After issuing a finalized qualified mortgage (QM) rule on Thursday, the Consumer Financial Protection Bureau (CFPB) also released its guidance on rules to protect consumers of high-cost mortgages.

High-cost mortgages include mortgages with an annual percentage rate (APR) or points and fees that exceed certain threshold amounts. For example, a first mortgage with an APR that is more than 6.5 percentage points higher than the average prime rate would be considered high-cost. Through the Home Ownership and Equity Protection Act (HOEPA), consumers with these high-cost mortgages are provided certain protections.

After remaining relatively flat for about a year, mortgage fraud is on the rise again, according toCoreLogic. The firm’s fraud index estimated about $12 billion in fraudulent originations over the year last year but anticipates about $13 billion in mortgage fraud by the end of 2012.

All categories of mortgage fraud increased year-over-year in the first quarter of 2012, with employment fraud taking the lead with a 50 percent increase. CoreLogic attributes this rise to continued high levels of unemployment across the nation combined with low mortgage rates, incentivizing homeowners to misrepresent their employment status on loan applications.

Identity fraud followed employment fraud with a 44 percent increase year-over-year. Income fraud increased 35 percent; occupancy fraud rose by 25 percent; and undisclosed debt fraud increased by the smallest amount, 8 percent over the year.

In contrast to CoreLogic’s report of steady origination fraud in 2011, the Financial Crimes Enforcement Network (FinCEN), which tracks suspicious activity reports (SARs), notes mortgage SARs “increased significantly” in both 2010 and 2011.

Government agencies are seeing an increase in participation within the mortgage servicing space and are seeking to provide better insight into some of the new and growing players in the market, a panel of industry representatives told the audience at the Mortgage Bankers Association’s annual conference and expo in Chicago Tuesday.

Dave Williams, VP and financial and planning analyst forAmerisave Mortgage Corp., said his firm had several reasons to become involved in servicing. To begin with, it provides more independence. “In order to protect yourself, you want to have as much independence as possible,” Williams said.

Secondly, Williams said as a servicer, companies gain advantages related to execution, with no time lost working through an additional third-party. And third, it enables Amerisave to retain servicing income. Amerisave doesn’t retain all of its servicing, Williams said, adding that maintaining the right balance of retained servicing is key.

Fannie Mae has introduced new tools designed to aid servicers, according to Anthony Reed, an SVP with theGSE. “We have hordes of new applications,” Reed said. Among them is one that enables sellers to efficiently perform data edits.

By Jessica Rodriguez , Christian Post Contributor

Bank of America is being sued for $1 billion according to new reports. The Bank of America Corp. (BAC) allegedly sold defective residential mortgage loans to Fannie Mae and Freddie Mac that later defaulted.

In response to the allegations the United States government has opened up a $1 billion fraud lawsuit against the bank.

The U.S. Justice Department reportedly filed a civil lawsuit against BAC on Wednesday in Manhattan federal court.

The Justice Department has claimed that Countrywide Financial and its parent Bank of America generated and sold Fannie Mae and Freddie Mac thousands of defective mortgage loans.

Countrywide was acquired by Bank of America in 2008.

NEW YORK (CNNMoney) -- Just one day after Citigroup wowed Wall Street with solid quarterly earnings, CEO Vikram Pandit said Tuesday he is stepping down, ending his tumultuous five-year reign atop what's been deemed the world's financial supermarket.

The surprising shakeup came as Pandit's 2011 compensation remained a sticking point for shareholders, who earlier this year voted against his $15 million pay package -- an issue Citigroup's board of directors has yet to publicly address.

With Pandit's departure, Citigroup's board named Michael Corbat, a 29-year veteran of the bank, as the new CEO.

Corbat most recently headed Citigroup's operations in Europe, the Middle East and Africa. Prior to that assignment, he served as the head of Citi Holdings.

Citi Holdings was the unit that held the bank's so-called bad mortgage assets, which it has been slowly selling off since early 2009. Corbat helped facilitate the sale of more than $500 billion of troubled assets, according to Citigroup.

Citigroup's president, John Havens, also resigned on Tuesday. Havens had been expected to retire by year's end, but he accelerated his plans once he was aware of Pandit's timing, a source close to the bank said.

NEW YORK (CNNMoney) -- Add one more to the list of alleged victims of Libor manipulation: homeowners.

A class action complaint filed earlier this month in New York federal court claims borrowers with adjustable-rate mortgages based on the London Interbank Offered Rate, or Libor, paid more than they rightfully should have due to the rate's manipulation by the global banks involved in setting it.

The complaint follows other class action suits filed by groups ranging from local governments to community banks to individual investors, all of whom say they lost out due to Libor-rigging.

Libor burst into the public consciousness this summer when British banking giant Barclays (BCS) admitted to manipulating it, reaching a $453 million settlement with U.S. and U.K. regulators. Other banks involved in setting Libor, including JPMorgan (JPM, Fortune 500), UBS (UBS), Citigroup (C, Fortune 500) and HSBC (HBC), have revealed that they too are cooperating with investigations on the issue, and additional settlements are expected.

It was no surprise when mortgage rates dropped in the weeks following the Fed’s announcement that it would purchase $40 billion of agency mortgage-backed securities (MBS) each month until the labor market shows substantial improvement.

Even with the record-low mortgage rates seen today, refinancing numbers are still not as high as expected.

In CoreLogic’ most recent MarketPulse report, Sam Khater and Molly Boesel noted, “the overall level of refinancing is still low given current mortgage rates, and there are still many homeowners nationwide with above market rates.”

Despite the new expansions from HARP 2.0, including the removal of its 125 percent LTV ceiling, other restrictions are still preventing homeowners from refinancing.

One of those restrictions is a HARP guideline that makes borrowers ineligible if they obtained their GSE-backed mortgaged after May 31, 2009.

Mortgage lenders who survived the residential mortgage meltdown must now brace for repurchase demands from their third-party investors — and for the refusal of their liability insurers to defend and indemnify them against these demands. Mortgage lenders should be prepared to protect themselves against such denials of coverage.

Claims Under Contract? Restitution?
Insurance companies often deny coverage for repurchase demands by invoking the common exclusion for claims arising under contract. This argument should not fly. Repurchase demands typically accuse the mortgage lender not only of breaching the terms of the agreement, but of having sold loans “negligently.” The lender’s negligence typically did not “arise from the contract,” but arose during underwriting and origination of the loan – for example, failing to follow buyer eligibility guidelines, or failing to do due diligence concerning property value, income history, credit worthiness, or employment background. These are acts of lender negligence that insurance typically protects against.

More problematic is an exclusion for restitution. Insurance covers “loss” — but not amounts one is required to give back. Insurers say that repurchase demands fall in that category.

It’s not that simple. Repurchase demands are not really demands for the return of the mortgage loan. Nor are they demands to rescind the deal. Instead, these demands specify the damages the buyer has sustained because of the allegedly defective mortgage, which may well be more than the value of the original loan, given interest, penalties, resale discounts, and other costs and expenses incurred. In many cases the defective mortgage has already been resold and there is no demand to “take it back.” In short, a repurchase demand is often not a demand to rescind the deal, but a detailed assessment of the losses the third-party incurred because of the loan sale. In that case, the repurchase demand is seeking legal damages that, all else being equal, fall squarely within an insurer’s coverage obligations.

After a month of weekly increases, mortgage rates followed Treasury bond yields down this week.

Freddie Mac reported that the 30-year fixed averaged 3.59 percent (0.6 point) for the week ending August 30, down from 3.66 percent in the previous week’s survey.

The 15-year fixed also fell, dropping to 2.86 percent (0.6 point) from 2.89 percent.
In addition, both the 5-year and 1-year adjustable rate mortgage averages fell, declining to 2.78 percent (0.6 point) and 2.63 percent (0.4 point), respectively.

Frank Nothaft, VP and chief economist for the GSE, said the declines economic news that may indicate another stimulus is on the way.

“Treasury bond yields fell, allowing mortgage rates to follow, after the release of the July 31 and August 1 minutes of the Federal Reserve’s monetary policy committee,” Nothaft said. “Committee members agreed that economic activity had decelerated more in recent months than they had anticipated at their last meeting in June. Some members even saw room for additional stimulus fairly soon if need.”

BY: TORY BARRINGER

The Consumer Financial Protection Bureau (CFPB) proposed two notices with rules designed to protect homeowners from surprises or mistakes made by their mortgage servicers.

CFPB first announced in April that it was considering several proposals to implement requirements laid out in the Dodd-Frank Act, the bill that created the bureau. The bureau reached out to consumer groups, small servicers, industry stakeholders, and government agencies for input. CFPB refined its earlier ideas in response to the feedback.

The first set of proposed rules is designed to bring more transparency to the mortgage market so consumers can avoid costly surprises. CFPB proposes: Clear monthly mortgage statements, including a breakdown of payments, due dates, and fees; warnings before interest rate adjustments with information about alternatives and counseling resources if the new rate is unaffordable; early information and options to avoid foreclosure; and options for avoiding “force-placed” insurance, in which servicers purchase insurance to protect the lender’s interest in the property.

In addition, CFPB proposes a second set of rules to impose “common-sense” requirements for handling consumer accounts, correcting errors, and evaluating borrowers for options to avoid foreclosure.