HUD to Lift Cap

In coming weeks, the Department of Housing and Urban Development plans to lift the 1% cap on origination fees for Federal Housing Administration mortgages, sources close to the agency said.

HUD argues that competition will prevent fees from rising too much once a regulation overhauling up-front disclosures takes effect Jan 1.

If borrowers think they are being overcharged, the thinking goes, they can shop around for a better price and potentially take their business elsewhere.

"HUD feels the marketplace will drive origination fees down once the 1% cap is removed," said Phillip Schulman, a partner in the K&L Gates LLP law firm.

The department had indicated last year that it might remove the cap when it completed a new Real Estate Settlement Procedures Act rule. But the agency also said then that it would reserve the right to reinstate or add limits on fees charged to the borrower.

At the time, the National Community Reinvestment Coalition was one of the few consumer groups to voice opposition to removing the cap.

It argued that government-guaranteed loan products should shield borrowers from excessive charges by establishing reasonable limits on fees.

The new Respa rule will standardize the good-faith estimate of mortgage terms and closing costs that consumers get when they apply for a mortgage, making it possible to compare the fees charged by different lenders.

Closing agents also will be required to give borrowers a new HUD-1 settlement form that clearly compares the borrowers' final charges with the good-faith estimates.

Schulman said he is taking a "wait-and-see" approach before determining whether the market actually works, since borrowers have never been able to compare fees before.

"If origination fees go through the roof, then HUD may well step back in, and reverse the trend," he said.

FHA as Enforcer

Meanwhile, HUD continues to be more aggressive in meting out punishments to FHA lenders that break the rules — including those that charge fees exceeding the soon-to-be-removed cap.

On Monday, HUD suspended a Baltimore FHA lender for doing just that, among other things.

The department said Equitable Trust Mortgage Corp. had charged 37 borrowers both a 1% loan origination fee and a 1% broker fee.

HUD's Mortgagee Review Board also found 21 alleged cases in which Equitable Trust failed to disclose all origination fees and yield-spread premiums paid to brokers, prompt a six-month suspension. Not surprisingly, Equitable Trust had a default rate on FHA loans far higher than the national average.

According to HUD's Neighborhood Watch Web site, which displays loan performance data for FHA lenders, 10.5% of loans that Equitable Trust originated in the past two years were 90 days or more past due at Oct. 31 — compared with the 4.16% average for defaults on all FHA loans.

The Baltimore lender's default rate is 1.75-times that of its peers in the same geographic area.

Equitable Trust did not return a call seeking comment.

Andrew Jakabovics, an associate director for housing and economics at the Center for American Progress, said FHA is trying to weed out lenders with high default rates and probably was not looking for one that had specifically overcharged borrowers.

"I don't think they were out looking at good-faith estimate issues. They just saw this lender was adding risk to the insurance fund," he said.

Surprisingly, on its Web site, Equitable Trust advertises interest-only and option adjustable-rate mortgages — products that were popular earlier in the decade but fell out of favor a few years ago.

Foreclosures Slow

Data due out today from RealtyTrac Inc. shows foreclosure filings fell 8% in November from October but were still up 18% from the year earlier.

"November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we've seen since February," RealtyTrac's chief executive officer, James J. Saccacio, said in a press release.

"Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded homebuyer tax credit, are keeping a lid on the most visible symptoms of the nation's ailing housing market — foreclosures and home value depreciation," he said.

"This is providing a welcome respite for the real estate industry, but a full recovery will only come when unemployment recedes to normal, healthy levels and when availability of credit reaches a more rational balance between the extremes of the past few years," Saccacio said.

One in every 417 U.S. housing units received a foreclosure filing during November, the Irvine, Calif., company said.

Default notices nationwide were down 8% from the previous month but still up 22% from November 2008; scheduled foreclosure auctions were down 12% from the previous month but up 32% from the year earlier, and bank repossessions were flat from the previous month and down 2% from November 2008.

Nevada foreclosure activity decreased by a double-digit percentage for the second straight month, but the state continued to post the nation's top foreclosure rate, with one in every 119 housing units receiving a foreclosure filing in November — 3.5 times the national average.

Florida posted the nation's second-highest state foreclosure rate in November.

For the second month in a row, the same four states accounted for 52% of the nation's total foreclosure activity: California, Florida, Illinois and Michigan.


"The FHA is moving forward with great vigor. We are very happy to be back, but we don't want to be the only game in town."

— Judith J. Heaney, a supervisory operations officer for field policy and management at HUD, on the FHA's resurgence in recent years, at a Federal Reserve Bank of Chicago conference on foreclosure policy Wednesday.

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