HUD officials will proceed with plans to implement the agency’ revised RESPA rules, despite mounting pressure from industry trade groups and legislators to redraft the proposal, which HUD has withdrawn and redrafted twice before.
At latest count, 243 members of Congress had signed a letter urging HUD to abandon its sweeping overhaul of the RESPA rules and work with the Federal Reserve in a joint rule-making effort limited to improving the mortgage disclosures given to borrowers. Fed officials have echoed the call for the agency to develop a joint disclosure form that would comply with both RESPA and the Truth-in-Lending Act, to avoid the confusion and “information overload” that separate disclosure materials would create.
Reps. Ruben Hinojosa (D-TX) and Judy Biggert (R-IL) circulated the House letter, asking HUD Secretary Steve Preston to “discard the hundreds of pages of HUD’s current proposed RESPA rule that have not previously been the subject of public comment and cover a number of subjects beyond disclosures,” a reference to provisions of the HUD plan that would create incentives for lenders and others to “package” settlement services and would impose restrictions on the “yield spread premiums” lenders pay to mortgage brokers.
Responding to the request, HUD Assistant Secretary Sheila Greenwood reiterated the agency’s commitment to a RESPA plan that, she noted, has been subject to extensive review and an extended comment period that has permitted input from industry and consumer advocates. While the agency is “carefully considering” the comments submitted and “will make appropriate modifications and improvements,” Greenwood said in a letter to Hinojosa and Biggert, “the current housing finance situation has dramatically highlighted the need to move forward responsibly and expeditiously with measures to help American homebuyers.”
Rep. Biggert rejected the reply as “unacceptable. Our concerns are serious,” she told reporters, “and they are shared by a broad, bipartisan coalition of industry and consumer interests.”
COMMERCIAL PORTFOLIOS SAGGING
If you’re looking for something to distract you from concerns about the struggling housing market and mounting losses on residential mortgage portfolios, take a look at commercial property loans —but only if your stomach is strong and your heartbeat steady.
“The fear is the next shoe to drop may be commercial real estate,” Jeffrey Harte, a banking analyst at Sandler O’Neill, told the New York Times, last week. “When consumer credit goes south,” he warned, ‘commercial will follow.”
A forward-looking index published by the National Association of Realtors (NAR) suggests those concerns may be justified. The Commercial Leading Indicator for Brokerage Activity fell to 117.9 in the second quarter, 0.9 percent below the first quarter reading of 119.0 and 2.1 percent below the record 120.5 recorded in the second quarter of last year. Lawrence Yun, NAR’s chief economist, attributed the slowing pace to job losses and sluggish economic growth, “particularly in those industries requiring commercial building spaces.” As a result of those trends, the NAR is anticipating “the weakest commercial brokerage activity in nearly three years,” Yun said.
Commercial loan portfolios had held up reasonably well until late last year, when several large lenders, Morgan Stanley and Wachovia among them, announced large write-offs. In what some industry analysts see as a harbinger of more bad things to come, owners of a large, subsidized apartment complex in Harlem announced last week that they may default on a $225 million mortgage payment due next month.
Separately, the Mortgage Bankers Association (MBA) reports that originations of commercial and multi-family loans declined again the second quarter, to a level more than 60 percent below the overheated origination volume in the same period last year. The downward trend reflects both shrinking demand for commercial loans and a shortage of available capital to fund them, according to Jamie Woodwell, the MBA’s vice president of commercial/multifamily real estate research. “It is likely volumes will remain muted,” Woodwell predicted, “until buyers, sellers, borrowers, lenders and their expectations of rates and terms match closely enough for transaction activity to pick back up.”
DO YOU KNOW WHERE YOUR E-MAIL IS?
Burgeoning e-mail in-boxes aren’t just eating employee time and reducing productivity – they are also creating a potential litigation nightmare for companies of all sizes. A recent on-line survey conducted by Deloitte Financial Advisory Services found that nearly 40 percent of the 520 executives responding thought the data volume in their companies was becoming unmanageable. That poses a litigation risk because the recently revised Federal Rules of Civil Procedure require companies to have the capacity to access quickly electronically stored information if that information is sought in conjunction with a lawsuit.
“Discovery is very serious business today,” Bruce Hartley, a director in Deloitte’s Analytic and Forensic Technology practice, said. “In the past few years,” he noted, “we have seen cases where defendants have faced jail time and millions of dollars in sanctions or penalties” resulting from their inability to comply with discovery demands.
More than 17 percent of the executives responding to Deloitte’s survey acknowledged that their companies are not currently capable of handling complex discovery requests; nearly 12 percent said their companies have no policy providing guidance to their IT departments and other employees on document retention and destruction.
Asked about their major discovery-related concerns, executives cited the expense of reviewing large volumes of electronic files; the potential liability for errors resulting in damage to or the loss of files; and sanctions imposed for the failure to meet discovery deadlines.
Well-defined, written policies and procedures for managing electronic data can address those concerns, according to Deloitte officials who suggest that companies:
- Implement an electronic discovery program.
- Work with their legal counsel to develop records management policies, procedures, and retention schedules.
- Establish discovery protocols consistent with any regulatory requirements.
Well-crafted, comprehensive data management policies can reduce the cost and “ease the pain” of discovery requests, Deloitte officials said.
SAVING DOWN PAYMENT ASSISTANCE
One of the nonprofit entities that brokers seller-funded down payment assistance for home buyers has launched a last-ditch effort to save the program, which Congress has voted to eliminate.
A provision of the housing rescue legislation enacted earlier this month prohibits the Federal Housing Administration (FHA) from insuring loans with the DPA feature, effectively killing the program, because the FHA guarantees most of these loans to low- and moderate-income buyers. If the ban, effective October 1, stands, “50,000 hard-working, credit-worthy families will be denied the American dream of home ownership in that month alone,” the Nehemiah Corporation of America, the largest DPA facilitator, warns on a new Web site, dpagroundwell.org.
“When the [housing] bill passed, we pledged to continue to fight for these programs, and launched to build support for the program, and [the Web site] is an important tool that will enable us to harness the swell of industry dissent against the ban by empowering individuals at all levels to influence public policy decisions,” Scott Syphax, president and CEO of Nehemiah, said in a press statement. Through the site, Nehemiah is trying to build support for legislation sponsored by Rep. Al Green (D-TX) that would repeal the DPA ban and impose a 12-month moratorium on the Federal Housing Administration’s (FHA’s) authority (also included in the housing rescue legislation) to institute risk-based pricing on the loans the agency insures. The legislation’s goal “is to revive this critical [DPAA] program under new standards that will effectively balance the risk of potential foreclosures with the goal of increasing homeownership,” Green said in introducing the measure.
The Department of Housing and Urban Development has been trying for several years to eliminate the program, which, the agency says, is responsible for an outsized portion of the losses on FHA loans. HUD sought the legislative ban after federal courts twice rejected regulations eliminating the DPA program.
The “substantial losses” attributable to the program “affect the FHA’s bottom line and [its] ability to serve American citizens who need access to prime-rate home loans,” FHA Commissioner Brian Montgomery said recently. DPA loans represented more than 35 percent of all FHA-insured home purchase loans in 2007 compared with fewer than 2 percent seven years before, Montgomery reported, while claim rates, he said, are running above 28 percent for the loans, compared with an average of 12 percent for other low-down-payment FHA loans.
“No insurance company can sustain that amount of additional costs year after year and still survive,” he warned, adding, “Unless we take action to mitigate these loses, FHA will soon either have to be shut down or rely on appropriations to operate.”
Most seller-funded DPA loans are coordinated by a third party – usually a non-profit charitable organization, such as Nehemiah (the largest of them), which provides a down payment to the borrower and is reimbursed by a “contribution” in the same amount from the seller. Supporters of the programs, including the nonprofits sponsoring them and the home builders relying on them, say they expand home ownership opportunities, especially for minority and low-income borrowers who can carry a home mortgage but can’t amass the funds for a down payment. Critics equate these programs with subprime loans, saying they boost home prices artificially and allow borrowers who can’t sustain home ownership to purchase homes they are at high risk of losing through foreclosure.
The Internal Revenue Service (IRS) and the Government Accountability Office (GAO) have both criticized the programs. The IRS revoked the tax-exempt status of 31 non-profit organizations specializing in structuring the seller-funded gifts, while the GAO, citing out-sized delinquency and foreclosure rates, suggested that the FHA stop insuring the loans. But a study by the Center for Regional Analysis (CRA) – a division of the School of Public Policy at George Mason University questioned those conclusions, contending that the foreclosure rates on seller-funded DPA loans are actually “in line with” other FHA loans.
SLAMMING THE PAYDAY LENDING DOOR
New Hampshire has become the latest state to withdraw the “welcome” sign for payday lenders. Gov. John Lynch recently signed a new loan capping the rate on pay day and car title loans at 36 percent, a limit that many payday lenders have said will make it impossible for them to operate in the state.
Opponents of the law, including some lawmakers in addition to industry executives, argued that payday loans meet a legitimate market need, providing readily accessible small-dollar loans that many borrowers can’t obtain from mainstream financial institutions. The rate cap “will eliminate a sensible financial choice, [leaving many borrowers] without a viable alternative,” Jamie Fulmer, director of public relations for Advance America, one of the largest payday lenders in the country, told reporters. The New Hampshire statute will also “put hundreds of people out of work,” Fulmer said, as his company and others are forced to close their operations in the state.
Gov. Lynch had initially opposed the law, saying he didn’t want to “ignore the need” for small loans, even though he agreed that payday loan rates, amounting to more than 200 percent in some cases, are “unreasonable.” A spokesman for the governor told the Concord Monitor that Lynch decided not to block the measure because it includes a provision creating a commission to study consumer credit options more broadly. “The Governor is happy the Legislature is going to study this issue further and look at the other side of the problem,” the press spokesman said.