Monday Morning Cup of Coffee

A look at stories across HousingWire’s weekend desk…with more coverage to come on bigger issues: The Federal Bureau of Investigation (FBI) is preparing a nationwide crackdown on mortgage fraud, with arrests expected to count in the hundreds, beginning as early as this week, the Financial Times reported. The FBI will target fraudsters accused of everything from encouraging borrowers to falsify income on mortgage applications to misleading homeowners about foreclosure rescue programs, as well as inflating home appraisals, the report said, citing two anonymous sources with knowledge of the initiative. The FBI declined to comment on the record in the report. It’s the latest of more than 20 task forces around the country that target mortgage fraud since the housing crisis began in 2008. The FBI will release its annual report on mortgage fraud, covering activity in 2009, on Thursday. Typical FBI mortgage fraud task forces include the collaboration of other government entities, including the Internal Revenue Service (IRS), Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA), the Federal Housing Administration (FHA), among others. On the heels of Friday’s news that JPMorgan (JPM) sold $716.3m of commercial mortgage-backed securities (CMBS) bonds this week — the second such deal of 2010 — comes more optimism regarding appraisal subordinate entitlement reduction, or ASER, reimbursements. According to analysts at Barclays Capital (BarCap), an emerging trend is growing and a sizable increase in ASER reimbursements are coming to the bottom tranches of CMBS, the result of increasing liquidation volumes. During the past three months, investors in the bottom tranches of CMBS deals were reimbursed an average of $10.5m of interest that was accrued but not paid to them in the prior remittance periods, BarCap said, including reimbursements of $11.2m in May, $12.6m in April and $7.8m in March. ASER is the difference between the full debt service payment (scheduled principal payment, if expected under the loan terms, and interest payment estimated at net coupon) and the amount that is actually advanced by the master servicer in a CMBS transaction. While principal is typically advanced in full, interest payments are advanced only to the extent that is deemed recoverable. According to BarCap, ASERs are a unique category among all factors contributing to interest shortfalls because, usually, the payments can be reimbursed to the investors upon the problem loan liquidation, unlike other trust fund expenses like special servicing fees. “The potentially reimbursable nature of ASERs also makes their forecast a critical factor when trying to estimate cash flow expected for the bottom tranches and could be important in the valuation technique employed for pricing these tranches,” the weekly CMBS report said. “Some of the interest shortfalls should not be interpreted as ‘lost’ but simply ‘delayed’ interest that is still due to the bondholders and could be reasonably expected to be paid upon the problem loan resolution.” The Mortgage Insurance Companies of America spent more than $1m lobbying the federal government on its role in housing finance during Q110. That’s up nearly 400% from Q109, when the group spent $215,000 on its efforts, as well as above its Q409 reported expenses of $850,000, according to a disclosure (download here) with the House of Representatives clerk’s office. The trade group that represents the mortgage insurance industry spent $1.06m lobbying Congress, the Federal Reserve, HUD, FHA, FHFA, as well as general topics including “housing issues,” “housing recovery,” “restructure of government-sponsored enterprises” (GSEs), the Restoring American Financial Stability Act, financial reform legislation and mortgage insurance tax deductibles. The Federal Deposit Insurance Corp. (FDIC) reported only one bank failure over the weekend. The Washington Department of Financial Institutions closed Seattle-based Washington First International Bank. As receiver, the FDIC entered into a purchase and assumption agreement with Pasadena, Calif.-based East West Bank, which paid a 0.5% premium to assume all of failed bank’s $441.4m in total deposits. The four Washington First International Bank branches reopened as branches of East West Bank and will purchase $501m of the failed bank’s $520.9m in total assets. The estimated cost the FDIC Deposit Insurance Fund is $158.4m. It is the 81st bank failure of 2010, compared to 37 by the second week of June 2009. Write to Austin Kilgore. The author held no relevant investments.

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