New due-diligence rules will likely result in increased costs for issuers of non-agency mortgage-backed securities and increased disclosures for investors. Due diligence firms are also divided on whether to assume the "expert liability" required by the Securities and Exchange Commission regarding due diligence performed on MBS. Vicki Beal, a senior vice president at Clayton Holdings, said Clayton – a leading MBS due diligence provider – would likely be willing to take on the expert liability requirements. However, she said Clayton’s assumption of the liability would require MBS issuers to pay more for Clayton's services. The SEC issued...

Industry participants warn that federal regulators' recently proposed definition for qualified residential mortgages is too stringent and will unnecessarily limit lending to prime jumbo borrowers. If the rule is adopted as proposed, many warn that issuance of non-agency mortgage-backed securities will be limited or non-existent. "While the rules do a good job of addressing and deterring abuses of subprime securitization structures, they are overly and unnecessarily harsh when applied to prime securitization structures," said Martin Hughes, president and CEO of Redwood Trust. Chris Flanagan, a managing director at Bank of America Merrill Lynch, added that...

Can I afford this mortgage, and can I get a better deal somewhere else? Those are the two questions the Consumer Financial Protection Bureau wants borrowers to be able to answer when it is finished producing a new mortgage disclosure form that combines and would ultimately replace those required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. This week, the CFPB released two alternate prototypes for industry and public review and comment, part of its Know Before You Owe project. The goal is to create a single, simpler form that makes the costs and risks of the loan clear and allows consumers to...

The Federal Deposit Insurance Corp. has sued two appraisal service providers for allegedly flawed appraisals on some 414 mortgage loans that caused millions of dollars in losses to the now-defunct Washington Mutual Bank. Separate complaints were filed May 9 in the U.S. District Court of Central California against CoreLogic, Inc. and LSI Appraisal, their parent companies and various affiliates for alleged gross negligence and multiple contract violations in connection with improper appraisals delivered to WaMu in 2006 through 2008. Out of the thousands of appraisals provided by the two companies to WaMu during the period, the FDIC claimed...

A bipartisan bill unveiled this week by two House members would overhaul the federal mortgage finance system to ensure private sector capital for homebuyers and capital requirements to protect taxpayers - without Fannie Mae or Freddie Mac.

With a little over two months remaining before the Consumer Financial Protection Bureau is scheduled to formally take over the sprawling smorgasbord of federal mortgage responsibilities, the lack of a director for the controversial new agency could hinder the CFPB’s launch. Republicans on Capitol Hill have stepped up their campaign to restructure the agency before it gets off the ground. The House Financial Services Committee this week is scheduled to mark up several bills that would impose a five-member commission to oversee the CFPB, rather than a single director, and delay its takeover of the Real Estate Settlement Procedures Act, Truth in Lending Act and other consumer protection laws until...

The Government Accountability Office says the Consumer Financial Protection Bureau and other federal regulators should include foreclosure practices in their anticipated national servicing standards, as well as a formal assessment of the risks that are associated with poor documentation practices – the exact repercussions of which are still undetermined. The new GAO report was sparked by widespread criticism of mortgage servicers’ handling of foreclosure documents. It was believed that many affidavits had been improperly notarized or signed, leading to concerns over how these loans were transferred into...

The Department of Justice this week flexed its muscle against mortgage redlining in a settlement with a Michigan lender while expressing growing concern over a possible re-emergence of redlining as access to credit becomes more difficult. Industry attorneys noted with some alarm the message the DOJ is sending mortgage lenders through its settlement with Citizens Republic Bancorp and Citizens Bank of Flint, MI. They say the message reflects disturbing trends that defense lawyers have been seeing in their representations of lenders accused of redlining. The proposed settlement, which requires court approval, was filed in conjunction with...

A proposed “qualified mortgage” standard to determine a borrower’s ability to repay a mortgage loan creates many pitfalls for loan originators and subjects them to enormous liability if they fail to comply, warned compliance experts. The risk of making non-qualified mortgages for lenders is the borrower’s defense to foreclosure and the higher damages that would be incurred for noncompliance, as well as the impact on the liquidity of those loans if lenders were to sell them down the road, according to panelists on a webinar hosted last week by Inside Mortgage Finance. The proposed ability-to-repay rules and alternative definitions of a “qualified mortgage” (QM) are out for...

The requirement from last year’s landmark financial services legislation that MBS issuers retain some of the risk associated with residential mortgages will raise the costs of securitizing them to prohibitive levels, discouraging the return of private capital and maintaining the market’s dependence on Fannie Mae and Freddie Mac, industry experts warn. The proposed definition of “qualified residential mortgages” under the terms of the Dodd-Frank Wall Street Reform and Consumer Protection Act was a major focus of concern raised during a webinar last week sponsored by Inside Mortgage Finance. “I think the big-picture news is that certainly the risk-retention regulations do what Dodd-Frank mandates that they do. But in some very important ways they go beyond that...