Overall, yesterday’s reports supported the post-meeting statement released by the Federal Open Market Committee on Wednesday, hinting at a pause in cutting interest rates. The Fed appeared to be less pessimistic about the economy, which has remained weak but has not deteriorated further. However, rising energy and commodity prices make the inflation outlook highly uncertain.

(Orawin Velz is senior director of economic forecasting with the Mortgage Bankers Association. She can be reached at ovelz@mortgagebankers.org.)
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“The strength of the electronic market show how strong lenders are in moving the market,” said Sharon Matthews, president and CEO of eLynx, Cincinnati. “We are optimistic for the future as technology is making the process easy to market and also easier for lenders, closing agents and borrowers. They are all saving money and it’s a meaningful trend.”

Matthews sees the incentives of electronic documents as enabling lenders to offer quality, manage costs and improve customer service. Despite a delicate economy, technology use is pragmatic and lenders are aggressively adopting it to improve the mortgage lending process, maximize financial performance and offer better customer service, she said.

“We will continue to have a difficult year in 2008 but that may turn in 2009,” Matthews said. “However, meanwhile, loan modifications will open up—we see that happening already with the  HOPE NOW Alliance—and there will be more consistent terms for both borrowers and lenders. Transaction improvements will improve gently but firmly. The electronic document technology world is part of every one of these aspects.”

As MISMO continues its work on expanding eMortgage technology, Matthews said next year will be a good opportunity to roll out a higher volume. “There are lots of investments being made and you’ll start to see them,” she said. “Ten years from now, when we look back a few years, we will be saying this is when it started and when it really became viable. It’s critical to the success of our business.”

Electronic documents are complemented with transaction data—information that can be both tracked and audited. As the lending market scrutiny from federal oversight agencies increases—it will become more important to gather this information.

“Tracking is most important to the borrower—the ability of lenders to be transparent," Matthews said. "But there is also a need to ensure that the security factors don’t impede the purpose of the technology."

From a consumer perspective, eLynx reported a variation in age groups who expressed either willingness or even ability to sign secure electronic documents. However, for those who might need to sign paper documents, the company offers what it calls a total fulfillment, sending  paper documents to borrowers to sign if they happen to be in what Matthews called a non-local or unfamiliar environment.

Advances in electronic document technology have also changed the way it is marketed. “No one buys technology for a certain feature but for a  for business performance,” Matthews said. “It’s an applied approach today where we have to focus on the process rather than the product. The process has to speak to what lenders are looking for—and that is to integrate technology into their businesses.”

Robert Nilsson, vice president of marketing and market development at eLynx, said the company is also focusing on providing more guidance and working with customers as a service partner and provider. “The message has been that electronic document process improvement is both true and meaningful,” he said.

eLynx recently processed, distributed and facilitated collaboration on more than two billion pages of financial services documents—a stack of paper that would nearly 80 miles high. In 2007, more than 12 million financial transactions—involving lenders, insurance carriers, agents and consumers—were electronically completed via eLynx document processing services.
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Attend the MBA Government Housing and Loan Production Conference 2008 and gain insight into the dramatic changes made to government housing programs. This conference provides insight on how to make the most of the Federal Housing Administration's (FHA) programs such as FHASecure; the Veterans Affairs (VA) Loan Guarantee Service and the Department of Agriculture's (USDA) Rural Housing Service, as well as the chance to discover alternative sales approaches and evaluate new strategies, products and technology.

Government officials and industry experts lead sessions exclusively designed for mortgage professionals with loan production and regulatory compliance responsibilities, including CEOs, heads of production, credit policy professionals, lenders of government loans and loan officers and brokers.

Who Should Attend:
Wholesale and retail originators, brokers and loan correspondents, residential underwriting professionals, credit policy professionals, quality assurance professionals, executives involved in the development of their organizations strategic plan, and anyone interested in learning more about the current government housing programs.

Speaking Opportunities:
Contact Norman Edwards at nedwards@mortgagebankers.org or call (202) 557-2793.

Network with Attendees:
Conference sponsorship is the ideal vehicle to grab the attention of this important audience and position your company as a leader in the industry. All sponsorships include a tabletop exhibit opportunity, but space is limited. For more information contact Phil Giorgianni at phil@mortgagebankers.org or call (202) 557-2733.

Web Site:
For more information about MBA’s Government Housing and Loan Production Conference 2008, visit http://events.mortgagebankers.org/ghlp2008/default.html.
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MBA’s National Secondary Market Conference & Expo 2008 in Boston (May 4-7) is the nation's largest gathering for secondary market executives. It is designed for industry leaders and decision makers from residential and capital markets, including CEOs and senior level executives, mortgage investors, investment bankers, rating agency professionals, risk managers and mortgage lenders.

The Executive Podcast features MBA Chairman-Elect David Kittle, CMB. Kittle, CEO of Principle Wholesale Lending Inc., Louisville, Ky., discuss the current state of the secondary market, in addition to other opportunities and events attendees can expect at this year's conference.

To listen to the podcast, go to http://www.mortgagebankers.org/NewsandMedia/MBAExecutivePodcasts. To download the mp3-files, you will need Real Player: http://www.realplayerresource.com/co/real/realplayerresource/?sid=M2AG0002bGS; or Windows Media Player: http://www.download-zone-free.com/windowsmediaplayer/.

MBA Executive Podcasts provide you with in-depth audio interviews that feature top industry executives giving insight on trends, new technologies and critical issues facing the real estate finance industry. Listen in to the weekly 3-5 minute podcasts and get perspective of different aspects in the industry.

To learn more about the Secondary Market Conference & Expo, which includes a keynote address by House Financial Services Committee Chairman Barney Frank, D-Mass., visit the conference web site: http://events.mortgagebankers.org/secondary2008/default.html?wt.mc_id=KittlepodcastMBA. Registration is still open.
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MBA’s Commercial/Multifamily Servicing and Technology Conference is the premier commercial servicing event to attend, offering four tracks featuring the latest in servicing, technology and multifamily issues. This is an excellent networking opportunity. Interact with your peers to learn about servicing and technology advances and opportunities; discover new techniques and information to enhance your business practices; and get updated on important issues from industry experts.

Registration and registration pick-up will begin on May 13, from 3:00-6:00 p.m.

Download the brochure and find registration details at http://events.mortgagebankers.org/crefservicingtech2008/default.html.
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H.R. 5830, written and guided through committee by Chairman Barney Frank, D-Mass., emerged from the committee relatively unscathed by amendments, such as a bankruptcy reform provision that would give bankruptcy judges the authority to modify or “cram down” primary mortgages, which faced strong opposition from the Mortgage Bankers Association. However, MBA officials remain concerned that such provisions could appear again in the form of amendments when the bill reaches the House floor.

In a nutshell, the bill permits FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages. Frank said the $300 billion is the total amount of outstanding loans that could be insured under the program; the government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal.

In exchange for the acceptance of a “substantial write-down of principal,” the existing lender or mortgage holder who chooses to participate would receive a “short payment” (i.e. a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government. A borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.

In addition to a first lien, the government would retain a share of future home-price appreciation to help defray the government’s costs and prevent unjust enrichment (e.g., borrower flipping).  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any net proceeds attributable to home appreciation (i.e., from 100 percent in year one to 50 percent in year four and thereafter minus the fees the borrower has paid into FHA). 

Eligible participants would face certain requirements, such as owner-occupied principal residences only; borrowers would certify that they do not own any other homes; existing senior loans being refinanced must have been originated on or before December 31, 2007; to remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less than 35 percent as of March 1; must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full.

On the lender side, existing mortgage holders/investors would be required to accept their losses—taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower. Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

The bill also establishes new requirements for new FHA-insured loans; establishes a Refinance Program Oversight Board consisting of the secretary of Treasury, the secretary of HUD and chairman of the Federal Reserve. The Oversight Board would be authorized to take action to facilitate coordination among different existing lien-holders and has authority to a formula for compensating and a mechanism for obtaining the voluntary waiver of all lien holders.

The bill would also create a separate FHA Fund, designed to protect the FHA Mutual Mortgage Insurance Fund, and would allow loans to be resold through Ginnie Mae. It requires the Fed to conduct a study of the need for, and efficacy of, an auction or bulk refinancing mechanism and submit a report to Congress within 60 days of enactment; includes provision for increased fraud prevention and oversight; authorizes $210 million dollars for foreclosure counseling, including to veterans recently returning from active duty in the armed forces, with at least $30 million targeted to low-income and minority homeowners and $35 million to assist with legal aid; establishes within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling; authorizes appropriations of $31.2 million to hire additional FBI agents and Department of Justice prosecutors to combat mortgage fraud, and $750,000 to support FBI interagency task forces in the areas with the 15 highest concentrations of mortgage fraud; increases conforming loan limits for VA loans; and requires enhanced appraisal standards and appraiser independence.

Frank said it was his hope that the bill would “restore some stability to the housing market, put liquidity back in the market and not interfere with the market, but help restore it.”
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The letter to OFHEO Director James Lockhart III details the trade groups’ concerns with a proposed Home Valuation Code, expressing concern with “serious legal and policy questions” about how the agreement was reached and the substance of the documents.

“We believe that OFHEO should withdraw its assent to the Agreement, should not permit the GSEs to implement the Agreement and should take steps to assure that this type of rulemaking by settlement does not occur in the future,” MBA and the trade groups said. “The Agreement is in violation of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and permits the New York Attorney General to unlawfully exercise authority that resides exclusively with the federal government. The method of imposition of the agreement is in violation of the Administrative Procedure Act and constitutes an unlawful delegation of authority by OFHEO to a third party. For a variety of reasons, the Agreement is not consistent with the best interests of the GSEs, the housing finance markets and other aspects of public policy.”

The letter notes that the Agreement “would force massive and highly disruptive changes in loan underwriting procedures at a critical time for mortgage borrowers and the mortgage industry.” MBA and the trade groups said they were particularly concerned about the Agreement’s prohibition on the use of in-house employee appraisers and its restrictions on the use of existing appraisal management company arrangements, including their ownership and employment structure.

“These restrictions, made at the instigation of a single state, seriously undercut important channels for obtaining appraisals in a manner that have shown to be fully consistent with safe and sound practices,” the letter said. “They would undo years of progress and wipe out hundreds of millions of dollars of investments that mortgage lenders and service providers have made in improving the accuracy and efficiency of real-estate valuations.”

The Agreement stems from an investigation launched by Cuomo last year. Cuomo, a former HUD secretary, pursued the agreement with the GSEs while expressing frustration at the lack of progress at the federal level in reforming the safety and soundness practices of Fannie Mae and Freddie Mac. OFHEO eventually joined into discussions with Cuomo and the GSEs, from which the Code of Conduct governing new appraisal requirements for mortgages they can purchase was established.

MBA originally objected to the Agreement because it imposes several burdensome operational and reporting requirements on those doing business with the GSEs and likely the housing finance industry at large. The agreement is effective Jan. 1, 2009

The code establishes requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence. It includes a prohibition against broker-ordered appraisals and appraiser coercion. Lenders are prohibited from using an appraiser employed by:

• The lender;
• An affiliate of the lender;
• An entity that is owned, in whole or in part, by the lender;
• An entity that owns, in whole or in part, the lender;
• A real estate “settlement services” provider as defined by the Real Estate Settlement Procedures Act; or
• An entity that is owned, in whole or in part, by a “settlement services” provider.

MBA and the trade groups said the Agreement would “deprive the most dynamic sector of the appraisal services market of a vital source of capital. Investments by lenders and by diversified service providers have facilitated the development of new valuation products and technology that allows real estate to be valued more accurately and efficiently. They also allow appraisal service companies to guarantee—with real capital—the integrity of the appraisal, which is not feasible for an individual appraiser.  Thus, prohibiting such investments does not advance OFHEO’s goal of enhancing the safety and soundness of the GSEs.”

The letter also emphasized that the Agreement, by being an attempt to regulate the lending activities of national banks and federally chartered thrifts, is preempted by the National Bank Act and the Home Owners’ Loan Act. Such banking activities are already governed by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, both of which have aggressively asserted their authority over such entities and activities.

Additionally, the letter noted that the National Housing Act specifically requires the HUD secretary to issue standards for appraisals of FHA loans. The statute specifically permits a lender to “contract with an appraiser chosen at the discretion of the mortgagee for the performance of appraisals in connection with such mortgages” and allows the use as appraisers of otherwise qualified individuals who are employed by appraisal companies, “including any company organized as a corporation, partnership, or sole proprietorship.”

Finally, the letter chided OFHEO—the federal agency charged with ensuring that the GSEs are operating safely—for diluting its own authority. “OFHEO has the authority, without the review or concurrence of the Secretary of HUD, to examine these companies and issue regulations relating to their safety and soundness,” MBA and the trade groups said. “Congress carefully circumscribed OFHEO’s authority to use outside parties to accomplish its mission. For example, the statute specifically authorizes OFHEO to use only its own examiners, or to contract with the federal banking agencies for examination services, or to use a Nationally Recognized Statistical Rating Organization to assist in the review of a GSE. There is no authority for OFHEO to delegate its responsibilities relating to the safety and soundness of the GSEs to a third party.”

The letter added that the Agreement signed by OFHEO is an “agency action that creates binding duties on the GSEs, for the putative purpose of enhancing the safety and soundness of these enterprises, protecting their investors and borrowers, and to provide stability to the housing markets. These goals are the responsibility of OFHEO, not [Cuomo]. When OFHEO engaged in a joint exercise with [Cuomo], it violated its statutory directive to be the sole agency to regulate the GSEs for safety and soundness.  Furthermore, by signing the Agreements, it limited its discretion to modify them without the consent of [Cuomo].”

Joining MBA in the letter were the American Bankers Association; the American Financial Services Association; the Consumer Bankers Association; the Consumer Mortgage Coalition; the Housing Policy Council of The Financial Services Roundtable; the Independent Community Bankers of America; and the Real Estate Services Providers Council Inc.
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