Total Compliance: Changes in Today s Mortgage Market

Transcription

1 Total Compliance: Changes in Today s Mortgage Market April 24, LogicEase Solutions Inc. All Rights Reserved.

2 Presenters Moderator: David Girling President and CEO ComplianceEase Presenters: Donald C. Lampe Partner Womble Carlyle Sandridge & Rice, PLLC Scott Samlin Executive Director, Residential Mortgage Compliance Morgan Stanley 2

3 Discussion Topics Federal Agency Guidance Expansion and New Focus on Foreclosure U. S. Congress in 2007 Toward a Comprehensive Mortgage Lending Bill? States on the Move Illinois, Ohio, Minnesota, Iowa, North Carolina, Oregon, Rhode Island, Others Wall Street Perspective Legal & Market Developments Q&A 3

4 Automated Compliance Systems ComplianceEase 4

5 Automated Compliance Solutions (ACS) CE is a pioneer in the development of the ACS space and a market leader As quality of product and execution becomes more important, ACS is more critical than ever Demonstrated value proposition implemented by both lenders and investors 5

6 Federal Agency Nontraditional Guidance Expansion and New Focus on Foreclosure 6

7 Nontraditional Home Loan Guidance Interagency Proposal issued 12/05 and Final Guidance 10/06 Nontraditional mortgages guidance, from all the federal banking agencies Borrows from earlier banking agency guidance on safety and soundness Covers only POA s and IO s/hybrid ARM s 7

8 Nontraditional Home Loan Guidance (Cont.) Main Points in NTMG: Control over underwriting standards & third parties Factor in payment shock (i.e., the full amount that could be due monthly) when underwriting & educate consumers through disclosures Underwrite at fully indexed rate, level ammo, and consider risk layering Evaluate subprime lending practices and avoid misleading practices, using disclosures 8

9 NTMG- Why Worry About It? CSBS/AARMR effort unprecedented cooperation on a national scale Adopted the NTMG and made it available to states (November 2006) State regulators follow suit 30+ states now Watershed event for mortgage product offerings focus on products, nationwide 9

10 What s Going On Now? Another interagency proposal: Proposed Statement on Subprime Mortgage Lending (3/1/07) More broadly aimed at ARM s, with special concerns for risk layering AND on determining borrower s ability to repay in underwriting The > the risk, either from loan features or borrower characteristics, the more important to verify income, liabilities and assets a balancing test 10

11 Foreclosure Focus Congress has criticized federal banking agencies for being lax on predatory lending Predatory lending now being linked to foreclosures e.g., lots of resets of low intro ARM s Last week, federal agencies sent up an SOS help borrowers in foreclosure, and get CRA credit too 11

12 States on the Move 12

13 States Are Still Moving Ahead In 2007, still much energy in the states to regulate mortgage lending New impetus: defaults, foreclosures and the subprime meltdown So far, at least 40 foreclosure-related bills in the states so far this year Also, threshold-based predatory lending bills still emerging BUT

14 State Laws Proliferate Not just predatory lending & triggers comprehensive bills covering nearly all aspects of loan origination (e.g. MN S988 and OR SB 965) Iowa SF 541, applies to all consumer home loans Illinois HB 1478, 4/17 amendments, very extensive, like Ohio SB 185 but more(!) NC overhaul of the original predatory lending law HB 1817, intro ed last week 14

15 Where are the States Headed? Foreclosure reform some states will add tweaks, others will go for reform (remember, foreclosure itself is a statespecific remedy) Foreclosure relief through state Housing Finance Agencies e.g. Ohio (new program) Suitability for loans with lower thresholds, tied to HMDA reporting triggers (e.g., NC, OR), and based on verification of ability to repay Legislatures will be finishing up as the summer approches 15

16 State Regulatory and Quasi Regulatory Developments Rhode Island HLPA Regs (eff. 5/1/07) still significant questions Illinois withdrawal and overhaul of HB 4050 database regulations Ohio SB 185 AG rules effective 1/1/07, DFI rules still pending Foreclosure task forces in Ohio, MA, Colo., and more 16

17 U. S. Congress in 2007 Toward a Comprehensive Mortgage Lending Bill? 17

18 Federal Legislation in 2007 New (Democratic) Congress has held numerous mortgage-related hearings in 2007 (House and Senate) Will a comprehensive predatory lending bill emerge? Rep. Frank (D. Mass), Chair of House Financial Services Committee, says: yes, and soon But Federal foreclosure bailout by Congress not likely (Sen. Shumer wanted it) 18

19 A Little History.... Federal predatory lending bills have been introduced in Congress every year since 2002 remember Ney-Kanjorski? What they look like: amendments to HOEPA, to lower triggers, cover all loans and make more terms and practices verboten Never been consensus on key issues, especially assignee liability, federal preemption ( single federal standard ) 19

20 Federal Bill 07: What to Expect Lower triggers, more loans covered (all residential mortgage loans) A suitability type standards for underwriting, including hard verification of ability to repay Strong remedies and penalties, including state AG enforcement Federal preemption or a single federal standard, replacing state laws? A real wild card

21 Wall Street Perspective 21

22 The Secondary Market in : a sudden shift or did we see it coming? The usual boom-bust cycle from home price runup? Is it about asset quality and loose underwriting? Where are we going and why? 22

23 Changing Business on Wall Street Many originators going out of business or being acquired Vertical integration, as investment banks purchase originators and servicers why does Wall Street want to own the origination source? What about loan servicing? How is Wall Street coping with new laws and regs? 23

24 Secondary Market Reactions... Is the Nontraditional Mortgage Guidance being implemented? Can it be implemented in the secondary market? What about the GSE s? E.g., will Freddie Mac announcement about subprime underwriting have an impact? Have the states overreacted in predatory lending and how will emerging laws on broker and lender duties impact Wall Street? 24

25 Federal Laws and the Market Where is Congress headed? Is there an understanding about assignee liability? How do the regulators want to involve Wall Street? What will become of the discussions among the FDIC and others re: foreclosures and workouts? Is legislation and regulation the right thing to do, or can the markets react and contain the problems in residential mortgage lending defaults, foreclosures and products? 25

26 Automated Compliance Systems 26

27 Automated Compliance Systems (ACS) Several companies in the space ComplianceEase is leader in the space Integrated approach permits testing of ALL LOANS in production Loan-based testing, pre- or post-closing, as well as pool-level testing of closed loans Industry adoption spreading fast 27

28 What To Consider In ACS? What is the functionality what tests are run? Technology robust platform, with ease of integration into existing workflow? Who is behind it management, investors, strategic partners? Track record and experience in the industry is it core business of ACS provider? 28

29 What To Consider In ACS? (cont d) Rules development current and focused? Available through major LOS and document preparation platforms? Is this ACS vendor mortgage-to-technology or technology-to-mortgage? Cost, efficiency and value benefit to originator, purchasers, Wall Street? 29

30 Q & A 30

31 We thank our speakers... Donald C. Lampe Womble Carlyle Sandridge & Rice, PLLC Charlotte, NC Scott Samlin Executive Director, Residential Mortgage Compliance Morgan Stanley New York, NY 31

32 Thank You for Your Participation!