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On March 12, HUD released Mortgagee Letter 2019-05, which alters home warranty requirements for FHA single-family mortgage insurance by removing the policy guidance that required borrowers to purchase ten-year protection plans in order to qualify for certain mortgages on newly constructed single-family homes. The borrower is still required to obtain a one-year warranty, which should commence on the date that title is conveyed to the borrower, the date that construction is completed, or the date that the borrower occupies the house, whichever occurs first. The changes are effective on March 14.
On February 13, the U.S. Attorney for the Eastern District of California announced a $3.67 million joint settlement with HUD and the Fair Housing Administration (FHA) to resolve allegations that a mortgage lender violated the False Claims Act by falsely certifying compliance with FHA mortgage insurance requirements. According to the settlement agreement, between 2007 and 2009, the mortgage lender, a participant in HUD’s Direct Endorsement Lender program, allegedly knowingly submitted false claims to the FHA loan insurance program by failing to ensure the loans qualified for FHA insurance when they were originated. The announcement notes that the settlement relates solely to allegations, and that there has been no determination of actual liability by the mortgage lender, which did not admit to liability in the settlement.
On October 19, the DOJ announced a $13.2 million settlement with a mortgage lender resolving allegations that the company violated the False Claims Act (FCA) by falsely certifying compliance with the Federal Housing Administration (FHA) mortgage insurance requirements in violation of the False Claims Act (FCA). Specifically, the government alleged that, between 2006 and 2011, the lender failed to follow proper mortgage underwriting and certification rules as a participant in the direct endorsement lender program and knowingly submitted loans for FHA insurance that did not qualify. Additionally, DOJ alleged that the lender “improperly incentivized underwriters and knowingly failed to perform quality control reviews.” Under the direct endorsement lender program, FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance; accordingly lenders are required to follow rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. This settlement also resolves a related whistleblower lawsuit filed under the FCA, in which the former employee of a related entity will receive approximately $2 million.
On August 15, Fannie Mae issued SVC-2018-05, which updates the Servicing Guide to include, among other things, a streamlined mortgage insurance (MI) claims process with certain mortgage insurers to “reduce the operational burden and cost associated with the process for servicers.” While servicers will continue to submit claims in accordance with the MI policy, participating mortgage insurers will now process all claims using an algorithm named the “MI Factor.” Effective October 1, claims settled using the MI Factor will not be subject to the curtailment billing process and servicers will not be required to submit supplemental claim submissions and claim appeals to the mortgage insurer. Fannie Mae also updated its Servicing Guide to include (i) clarification of the servicer’s responsibilities for addressing urgent property conditions; (ii) policy reminders regarding insured loss repay inspection reimbursements; and (iii) notification thresholds and timing requirements regarding the transfer of default-related matters between law firms within a single state.
On July 18, Fannie Mae released Lender Letter LL-2018-03 (Letter) to provide updates to requirements for single-family servicers related to borrower-initiated conventional mortgage insurance (MI) termination requests. The Letter covers requirements for borrower-initiated MI terminations and outlines various processes for verifying current property values. Among other things, the Letter also incorporates into the Servicing Guide changes previously announced in LL-2017-09 (see previous InfoBytes coverage here), which allows for temporary forbearance mortgage loan modification for servicers with mortgage loans affected by recent disasters. Fannie Mae encourages servicers to implement the new requirements on January 1, 2019, but will not require them to do so until March 1, 2019, unless otherwise noted.
On July 10, Fannie Mae announced the Enterprise-Paid Mortgage Insurance (EPMI) pilot program, which offers an alternative to the standard borrower-paid mortgage insurance and lender-paid mortgage insurance options offered by private mortgage insurance companies. The EPMI program will allow lenders to deliver Fannie Mae a loan with a greater than 80 percent loan-to-value without lender-acquired private mortgage insurance as long as the lender pays a loan-level price adjustment fee. The EPMI option would then cover the loan under a forward insurance arrangement, which is acquired by Fannie Mae. Fannie Mae would also be responsible for filing the insurance claims and performing monthly reporting.
The initial roll-out was offered to “a diverse, representative cross-section of large, medium, and small lenders” and is subject to a volume limit. Participating lenders may begin delivering EPMI loans to Fannie Mae on or after August 1.
On June 5, Fannie Mae issued Selling Guide update SEL-2018-05, which announces, among other things, the MH Advantage initiative. MH Advantage is a manufactured home that meets specific construction, design, and efficiency standards. Fannie Mae offers a number of flexibilities on loans secured by these properties, including higher loan-to-value ratios and standard mortgage insurance. The Selling Guide is updated to include the requirements for loans secured by MH Advantage homes, such as property eligibility, appraisal, and underwriting requirements. The requirements for MH Advantage loans are effective immediately. Additionally, the Selling Guide includes updates to (i) HomeStyle Energy loans in Desktop Underwriter; (ii) HomeStyle Renovation loan forms; and (iii) project standards updates to condo, co-op, and PUD project policies.
On May 10, the Department of Housing and Urban Development announced its intention to seek public comment on whether the 2013 Disparate Impact Regulation (Regulation), which provides a framework for establishing legal liability for facially neutral practices that have a discriminatory effect under the Fair Housing Act (FHA), is consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Covered by a Buckley Sandler Special Alert.) The Supreme Court upheld the use of a disparate impact theory to establish liability under the Fair Housing Act, but according to HUD’s announcement, the Court only referenced the Regulation in its ruling but did not directly rule upon it.
As previously covered by InfoBytes, in October 2017, the Treasury Department called on HUD to reconsider the Regulation as it relates to the insurance industry – specifically, to homeowner’s insurance.
On April 24, the New York Department of Financial Services (NYDFS) announced updated guidance to New York-licensed insurers advising them of their obligations under New York’s Insurance Law and requiring entities to file disaster response plans and questionnaires by September 28, through two updated circular letters. The first updated circular letter—addressed to property/casualty insurance companies, including mortgage guaranty insurers, title insurers, and captive insurers—provides, among other things, that in addition to filing a disaster response and recovery plan, insurers must develop a business continuity plan and regularly perform a business impact analysis “to predict the consequences of disruption of a business function and process as a result of a disaster.” Additionally, the letter clarifies business impact analysis requirements and outlines areas to be addressed within an insurer’s business continuity plan. According to NYDFS, the updated requirements are issued “in light of disasters that may occur outside of New York, such as hurricanes, terrorist attacks, or cybersecurity breaches, which could affect an insurer’s ability to serve New York consumers.”
On April 11, Fannie Mae updated its Servicing Guide, regarding servicing transfer welcome calls. Pursuant to Fannie Mae SVC-2018-03, transferee servicers are no longer required to, among other things, initiate welcome calls within five days of the transfer of servicing. Transferee servicers may now implement their own processes for borrower contact as long as the servicer remains in compliance with applicable laws. Fannie Mae also updated the Servicing Guide to add flexibility in connection with the collection of escrow shortages during a mortgage modification. Under the amendment to the Servicing Guide, servicers may spread repayment of the shortage amount over a term of up to 60 months, unless the borrower decides to pay up-front. Additionally, Fannie Mae released a revised Reverse Mortgage Loan Servicing Manual, which includes updates to expense reimbursement claim submissions and mortgage loan status codes.
On the same day, Freddie Mac released Guide Bulletin 2018-6, which, among other things, updates servicer requirements on Subsequent Transfers of Servicing (STOS) and borrower-paid mortgage insurance. Effective July 23, transferor servicers must use the automated STOS request system and new transfer requests must be submitted at least 45 days and no more than 60 days prior to the effective date of the transfer. The Bulletin also provides additional details on initiating the electronic STOS and executing the STOS agreement. There will be a temporary moratorium on STOS requests and modifications to existing requests from July 9 through July 20, in order for Freddie Mac to implement the new process.
Separately, the Bulletin includes various changes to streamline servicer responsibilities in canceling borrower-paid mortgage insurance, such as now allowing servicers to process a borrower’s verbal request to cancel mortgage insurance and simplifying the process to determine current value.
Consistent with the Fannie updates, Freddie Mac also modified its escrow shortage collection requirements to allow repayment to be spread over up to 60 months.
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program