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FHA is Replacing Securitization in Mortgage Financing

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The collapse of the private securitization market in 2007 and retrenchment by the private mortgage insurers led to a huge funding gap in mortgage finance, especially in the higher loan-to-value (LTV) sector. That gap that is quickly being filled by Federal Housing Administration (FHA)-insured loans, according to a panel of regulators and enforcers speaking at the CRA & Fair Lending Colloquium, hosted by Wolters Kluwer Financial Services and now underway in New Orleans. The panel, called 'Washington Update,' drew together several government personnel directly involved in the deluge of new legislation hitting the mortgage finance market. Speaker John Taylor, President and CEO of National Community Reinvestment Coalition (NCRC) called the emergence of FHA as a primary mortgage provider in this space an issue that requires immediate attention. "Is there a shifting strategy to government guarantees from private market securitization?" he asked the attendees and fellow panelists. "The FHA taking over securitization is a concern." The assertion came after Montrice Godard Yakimov, a managing director of Compliance and Consumer Protection in the Office of Thrift Supervision noted while the number of reported first-lien conventional loans fell sharply from 2007 to 2008, first-lien loans backed by FHA insurance increased dramatically, with the number of such loans in 2008 rose by 169% over the 2007 level. (In a later panel the sole speaker, Federal Reserve researcher Glenn Canner, put it in perspective by saying a couple years ago in San Francisco there was only one FHA loan, by way of comparison.) For his part, Taylor went on to push for credit unions, which are not covered by the Community Reinvestment Act (CRA), to make it an obligation to serve low income and/or minority borrowers. Robert Mooney, deputy director for Consumer Protection and Community Affairs at the Federal Deposit Insurance Corp. (FDIC) replied that his institution was considering "giving more weight to non-banks," when it came to this kind of mortgage financing. The panel then focused on what speaker Paul Hancock, a partner at law firm K&L Gates, called an uneven application of federal statues in the field of lending, especially in mortgage finance, without providing much data on the reasoning behind this activity. "We've been missing meaningful guidance on fair lending for 15 years [from the government]," he said. "Different agencies are enforcing the same law but with different standards." Hancock pointed out that Reg-Z applies only to owner-occupied properties, while the Home Mortgage Disclosure Act (HMDA) covers all properties, as an example of differences in the new regulations. At any rate, speaker Steven Rosenbaum, the chief of Housing and Civil Enforcement Section, Civil Rights Division, at the U.S. Department of Justice, hinted that his agency will begin ratcheting up compliance investigations in the short term. A source confirmed to HousingWire that the DoJ is, in fact, recruiting around 50 civil rights attorneys in order to begin the offensive. Write to Jacob Gaffney.

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