Government

Perhaps in preparation for the meeting between bank representatives and lawmakers scheduled for Wednesday, servicers have drafted their own proposal in response to the robo-signing settlement they were given earlier this month. Though specific details of the servicers' version are not yet available, the draft reportedly features some of the same guidelines as the 27-page term sheet sent by state attorneys general and federal regulators, although servicers made no mention of principal write-downs.

In a legislative hearing scheduled for Thursday, the House Financial Services Committee will listen to eight proposals centered around winding down Fannie Mae and Freddie Mac on a faster timeline than proposed by the Obama administration last month. The eight proposals include measures to raise guarantee fees the GSEs will charge for mortgage-backed securities they insure and to prevent the GSEs from offering any new products while they are under conservatorship.

The Office of the Comptroller of the Currency (OCC) has issued a notice to the chief executives of all the lenders it regulates warning them of the risks involved in real estate-owned exchange programs. Several companies have started marketing real estate-owned exchange programs to national banks as a means to reduce problem assets on their balance sheets, but the OCC says these programs ""can raise significant safety and soundness, legal, and accounting concerns.""

Data released Monday shows an increase in mortgage related fraud in areas with high rates of foreclosures and underwater borrowers. Risk analytics firm Interthinx released its annual Mortgage Fraud Risk Report which analyzes loan applications and determines the most significant mortgage fraud risk trends for the past year. According to the report, overall mortgage fraud risk is highest in areas that have been hit hardest by the housing and economic downturns, and fraud criminals are migrating to these regions.

New York City Comptroller John Liu has announced a victory for the members of the New York City Pension Funds who have long been calling for banks to conduct an independent audit of their mortgage foreclosure practices. The NYC Pension Funds requested an audit of the banks' practices in November and again in January to no avail, but the Securities and Exchange Commission (SEC) has ruled that the banks must put the group's request on the ballot at their annual shareholder meetings this spring.

In a partnership with the city of Detroit, Bank of America will open two customer assistance centers in the area to provide homeowners at risk of default or foreclosure with counseling and on-site decision making for mortgage modification programs or other payment assistance. The bank also plans to donate and refurbish 10 vacant homes for the city's ""Project 14"" program, and will work with the city to identify up to 100 low-value and vacant properties for demolition.

A push for servicers to implement principal write-downs and provide screening for as many modification options as possible before proceeding to foreclosure has been met with stiff resistance from servicers and some lawmakers. Meanwhile, the number of loan modifications pales in comparison to the number of foreclosures. But new data suggests that modifications and even write-downs in certain cases might actually be more beneficial to investors as well as struggling borrowers.

Opposition to the proposed servicer settlement developed a stronger stance this week as four attorneys general released a letter to Iowa's Tom Miller, who is leading the states' investigation. Attorneys general from Virginia, Texas, Florida, and South Carolina said while they support actions to correct problems unearthed by the robo-signing scandal, the proposal includes mandates and suggestions that are out of the scope of their enforcement role. They expressed particular uneasiness over the provisions surrounding principal write-downs.

The nation's second largest mortgage company says early workouts are central to its game plan for 2011. This ""nip it in the bud"" mindset can be key to getting in front of delinquencies before they turn into lost-cause foreclosures, and Freddie Mac says it's making changes to the way it evaluates the performance of mortgage servicers in order to ensure problem loans are tackled early on and increase the odds of getting borrowers back to performing status. Namely, the GSE is pushing servicers to make contact with homeowners by the third day of delinquency.

Another lawsuit centered around mortgage securities backed by faulty loans may be brewing. The National Credit Union Administration (NCUA) has threatened to sue four banks and investment firms unless they refund more than $50 billion for mortgage-related bonds that went bad. Goldman Sachs, Bank of America's Merrill Lynch unit, Citigroup, and J.P. Morgan Chase are named as the targets of NCUA's legal threats. The regulator says mortgage securities sold by these companies led to the collapse of five wholesale credit unions.