending regulatory burdens for mortgage REITs and to...

Guarantee fees up, loan limits down. Reform of the government-sponsored enterprises is set to begin with subtle adjustments to Fannie Mae and Freddie Mac pricing, not with sweeping legislation from Congress. Federal Housing Finance Agency Acting Director Edward DeMarco noted that the guaranty fees charged by the GSEs have already started to increase, and further gradual increases will be implemented next year. ...

“Sept. 2 was the most significant day for mortgage crisis litigation since the onset of the crisis in 2007,” Isaac Gradman, managing member of IMG Enterprises, said in reference to the non-agency mortgage-backed securities lawsuits filed by the Federal Housing Finance Agency. He predicted that the involvement of the U.S. government in mortgage litigation will encourage more private litigants to file lawsuits seeking securities law claims and buybacks. Gradman, whose MBS consulting firm specializes in analyzing contractual rights, potential liabilities and MBS regulation, said the FHFA lawsuits could provide plaintiffs with a roadmap to recoveries. ...

The FHA is urging Congress to restore the authority of community banks to close FHA loans in their own names without having to maintain an FHA lender approval to do so. While it took a regulation by the Department of Housing and Urban Development to take away small banks’ FHA correspondent status, federal law requires lenders to have FHA approval before they can close an FHA-insured loan. Only Congress can make the changes necessary for non-direct endorsement lenders to return to the business of originating and closing FHA loans in their name, according to a former HUD official. Assistant Secretary for Housing and...

FHA lenders that fail to report mortgage record changes for mortgage sales, transfers and termination of mortgage insurance will be referred to the Mortgage Review Board for disciplinary action, including civil fines, the agency warned. In Mortgagee Letter 2011-33, the FHA reminded lenders of their responsibility to reconcile their portfolios and ensure all accounts are properly identified. When the FHA’s records do not match lenders’ records, the latter are required to take corrective action. The Department of Housing and Urban Development will not pay any claims if the name and identification number of the holder or the...

The Department of Housing and Urban Development is seeking public comment on a plan to eliminate an outdated appeals process, which HUD used to collect data to set FHA mortgage loan limits. Since the early 1980s, HUD has allowed interested parties to submit appeals for a higher FHA loan limit in any area of the country at any time in lieu of the limits set by the department for FHA loans. The process, however, is no longer in use – a victim of advances in data-collection technology. Previous guidance issued by HUD outlined the appeal process and later added requirements for data used in non-disclosure states as well as...