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Inside Mortgage Finance

August 1, 2013

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Senate Banking Panel Passes FHA Solvency Measure, Focus Now Turns to Larger Housing Finance Reform

The Senate Committee on Banking, Housing and Urban Affairs this week approved bipartisan legislation to strengthen FHA solvency and oversight authority over lenders, paving the way toward dealing with the larger issue of housing finance reform. Introduced by Committee Chairman Tim Johnson, D-SD, and Ranking Minority Member Mike Crapo, R-ID, the FHA Solvency Act (S. 1376) passed by a vote of 21-1. The approved bill included... Read More

Policy of Paying Bonuses for ‘Upselling’ Mortgages Lands Nonbank Firm in Hot Water with CFPB

The Consumer Financial Protection Bureau took its first legal action over alleged violation of the new loan originator compensation rule last week, bringing suit against Castle & Cooke Mortgage, a Utah-based nonbank, and two top executives. The CFPB claims that the defendants had an unwritten policy of paying quarterly bonuses to loan officers based on a formula that rewarded the origination of mortgages with high interest rates, “thus incentivizing loan officers to steer consumers into mortgages with less favorable terms, the very practice the compensation rule sought to prohibit,” said the CFPB’s complaint. Overall, the firm paid... Read More

Mortgage Origination JVs Prepare for Life After Wells Fargo; Megabank Blames Exit on Dodd-Frank

When Wells Fargo recently pulled the plug on its remaining loan-production joint ventures, it downplayed the significance of the move, explaining that in the scheme of things these unique partnerships – mostly with real estate companies – account for just 3 percent of its total production. But for some of the eight JVs that were shoved aside, it could be a big deal because it means they may now have to find either a new partner or raise additional capital. Still, not all of the JVs are fretting... Read More

Nonbanks Continue Gaining Ground in Mortgage Servicing; Bank of America Slips to Third Place

Once upon a time, in the third quarter of 2005, Countrywide Financial became the first company to amass a mortgage servicing portfolio of over $1 trillion. Just three years later, the company would be consumed by a hungry giant, Bank of America, which in the process became the first – and only – $2 trillion mortgage servicer. During the second quarter of 2013, BofA gave up its chair in the $1 trillion servicing club, reporting a 16.7 percent drop in its portfolio that left the company with “just” $988.6 billion in servicing. Since peaking at an industry record of $2.160 trillion at the end of 2009, BofA has managed to shrink its portfolio by a whopping 54.2 percent. The bank shed...[Includes one data chart] Read More

IRS Says Mortgage Excess Servicing Spreads Are ‘Real Estate Assets’ Under REIT Tax Law

Mortgage real estate investment trusts can draw some guidance from a recent private-letter ruling from the Internal Revenue Service on whether excess spread on mortgage servicing rights can be deemed as real-estate assets for REIT purposes. According to a recently released IRS private-letter ruling dated April 12, certain excess servicing rights would constitute a real-estate asset, and income from the spread would be treated as interest on obligations secured by mortgages on real property, for purposes of tax rules governing REITs. MSRs generally represent... Read More

FHFA, Fannie, Freddie Suggest ‘Especially Important’ Changes to CFPB’s Proposed Servicing Amendments

Fannie Mae, Freddie Mac and their government conservator are all calling on the Consumer Financial Protection Bureau to amend proposed changes to its mortgage servicing rule because certain provisions would inhibit similar servicing goals put forth by the Federal Housing Finance Agency. In a comment letter, the FHFA said its servicing alignment initiative has pushed for improved practices that are similar to the goals of the CFPB rule, but “several provisions in the recently proposed amendments would actually make those goals more difficult to achieve.” The four areas of the CFPB proposal that are especially important cover... Read More

Promontory Suggests Replacing the GSEs With Mandatory MI and Government Back-Up

Policymakers should replace Fannie Mae and Freddie Mac with mandatory mortgage insurance and a catastrophic guaranty from the federal government, according to a new paper from Promontory Financial Group, a consulting firm. The paper was prepared at the request of Genworth Financial and Promontory said the mortgage insurance firm didn’t influence the recommendations. Under Promontory’s proposal to reform the government-sponsored enterprises, private entities would both issue and guarantee their own mortgage-backed securities, private MI would be required on a loan-level basis for mortgages securitized in the new system, and a government agency would provide a back-up guaranty on the MBS payable only upon default by the MBS issuer. “Our proposal is... Read More

Servicers Targeted for Re-Defaults of HAMP Mods, Treasury Resisting Significant Changes

The Special Inspector General for the Troubled Asset Relief Program is pressing the Treasury Department to focus on servicer actions as part of efforts to reduce re-default rates in the Home Affordable Modification Program. The Treasury has pushed back against the suggestions, stating that it is “always looking to improve the program.” In a report published last week, the SIGTARP said HAMP mods have re-defaulted at an “alarming” rate. As of the end of April, the re-default rate on HAMP mods completed in 2009 was 46 percent and the re-default rate for HAMP mods completed in 2010 was 38 percent. “While HAMP has helped... Read More

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