Government

Prosecutors are investigating eight major banks, including Citigroup and Credit Suisse, to determine if they provided misleading information to credit ratings agencies in order to deceive investors about the quality of mortgage-backed securities. Ratings agencies have been blamed for missing the mark in their assessments of mortgage bonds that ultimately tanked when the housing market came crashing down. But New York Attorney General Andrew Cuomo seems to think the agencies were duped, and he's putting Wall Street banks on the hook for flexing their big-business prowess in order to cloak sour mortgage deals as AAA-rated sound investments.

The FDIC approved a formal proposal Tuesday that would impose stricter rules on banks that package loans as mortgage-backed securities (MBS). In order for the bundled mortgages to be protected from seizure in the event the FDIC steps in to shut down the institution, lenders would be required to retain at least 5 percent of the securities on their own books. Some critics say the rule creates an uneven playing field since applies only to banks and not to other financial firms.

In a 56 to 43 vote, Democratic senators have defeated an amendment to the financial reform package that would have set a finite end date for taxpayers' support of the GSEs and laid out a 15-year plan for the companies' ultimate dissolution. Some critics have called the GSEs' bailout ""the biggest financial scandal in the United States."" But at the same time, many find it hard to deny that it's Fannie and Freddie's support that's keeping the wheels of the nation's battered housing market turning.

Treasury has issued a new servicer document outlining its payment relief program for homeowners who have lost their jobs. The program, initially announced by the administration in March, becomes effective July 1, 2010, and offers eligible unemployed borrowers a forbearance plan to temporarily reduce or suspend their mortgage payments for at least three months. Interestingly enough, the government program does not apply to government-backed loans, such as those guaranteed by the GSEs.

Maryland Gov. Martin O'Malley has signed a new law establishing that a power of sale is valid in existing and future deeds of trust originally granted to a corporate trustee. A power of sale clause is sometimes included in a mortgage contract or deed of trust that grants the lender the right to sell the property upon certain default without court approval, but courts in several Maryland counties had ruled against the validity of such a power of sale.

Clayton Holdings, which provides risk analysis and loss mitigation to the mortgage industry, announced Tuesday that it has incorporated Fannie Mae's newly announced quality control standards into its underwriting offerings. The GSE's new Loan Quality Initiative specifies the policies and process and technology enhancements that it will require from sellers in order to mitigate loan repurchase risk. Clayton says it can help lenders meet these new requirements through its outsourcing and consulting businesses.

Mortgage giant Fannie Mae has reported a net loss of $11.5 billion for the first quarter of 2010. The deficit has prompted the GSE to ask the Treasury for another $8.4 billion in federal funding. Fannie Mae's single-family serious delinquency rate increased to 5.47 percent as of March 31, 2010, up from 5.38 percent as of the end of last year. However, on a month-to-month basis, March's delinquencies were down from 5.59 percent in February. The GSE acquired 61,929 single-family properties through foreclosure during the first three months of this year.

Lenders One Mortgage Cooperative has selected risk management and compliance firm ComplianceEase as its newest preferred vendor. With state restrictions getting tighter and enforcement increasing, smaller mortgage bankers need to draw upon the right resources to remain proactive when it comes to regulatory compliance. Lenders One says it can provide these resources through its partnership with ComplianceEase.

The Military Warriors Support Foundation teamed up with servicers to provide wounded veterans with mortgage-free homes as they transition back into civilian life. They say good things come in threes. But for Phillip Hall, an Iraqi veteran from Louisiana, he never imagined that he could ever be so lucky.

A new week, a new round of bank closings. Federal and state regulators have shut down four more community banks - in California, Arizona, Florida, and Minnesota. That pushes the failed bank tally for 2010 to 68. Together, the four seizures are expected to cost the FDIC an estimated $213. The largest failure of the weekend was 1st Pacific Bank of California, headquartered in San Diego.