The outcome of the securities fraud case leveled against six former top executives of Fannie Mae and Freddie Mac could hinge on what exactly is considered a subprime loan. At least one defendant is prepared to argue that there is no standard definition.In fact, the GSEs appear to still be reporting their subprime and Alt A exposure in much the same way they did in the period covered by the Securities and Exchange Commission lawsuits.Late last week, the SEC pulled the trigger on its three-year investigation of claims that the two GSEs failed to disclose to investors the companies’ exposure to subprime mortgages prior to the 2008 housing market crash.

Industry trade groups, as well as Fannie Mae and Freddie Mac’s regulator, are questioning the wisdom of Congress as lawmakers in both chambers have bills pending to hike the fees charged to guarantee GSE mortgages as a way to help offset the cost of extending the payroll tax cut through 2012.Both House and Senate versions of tax cut extension bills would add an additional 10 basis points to the guarantee fees charged by Fannie and Freddie through 2021. The increase would offset about $35.7 billion in costs, including $1.3 billion in the first year, according to the Congressional Budget Office.As Inside the GSEs went to press, the prospect of any tax cut extension was in doubt after the House rejected the bill calling for a two-month extension. Instead, House Republicans demanded immediate talks with the Senate on a year-long plan but the Senate ruled out further negotiations until the House passes the stop-gap measure.

California Attorney General Kamala Harris filed suit this week against Fannie Mae and Freddie Mac, taking up a notch her probe of the two GSEs’ mortgage lending and foreclosure practices.The lawsuits, filed in California Superior Court in San Francisco, seek to compel the companies to turn over documents the AG’s office had sought through a subpoena served to the two companies on Nov. 15.The Federal Housing Finance Agency directed Fannie and Freddie not to respond to the subpoenas.The subpoenas sought information about how Fannie and Freddie are handling thousands of foreclosed properties, as well as details about the GSEs’ mortgage-servicing and home-repossession practices.

The official watchdog of the Federal Housing Finance Agency found a sympathetic audience in senators last week as the head of the FHFA’s Office of Inspector General sounded a now-familiar refrain – that the Finance Agency is falling short in its oversight of Fannie Mae and Freddie Mac.Testifying before the Senate Banking, Housing and Urban Affairs Committee, FHFA Inspector General Steve Linick said the OIG has identified “deficiencies” in Finance Agency operations which appear to reflect two “significant and related trends.” First, the FHFA has relied too much on the determinations of the two GSEs without independently testing and validating those determinations, testified Linick. “Second, FHFA was not proactive in oversight and enforcement and accordingly, resource allocations may have affected its ability to oversee the GSEs and enforce its directives,” said Linick. “Both trends have emerged in a number of our reports.”

The Federal Housing Finance Agency last week filed suit against the city of Chicago claiming that its attempt to enforce a recently amended vacant buildings ordinance on properties owned by Fannie Mae and Freddie Mac “impermissibly encroaches” on the FHFA’s role as sole regulator of the GSEs.Filed in the U.S. District Court for the Northern District of Illinois, the FHFA’s lawsuit on behalf of the two GSEs seeks to prevent the city from enforcing the ordinance which requires mortgagees to pay a $500 registration fee for vacant properties and requires monthly inspections of mortgage properties to determine if they are vacant. "The ordinance would impose on the enterprises the responsibilities, but not the benefits of ownership of vacant property on which they hold the mortgage,” said the FHFA in a statement. “The ordinance would create risks and liabilities for the enterprises at a time when they are already supported by taxpayers, including those in the city of Chicago.”

The Federal Housing Finance Agency should refrain from implementing a proposal that would overhaul the mortgage servicing compensation system as it has failed to make a “compelling case” as to why it is necessary to change a system that has “worked well for decades,” according to the Mortgage Bankers Association.In a comment letter sent to the Finance Agency earlier this month, MBA President and CEO David Stevens said the FHFA’s proposed changes would dramatically alter residential servicing, origination and secondary market operations, not necessarily for the better.“The current servicer compensation model is still the best approach and making radical changes, like the proposed ‘fee-for-service,’ will have dramatic impacts not just on originators, servicers and investors but also on borrowers in both the costs they pay to get a mortgage and the support they receive from their servicers,” said Stevens.

Last month, as part of the Consumer Financial Protection Bureau's "Know Before You Owe" project, the CFPB unveiled two new prototypes for a single mortgage disclosure to replace the HUD1 Settlement Statement and final Truth in Lending disclosures. This month, the bureau is paying close attention to closing costs by trying to figure out which of two different designs communicates both the closing costs and transaction details clearly. One is similar to the existing HUD]1 settlement statement that consumers now receive when they close a mortgage loan. The other is based on the prototype for the disclosure consumers get when they first apply. gWefre curious to see if something different may work even betterh than the earlier iterations, the CFPB said. gThis new design provides the same information as the other prototype, but it uses a format for the closing costs that is based on our application disclosure prototype. It has sections that correspond to the application disclosure and a little more plain language.h

The U.S. Solicitor General and a group of state attorneys general filed pro-borrower briefs in Freeman v. Quicken Loans, a case in which the U.S. Supreme Court will decide whether a plaintiff has to prove that an unearned fee for a real estate settlement service was divided between two or more persons.The court’s ruling is expected to determine the ability of the mortgage lending industry to decide on its own what to charge borrowers at the point of origination.At issue is Section 8(b) of the Real Estate Settlement Procedures Act, 12 U.S.C. §2607(b), which states that no person “shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”

The Supreme Court of the United States considered oral arguments recently in its second high-profile case this session that addresses key issues under the Real Estate Settlement Procedures Act.The case is First American Financial v. Edwards, in which the fundamental question is whether a private purchaser of real estate settlement services has standing under Article III, §2 of the U.S. Constitution to maintain an action in federal court in the absence of any claim that the alleged violation affected the price, quality or other characteristics of the settlement services provided. In this case, respondent Denise Edwards purchased a home in Cleveland in September 2006, obtaining title insurance through Tower City, which issued policies on behalf of First American. Edwards paid $455.43 towards the purchase of the policies (one for her lender and one for herself); the seller of the home paid $273.42.

Federal banking regulators recently put out some fresh signals that they are listening to the lending community and want to collaborate with the new Consumer Financial Protection Bureau to better harmonize their regulatory, supervisory and examination requirements and procedures to help lower the compliance load for lending institutions. “Our dealings with the CFPB over the last several months have focused on consumer complaints and policy and exam coordination,” John Walsh, acting comptroller of the currency, told members of the Senate Banking, Housing and Urban Affairs Committee during a recent hearing. “The CFPB currently has in process several rulemakings where interagency consultation will be critical, and we are working on a consultation agreement that will provide the prudential regulators with reasonable time to review, discuss and comment on CFPB rulemakings,” he added.