TheMReport — News and strategies for the evolving mortgage marketplace.
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WHAT'S NEXT marketplace are rendered obsolete very quickly, and current indicators point toward a new phase of adaptation ahead for banks, lenders, and servicers. Lending, Litigation, and Legislation The housing finance industry's rapid evolution means that trends in the mortgage NOW Tracking data from the second quarter, Trepp reported that one in eight banks wouldn't be able to maintain adequate capital in a stressed economic environment. Releasing the results of the organization's first Capital Adequacy Stress Test (T-CAST), which is based on an ad- aptation of the Federal Reserve's Comprehensive Capital Analysis Review (CCAR) Stress Test used on the 19 largest banking institutions, Trepp found that 12.7 percent of banks tested failed to meet capital adequacy requirements. The long-running legal proceedings between MBIA Insurance Corporation and Countrywide Home Loans turned into a blame game in September as the compa- nies battled over liability for insurance losses on bad loans. Filing a motion for summary judgment, MBIA claims Countrywide "breached representations and war- ranties with respect to at least 56 percent of the loans in the 15 securitizations of residential mortgages" MBIA agreed to insure. The Federal Housing Finance Agency (FHFA) released a revised Strategic Plan for the years 2013–2017 recently, modifying its original version, which was presented to Congress in February by FHFA acting director Edward DeMarco. "The initiatives and strategies set forward in this plan will serve to improve current mortgage processes, inspire greater confidence among prospec- tive market participants, and set the stage for recovery," DeMarco commented. The mortgage industry has worked diligently to comply with recently implemented rules related to the uniform loan delivery dataset (ULLD), which was put in place by regulators to create greater efficiency in the loan process. The challenging adaptations required by the ULLD prompted Narayan Bharadwaj, head of business for Wipro Gallagher Solutions, to state, "Ultimately, ULDD . . . provides a more transparent lending experience for our customers specifically." Filing suit against Wells Fargo, the government took action against the company for what officials allege con- stitutes more than 10 years of misconduct as a direct en- dorsement lender for the Federal Housing Administration (FHA). The civil mortgage fraud lawsuit, filed in a Manhattan federal court during September, asserts that Wells falsely certified the credit and underwriting quality of FHA loans it originated. VS. NEXT While Trepp's survey emphasizes the continuation of an uncertain regulatory environment, the company noted that the future would depend on financial institutions "taking the steps to achieve regulatory compliance." For banks that failed the test, Trepp estimates an additional $25 billion to $27 billion of combined capital would be needed to achieve a passing grade, adding that deregula- tion was unlikely to generate improvements. Responding to MBIA's assertions and filing its own memorandum for summary judgment, Countrywide countered that any losses MBIA incurred are its own responsibility, not that of Countrywide. In fact, according to Countrywide, MBIA admitted as much when the com- pany's CFO stated before Congress in 2008, "I'm afraid we have no one to blame but ourselves;" oral arguments on the summary judgment motions are set to begin in November. The FHFA's revised plan will launch onsite examinations for the government-sponsored enterprises (GSEs), and the GSE-related maneuvers target the first of the FHFA's four key objectives, which is the confirmation of "safe and sound housing." The FHFA's remaining three goals include greater "stability, liquidity, and access in hous- ing finance"; the preservation and conservation of GSE assets; and efforts to "prepare for the future of housing finance in the U.S." In conjunction with ongoing efforts to pave the way for a stable housing finance system around the U.S., the FHFA will press forward with completing the implementation of the Uniform Mortgage Data Program. In a statement from the organization, the FHFA noted it intends to "create robust and standardized pooling and servicing agree- ments" and "develop a new system for document custody and electronic registration of mortgages, notes, titles, and liens." Allegations related to insurance claims both paid and expected to be paid in the future by the U.S. Department of Housing and Urban Development (HUD), could cost Wells hundreds of millions of dollars in penalties. Preet Bharara, lead prosecutor in the case, who asserted that Wells failed to comply with quality control requirements mandated by the FHA's direct endorsement lender pro- gram, explained, "Now a jury will have to weigh the facts to determine the bank's liability." THE M REPORT | 19