Mortgage Suspicious Activy Reports (SARs) Continue to Emerge from Pre-2008 Loans

Suspicious Activity Reports (SARs) related
to suspected mortgage loan fraud (MLF) filed by depository institutions decreased
sharply in the first quarter of 2012 compared to the first quarter of 2011 even
as SARs increased overall.  Data on these
MLF SARs filings was released Tuesday by the Treasury Department’s Financial
Crimes Enforcement Network (FinCEN).

There were 17,651 MLF SARs filed during
the quarter compared to 25,484 one year earlier, a decrease of 31 percent.  At the same time there were 205,301 SARs of
all types, an increase of 10 percent from 186,331 in the first quarter of
2011.  MLFs represented 14 percent of all
SAR filings in that earlier period compared to 9 percent in the January-March
2012 period.

FinCEN said there was an unusual spike
in MLF SARs
filings during the first three quarters of 2011.  These arose primarily out of mortgage
repurchase demands on banks which prompted a review of loan origination
documents and subsequent detection of suspected fraud.  Filings in early 2012 show that problems
continue to emerge from loans originated in the pre-2009 period which accounted
for the majority of delinquencies and foreclosures experienced since 2008.

Of the MLF SARs filed in the first
quarter, 28 percent related to loans that were four to five years old and 44
percent to loans that were more than five years from their origination data.  One year ago 79 percent were three or more
years old. 

While only a minority of filers included
loss totals and fewer did so in 2012 than in 2011, more than 80 percent of the
losses reported were for amounts under $500,000.  Very few filings (51 in 2012) reported any recovery
of losses.

Numbers of SAR were logically the
largest in the largest states – California, Florida, New York, and
Illinois.  On a per capita basis California
was in first place as it was during all of 2011.  Nevada ranked second, rising from fifth place
in 2011 and Florida was third.  Los
Angeles had the highest number of MLF SARs of any of the large metropolitan
areas both by volume and on a per capita basis. 
Two other California MSAs, the Riverside area and San Jose-Sunnyvale
were second and third on a per capital basis followed by Las Vegas and Miami.

To determine the latest trends in
suspected mortgage fraud FinCEN examined a subset of MLF SARs filings reporting
activities that were less than two years old.  Nineteen percent of 3,354 MLF SARs filed during
the first quarter met this criterion and FinCEN examined a sample of 334 or ten
percent.  The largest category of
suspected fraud was defined as income followed by occupancy, employment, and
debt elimination.  Compared to the Q1
2011 report, debt elimination fraud increased as did foreclosure rescue scams
while appraisal fraud was down. 

FinCen reported an increasing number of
SARs that appeared to involve “repeat subjects.”  For example, several foreclosure rescue scam
reports
noted that numerous borrowers had complained about the subject
organizations.  The same was true of some
SARs related to proposed debt relief services. 
Filers also noted several short sale SARs subjects who had been involved
in numerous fraudulent transactions. 
This information could provide useful information to law enforcement.

FinCen also identified fraud patterns not
noted in other reports.  One was homeowners
insurance fraud where borrowers pocketed insurance payments after home fires
and another, “Keys for Cash” where persons moved into bank owned properties
claiming to have long term leases.  Their
true objective appeared to be inducing lenders into paying them to vacate the
properties.

In a related matter, the Department of
Justice and the offices of the Inspector General for both the Department of Housing
and Urban Development and the Federal Housing Finance Agency held mortgage
fraud summits
in two cities on Tuesday to help protect homeowners in areas
hardest hit by mortgage scams.  A third
summit slated for Tallahassee, Florida is being rescheduled because of severe
weather in the area.  The summits were
organized by President Obama’s Financial Fraud Enforcement Task Force’s (FFETF)
Mortgage Fraud Working Group of which FinCEN is a member.  

“Preventing, detecting and
prosecuting mortgage fraud is a top priority of the Financial Fraud Enforcement
Task Force and its Mortgage Fraud Working Group members,” said FFETF Executive
Director Michael Bresnick. “It’s more important than ever that we arm
homeowners with the information they need to recognize the predators up front
and empower them to avoid falling victim to these devastating scams. That’s why
the task force is holding these summits in states hit hardest by the
foreclosure crisis.”

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S&P: Second Mortgage Defaults at Lowest Point in 7 Years

Default rates fell in May for all types
of loans tracked by the S&P/Experian Credit Default Indices. For most loan types it was the fifth
consecutive drop and four loan types posted their lowest rates since the end of
the recession.

The national composite default rate
declined to 1.62 percent in May from 1.86 percent in April and the first
mortgage rate was down to 1.50 percent from 1.76 percent. Second mortgage defaults were at 0.88 percent,
compared to 0.93 percent and bank card defaults dropped to 4.35 percent from
4.49 percent. Auto loans fell four basis
points to 1.03 percent, a low point in the eight year history of the index.

Second mortgage defaults were at their
lowest point in seven years and first mortgage and credit card defaults were
the lowest since May 2007 and 2008 respectively.

“May 2012 data show continued
improvements in consumer credit quality,” says David M. Blitzer, Managing
Director and Chairman of the Index Committee for S&P Indices. “Consumer
default rates continue to fall and we are reaching new lows across all the loan
types. In the last recession, default rates peaked in the spring of 2009, since
then the decline has been bumpy but consistent.  Only bank cards remain
above their pre-recession lows.

S&P/Experian covers five
metropolitan statistical areas (MSAs) and all five saw their default rates fall
to post-recession lows. Chicago declined
for the fifth straight month to 1.85 percent, down nearly a percentage point
since December. Miami and New York recorded
their fourth consecutive decreases with Miami down by 59 basis points and New
York by 17. Dallas hit an index low at
0.94 percent, down from 1.25 percent in April and Los Angeles moved down
slightly from 1.88 percent to 1.82 percent.

The table below summarizes the May
2012 results for the S&P/Experian Credit Default Indices. These data are
not seasonally adjusted and are not subject to revision.


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Agencies Absolved of Causing Meltdown; Fifth Third Cuts HARP 2.0; Europe Approves Basel III

“Apparently,
I’m supposed to be more outraged by what Mitt Romney does with his money, than
by what Barack Obama does with mine.” So wrote a witty LO, regarding our
presidential race which seems to have been going on for over a year already,
and we still have almost another six months. Regardless of one’s political
outlook, what is a concern to many of our banks is that in Brussels the European Parliament voted through its version of
legislation transposing Basel III capital and liquidity requirements into law
.

“The
outcome of the vote is a very strong statement by Parliament to the Council
that all political parties are determined to go ahead with stabilizing banks
and financing growth,” said Othmar Karas, the MEP in charge of pushing the
legislation through parliament. “The new capital requirements are not only
a pivotal piece of banking regulation, but a law to finance the real
economy,” he said, adding that the main challenge is to find the right
balance. Among many things, and very simply put, Basel III limits banks to the
amount of mortgage servicing rights they can own relative to their Tier 1
capital. IF the U.S. adopts the accord, banks over that limit, which currently
includes Wells Fargo, have a limited set of options, some of which will impact the value of servicing, which
in turn impacts the price of loans to borrowers.

A working paper just released by the Federal Reserve makes it official: the agencies had no responsibility for the
financial crisis
. “The GSE and The Mortgage Crisis: The Role of the
Affordable Housing Goals”, the author estimates only between 2.5-5% more
credit to high risk borrowers was made available than would have been extended
otherwise to meet Underserved Areas Goals (UAGs). “The GSE purchases of
single family mortgages to satisfy the goals did not drive the subprime lending
boom of 2002-2006.” Okay, let’s move along – nothing to see here

I have an idea! Let’s take all the foreclosures in some really hard hit state,
and possibly erase them. The question before the Florida Supreme Court is, “Can banks that file fraudulent
documents (e.g., robo-signing) in foreclosure proceedings voluntarily dismiss
the cases only to re-file them later with different paperwork?” Servicers
everywhere are watching this story.

The GMAC/ResCap bankruptcy has long
been anticipated – heck, even this commentary has been mentioning it for
months. Clients received this note: “GMAC Residential Capital, LLC (ResCap)
announced they have filed for bankruptcy protection. Ally Bank (dba GMAC Bank)
is a separate legal entity from ResCap and operates independently of ResCap.
Business Lending is an operating division of Ally Bank consisting of Warehouse
Banking, Correspondent Lending and Wholesale Lending. The decisions made by
ResCap do not impact ongoing operations of Ally Bank’s Business Lending
Division. We would like to reassure all of our clients that your business relationship with Ally Bank
will not be impacted by these changes
. Ally remains an active participant
in the Correspondent and Wholesale lending channels, and will continue to honor
its commitments and purchase and fund those loans. Ally Bank continues to
maintain lending relationships and continues to provide warehouse financing to
those customers. In addition, Ally Bank is a direct seller to FNMA and FHLMC
and maintains a servicing portfolio of both agency and non-agency loans.”

How do Ops
and compliance folks keep up with things? Here are some somewhat recent lender/investor/agency updates. As always, it is
best to read the actual bulletin, but this will give one a flavor for what is
happening out there. In no particular order…

With a few sentences Fifth Third Bank
(affectionately known as 1  2/3 Bank) dropped the number of investors
offering HARP 2 by one: “Effective May 14, 2012 on all new loans
registered, the LTV for DU Refi Plus and Hasp Open Access has been changed to a
maximum of 105%, CLTV and HCLTV remain unlimited. For non-Fifth Third to Fifth
Third loans, transferred mortgage insurance will no longer be allowed.”

After conducting on-site reviews of document custodians, Fannie Mae has revised its policies on custodians’ responsibilities
such that they’re now required to use the services of an independent third-party
audit firm to complete an annual audit that evaluates eligibility and
operational compliance.  In case where the most recent Fannie on-site
review was performed before August 1, 2011, document custodians should have an
independent third-party auditor complete their first audit before July 31, 2013
and the continue to do so annually.  Document custodians whose last Fannie
on-site review was completed between August 1, 2011 and July 31, 2012 must have
their third-party audit completed by December 31, 2013.  Fannie will be
revising the relevant forms and sections of the Requirements for Custodians
guide accordingly.

Document custodians will also need to establish a monthly quality control
program as per Fannie’s new requirements.  The program must be in place by
September 30, 2012, and the first review should be completed by October 31st
for September 2012 document and data certifications, and Fannie reserves the
right to review any quality control results as it needs.

Servicers of Fannie loans are subject to new requirements regarding liens for
delinquent HOA dues for PUD and condo properties acquired through
foreclosure.  If a servicer is notified by an HOA that the borrower is
more than 60 days late with their payments for a PUD or condo project and/or
any charges levied by the HOA, the servicer must advance the necessary funds so
as not to compromise the Fannie mortgage lien.  This advance can be
reimbursed; the time limit depends on the state.  Servicers should also
clear any property liens for delinquent HOA dues and assessments on acquired
properties no more than 30 days after the foreclosure sale or acceptance of a
deed-in-lieu.  Should the HOA refuse to release its claim of disputed lien
after “reasonable efforts to reach agreement,” the servicer should get in contact
with Fannie’s legal team.

A few weeks back the updates to Desktop Underwriter (DU) 8.3 are the big news
from Fannie Mae.  Fannie implemented enhancements that increase the
transparency of the loan process by providing lenders with estimated property
values for select DU Refi Plus loan case files.  This will affect all DU
Version 8.3 loan case files that were submitted or resubmitted after April
28th.  If, upon submission, a DU Refi Plus property fieldwork waiver (PIW)
is offered, the underwriter may either resubmit the case file using the
DU-provided estimated value or use the value entered by the lender.  If a
PIW is not offered, the underwriter may either use the DU-provided estimated
value or obtain an appraisal.  The PIW cannot be used if it is more than
four months old on the date of the note and the mortgage or if the property is believed
to have been in a recent natural disaster.  Fannie has provided an FAQ on
the updates on its website as well.

Fannie has updated the terms on which it can change the pricing applicable to
lenders’ deliveries of loans such that it has the right to change the pricing
any number of times during the term of any master agreement or related MBS
contract at any time.  Before making any updates, Fannie will provide
lenders with written notice, and, if Fannie and the lender aren’t able to agree
on the new pricing before the effective date, either one may cancel the
relevant agreement in writing.

The May Uniform Mortgage Data Program® (UMDP) Yardstick is now available
This edition covers the new Loan Delivery application for the Uniform Loan
Delivery Dataset (ULDD) requirements and the Loan Delivery Test Environment
(LDTE).

Fannie’s Capital Markets group has raised the maximum premium price available
in eCommitting and eCommitONE, effective for the bulk of fixed rate loans.

Fannie Mae has posted updated instructions for Illinois and Mississippi
security instruments.  In Illinois, lenders may now include the interest
rate for fixed-rate loans and are no longer required to do so for ARMs, as the
interest rate for the latter is listed in the instrument’s Adjustable Rate
Rider.  Fannie now permits lenders to include a street address for the
Mortgage Electronic Registration System (MERS) when working with Mississippi
deeds of trust; this update should be implemented where appropriate within the
next six months.

Release notes on Fannie’s EarlyCheck 2.0, which will be implemented on July 23,
2012, are now available
In addition to the current delivery eligibility and data edits available, the
new EarlyCheckTM will include new loan-level edits that accommodate ULDD. 
For those interested in learning more, there are live webinars available;
register here.

Loan Delivery users are reminded that their credentials for accessing the new
Loan Delivery Test Environment (LDTE) were sent to them in two automated emails
at the beginning of May.

Every lender could hang a “Great Rates” sign on the front of their building.
Yesterday fixed income markets (which of course include mortgage-backed
securities) rallied as speculation of a Greek exit from the Euro increased and
Euro-area concerns drove the dollar and U.S. bond prices higher. Mortgage
prices lagged somewhat – investors become nervous about prepayment risk when
rates improve too much. And at some point you’ll notice this at the pump: commodities
sold off as the dollar strengthened: gold dropped $23/ounce, and oil has
dropped $10/barrel in the last two weeks.

Lock desks say business is brisk, and sales volumes from originators
continue at a strong, above-average pace. By 3PM EST, the close of the futures
market, the U.S. T-note was better by .5 in price (1.79% yield, and its lowest
since October 2011) and MBS prices improved by about .250. It’s still pretty
early here in Ohio, but today we’ll make up for the lack of news yesterday with
CPI (expected +.1%), the Empire State Manufacturing Survey, Retail Sales for
April, and the National Association of Home Builders sentiment Index.

Church Ladies with Computers. (Part 2 of 3) – these sentences (with all
the bloopers) actually appeared in church bulletins or were announced in church
services:
Irving Benson and Jessie Carter were married on October 24 in the
church. So ends a friendship that began in their school days.
—–
A bean supper will be held on Tuesday evening in the church hall. Music will
follow.
—–
At the evening service tonight, the sermon topic will be ‘What Is Hell?’ Come
early and listen to our choir practice.
—–
Eight new choir robes are currently needed due to the addition of several new
members and to the deterioration of some older ones.
——
Scouts are saving aluminium cans, bottles and other items to be recycled.
Proceeds will be used to cripple children.
——
Please place your donation in the envelope along with the deceased person you
want remembered.
——
The church will host an evening of fine dining, super entertainment and
gracious hostility.
——
Potluck supper Sunday at 5:00 PM – prayer and medication to follow.
——
The ladies of the Church have cast off clothing of every kind. They may be seen
in the basement on Friday afternoon.

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Energy Savings Tips

This is the fifth of our continuing series of energy savings tips. HUD continues to encourage owners, agents, and developers of HUD/FHA insured and/or subsidized multifamily apartments to be energy efficient and to incorporate green construction techniques whenever possible. While some of these improvements and upgrades may entail more upfront cost, most will pay for themselves in relatively short order, and therefore make not only good common sense, but good financial sense!

Architects’ Billing Index Signals Construction Uptick

The Architecture Billings Index (ABI) a forward looking index of construction activity, finished March in positive territory for the fifth consecutive month.  The ABI is derived from a monthly survey of firms owned by members of the American Institute of Architects (AIA) to determine their “Work-on-the-Board.”  Participants are asked to compare current billings with those the previous month, indicating whether they have increased, decreased or were unchanged.  Scores over 50 indicate an aggregate increase in billing; below 50 indicate a decline.  The survey, which covers non-residential activity and is seasonally adjusted, reflects the approximate nine to 12 month lag between architectural billing and construction spending and is considered predictive. 

In March the ABI score was 50.4, following a score of 51.0 in February.  The March figure reflects a slight increase in demand for design services.  The new projects inquiry index was 56.6, down from 63.4 in February.

 “We are starting to hear more about improving conditions in the marketplace, with a greater sense of optimism that there will be greater demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA.  “But that is not across the board and there are still a number of architecture firms struggling so progress is likely to be measured in inches rather than miles for the next few months.”

Monthly ABI scores are given as numbers, the regional and sector averages provided by AIA are in the form of three-month moving averages.  The Regional averages for the month were:  Midwest (54.1), Northeast (53.9), South (50.1), and West (46.6).  Sector Index breakdowns were:   commercial / industrial (56.0), multi-family residential (51.9), institutional (47.7), and mixed practice (47.2).

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