FAMB Government Affairs Update
October 11, 2005

Dates to Remember

Please mark these important dates on your calendar.

March 13 – 15, 2006 – FAMB’s Tallahassee Lobby Days. March 14 is the day Mortgage Brokers visit their Tallahassee Legislators at the Capital and that evening FAMB will hold a reception for our Legislators at the Governors Club.

March 26 – 29, 2006 – NAMB’s Washington DC Legislative Conference. Wednesday, March 29, is the day Mortgage Brokers visit their Washington Legislators at the Capital

Is This The Shape of RESPA Reform?
If a company won't stand behind its own estimates, should consumers do business with it on the biggest purchase of their life?

The most common consumer complaint to the federal government involving the home-buying process is uncertainty about the bottom-line costs of obtaining and closing the mortgage. Most home buyers cannot be sure what fees they'll be expected to pay at settlement to their lender and other service providers connected with the transaction.

While buyers routinely receive good faith estimates of their expenses, there's a gaping hole in the law that allows those costs to balloon between the time they are made and final settlement. Federal law does not require any service provider to make good on the estimates.

Now major mortgage lending and brokerage groups are beginning to recommend or consider changes that would harden those good faith estimates into guarantees.

The National Association of Mortgage Brokers, the principal lobby for the country's Mortgage Brokers, now favors mandatory re-disclosure by lenders and brokers whenever a buyer's closing fees are 10% higher than the original good faith estimates. It also favors giving consumers the right to sue the lender or broker if fees exceed the original estimates by more than 10% and no re-disclosure is made before settlement.

The National Association of Independent Mortgage Bankers goes one step further. It supports ironclad, up-front guarantees on all charges that are under the direct control of the lender. These include appraisals, underwriting, application fees, underwriting fees, processing, credit reports, flood-zone certifications and tax service fees, among others.

The Consumer Mortgage Coalition, which represents some of the largest banks and mortgage companies in the country, supports mandatory guarantees on lender settlement costs, as well. It has also drafted a plan that would spell out and guarantee all lender fees, lender title insurance, and all taxes and other expenses up front, at the time of the rate quote.

These recent proposals have been stimulated by the Department of Housing and Urban Development's ongoing campaign to persuade the key participants in the home purchase and lending process to come up with and support pro-consumer changes on settlement cost uncertainties. So far, the mortgage industry's emerging emphasis on guaranteeing -- or at least hardening -- the good faith estimates appears to be the most promising direction for change.

Mortgage Fraud, Discovery and Punishment Is On the Rise

As the U.S. housing market hits record highs, mortgage fraud appears to be rising according to mortgage industry researchers and federal law enforcement agencies.

"Criminals are opportunists," says William Matthews, co-author of a recent report on mortgage fraud by the Mortgage Asset Research Institute. "If you've got a booming market, they're going to get away with more fraud."

While it's unknown how many fraudulent transactions take place in the $3 trillion mortgage market, the institute found that 26 states had serious mortgage fraud problems. It is estimated Mortgage Fraud is costing the industry at least tens of millions of dollars a year.

According to an FBI report in May on financial crimes, "Mortgage fraud is pervasive and growing."

Lenders last year reported to the FBI 17,000 suspected incidents of mortgage fraud, and the FBI's cases have grown from 534 in 2004 to 642 in the first half of 2005. At the IRS, criminal investigations of mortgage fraud from 2001 to 2004 have nearly doubled to 194 cases.

In one instance a suspected flipping scam involving hundreds of houses, the defendants bought foreclosed homes at cheap prices, artificially inflated their values through false appraisals, then quickly resold them, a lawsuit says. They illegally profited from commissions and fees, according to the lawsuit. ABN Amro, which underwrote and bought nearly 1,000 loans from the defendants, alleges that it was defrauded of millions of dollars.

In another instance a 37-year-old attorney from Atlanta was sentenced to 30 years in federal prison after a jury convicted her of heading a vast mortgage fraud ring that skimmed $20 million from inflated mortgages on 100 Atlanta homes.

Mortgage fraud is hard to detect because 80 percent of the cases involve industry insiders, the FBI report says. The scams are tough to spot in hot markets where spikes in home prices can hide illegal profits.

Federal and state authorities hope to thwart fraud by staging undercover investigations, wiretaps and stings. The mortgage industry is using computer software to hunt for unusual lending and financing that might be fraud.

Additionally, a rule requiring Fannie Mae and Freddie Mac to report mortgage fraud and suspected mortgage fraud was published by the Office of Federal Housing Enterprise Oversight with an effective date of Aug. 29, 2005.

Fannie Mae and Freddie Mac must now promptly report suspected fraud, and to do so by phone or electronic communication if the information requires immediate attention. This applies to mortgages being purchased by Fannie and Freddie as well as mortgage-backed securities. Having made a report, Fannie Mae and Freddie Mac barred may not disclose the existence of the report to the party involved without prior approval.

For a long time, mortgage fraud wasn't really discussed much, but now the industry recognizes that lenders are victims, and something needs to be done.

Upcoming Events of Interest

Home Mortgage Disclosure Act

Data from mortgage lenders’ Home Mortgage Disclosure Act reports for 2004 show continued disparities in loan denial rates across racial and ethnic groups, though denial rates may decline when the collected data are analyzed according to different borrower and lender factors.

The Federal Reserve Board announced that the Consumer Advisory Council will hold its next meeting on Thursday, October 27. The session will begin at 9:00 a.m. and is open to the public.

The Council's function is to advise the Board on the exercise of its responsibilities under various consumer financial services laws and on other matters on which the Board seeks its advice. The Council plans discuss the following along with other topics.

· Home Mortgage Disclosure Act

· Nontraditional Mortgage Loans

The Board invites comments from the public on any of these matters. Persons wishing to submit views to the Council on the above topics may do so.

Workshop on Competition Policy and the Real Estate Industry

The Federal Trade Commission and the Department of Justice’s (DOJ) Antitrust Division announced that they will host a joint workshop entitled “Competition Policy and the Real Estate Industry.” Prompted by the substantial changes in the real estate brokerage marketplace and consumers’ interest in a competitive real estate brokerage industry, the workshop will cover such topics as new and innovative brokerage business models, multiple listing services, and the implications of state-imposed minimum-service requirements.

The event, which is open to the public and the press, will be held on October 25, 2005, at the FTC’s Satellite Building Conference Center in Washington, D.C.

Other Legislative and Regulatory Issues

These issues include: RESPA Reform, Fannie Mae and Freddie Mac Reform, Small Business Health Fairness Act, Predatory Lending Legislation, Affiliated Business Arrangements and Fair Labor Standards.

1. RESPA Reform Proposals from HUD – After simmering for a little over a year, HUD has turned up the heat on RESPA Reform.

2. Reform of Fannie Mae and Freddie Mac, also known as GSE Reform – H.R. 1461 and S. 190 Legislation may limit access by Mortgage Brokers to Fannie Mae and Freddie Mac automated underwriting systems. Mortgage Brokers rely on these systems to quickly assess a mortgage application and provide consumers with mortgage credit.

GSE Reform legislation appears to be stalled in the House of Representatives.

3. Small Business Health Fairness Act – (S. 406 and H.R. 525) - The Small Business Health Fairness Act is Federal Legislation that has passed the U.S. House of Representatives and is awaiting action in the U.S. Senate. This legislation will allow small businesses and the self-employed obtain group insurance through their trade associations. If passed, this legislation will give Mortgage Brokers and other small businesses access to another source for Health Insurance.

The Small Business Health Fairness Act is stalled in the U.S. Senate. Contact your U.S. Senators and ask them to vote on The Small Business Health Fairness Act.

4. Responsible Lending Act – (H.R. 1295) This legislation was introduced by Reps., Bob Ney, R- Ohio, and Paul Kanjorski, D-Pa., to protect consumers against predatory lending practices through revisions to federal statutes affecting lenders, brokers and appraisers.

This legislation includes provisions that will increase the number of loans considered as section 32 (High-Cost Loans) and provides for a Federal Registry for Mortgage Brokers. That’s right, not all mortgage originators, Just Mortgage Brokers.

· Joseph Falk, the chairman of the National Association of Mortgage Brokers' government affairs committee, argued that all originators who interact with consumers - including loan officers at mortgage banks - should be licensed and tracked through the proposed database.

"Anyone working with a consumer" can break the law, he said at a hearing of House Financial Services' housing subcommittee. There is a lot of turnover among both bank loan officers and mortgage brokers, Mr. Falk said. They "go from company to company, entity to entity."

If they engage in "bad behavior," the only way to "root them out" is to include all originators in the database, he said.

5. Affiliated Business Arrangements, ABAs and One Stop Shops – This issue involves the legality of homebuilders requiring or inducing homebuyers to use mortgage companies affiliated with the builder.

6. The U.S. Department of Labor Administers the Fair Labor Standards Act – and its affect on compensation to commissioned mortgage employees.