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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 March 1, the U.S. District Court for the District of Connecticut signed an order dismissing with prejudice a Fair Housing Act complaint filed by the Connecticut Fair Housing Center through its legal counsel, the National Consumer Law Center, against a Connecticut-based bank. The bank denied all allegations of wrongdoing and liability. Under the terms of the stipulation of dismissal, the bank agreed voluntarily to resolve the claims and, among other things, to (i) revise its fair lending policies and procedures and conduct fair lending training for all employees; (ii) open a loan production office in Hartford; (iii) spend $230,000 on targeted marketing and advertising to minority communities, and provide additional consumer financial education opportunities; (iv) invest $300,000 for subsidies to promote home ownership and enhance access to credit in identified communities; (v) identify a Community Development Officer within the bank; and (vi) expand its community development loan program by investing $5 million over the next three years.
On March 1, the CFPB released its latest Quarterly Consumer Credit Trends report titled, “Mortgages to First-time Homebuying Servicemembers,” which analyzes mortgages made to first-time homebuying active duty servicemembers and veterans (collectively defined as “servicemembers”). The report, using data from the Bureau’s Consumer Credit Panel (CCP) supplemented with data on military service, offers information on the mortgage choices and mortgage performance outcomes of servicemembers who bought homes between 2006 and 2016. Key findings include:
- The share of first-time homebuying servicemembers using the U.S. Department of Veterans Affairs (VA) guaranteed home loan program significantly increased, from 30 percent before 2007 to 63 percent in 2009. By 2016, 78 percent of servicemembers relied on a VA mortgage for their first home loan.
- Conventional mortgages, which accounted for approximately 60 percent of loans among first-time homebuying servicemembers in 2006 and 2007, declined to 13 percent by 2016. During this period, the use of conventional mortgages among non-servicemembers also decreased, as the use of FHA and U.S. Department of Agriculture (USDA) increased.
- In 2016, the median servicemember first-time homebuyer VA loan amount was $212,000, increasing from $156,000 in 2006.
- Early delinquency rates for nonprime servicemember first-time VA-loan borrowers decreased from an average of 5 percent to 7 percent in 2006 and 2007 to slightly above 3 percent in 2016. Notably, early delinquency rates were lower for active duty VA-loan borrowers than for veteran VA-loan borrowers.
On February 15, HUD released Mortgagee Letter 2019-01, which provides guidance on the use of third-party verification (TPV) services for FHA-insured mortgages. Effective immediately, FHA now allows mortgagees to use TPV services for verification of a borrower’s employment, income, and asset information. The Letter provides specific requirements for each category of information but, in all circumstances, a borrower must authorize the mortgagee’s use of a TPV vendor for the verification (whether direct or electronic).
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 January 25, the U.S. District Court for the Northern District of California granted final approval of a $30 million settlement resolving allegations that a national bank improperly collected post-payment interest on FHA-insured mortgages but did not use the FHA-approved form to provide the appropriate disclosures to consumers before doing so. The settlement covers a nationwide class of borrowers who, between June 1996 and January 2015, obtained an FHA-insured mortgage loan. Participating class members are expected to receive between $25 and $33 each. The court also approved a $7.5 million award for class counsel attorneys’ fees, of which $7,500 and $5,000 will be awarded to the named plaintiffs.
Regulators encourage financial institutions to work with borrowers impacted by government shutdown; FHA also issues shutdown guidance
On January 11, the Federal Reserve Board, CSBS, CFPB, FDIC, NCUA, and OCC (together, the “Agencies”) released a joint statement (see also FDIC FIL-1-2019) to encourage financial institutions to work with consumers impacted by the federal government shutdown. According to the Agencies, borrowers may face temporary hardships when making payments on mortgages, student loans, auto loans, business loans, or credit cards. FDIC FIL-1-2019 states that prudent workout arrangements, such as extending new credit, waiving fees, easing limits on credit cards, allowing deferred or skipped payments, modifying existing loan terms, and delaying delinquency notice submissions to credit bureaus, will not be subject to examiner criticism provided the efforts are “consistent with safe-and-sound lending practices.”
Separately, on January 8, Federal Housing Administration (FHA) Commissioner Brian Montgomery issued a letter regarding the shutdown reminding FHA-approved lenders and mortgagees of their ongoing obligation to offer special forbearance to borrowers experiencing loss of income and to evaluate borrowers for available loss mitigation options to prevent foreclosures. In addition, FHA also encourages mortgagees and lenders to waive late fees and suspend credit reporting on affected borrowers.
On December 21, the DOJ announced a $4.25 million settlement with a Michigan-based servicer in connection with alleged violations of the False Claims Act related to the servicing of federally-insured home equity conversion mortgages (reverse mortgages). According to the DOJ, for the period between November 2011 and May 2016, the servicer allegedly failed to meet eligibility requirements for receiving FHA insurance payments on interest that accrued after reverse mortgages became due and payable, including meeting deadlines for obtaining property appraisals, commencing foreclosure proceedings, and/or prosecuting the foreclosure proceedings to completion. As a result, mortgagees on relevant reverse mortgage loans obtained additional interest payments they were not entitled to receive. The claims were resolved by the settlement without a determination of liability.
On December 13, the Federal Housing Finance Agency (FHFA) issued a proposed rule to establish new requirements for the verification of credit score models used by Fannie Mae and Freddie Mac (the Enterprises), as mandated by Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Under the proposed rule, the Enterprises will use a four-phase process to validate and approve credit score models including: (i) soliciting applications from credit score model developers; (ii) reviewing submitted applications for completeness, which includes the receipt of all required fees; (iii) conducting a credit score assessment, which would require the Enterprises to evaluate each credit score model for “accuracy, reliability and integrity, independent of the use of the credit score in the Enterprise’s systems, as well as any other requirements established by the Enterprise”; and (iv) assessing the model in conjunction with the Enterprises’ business systems. Additionally, the FHFA stated it will not require either of the Enterprises to use a third-party credit score model; however, any credit score used by the Enterprises as a condition to purchase of a loan “must be produced by a model that has been validated and approved by the Enterprise based on the standards and criteria in the [EGRRCPA] and FHFA regulations.” Comments will be due 90 days after publication in the Federal Register.
As previously covered by InfoBytes, the FHFA stated in July that it would set aside an ongoing initiative to evaluate the potential impact of a new credit score model on “access to credit, safety and soundness, operations in the mortgage finance industry, and competition in the credit score market,” in order to focus on implementing Section 310.
On December 14, HUD issued two Mortgagee Letters (here and here) providing the mortgage limits for FHA-insured forward mortgage case numbers and for FHA-insured Home Equity Conversion Mortgages (HECMs) for 2019. Beginning on January 1, 2019, FHA’s nationwide forward mortgage limit “floor” and “ceiling” for a one-unit property are $314,827 and $726,525, respectively, and the HECM maximum nationwide claim will be $726,525.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer 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 discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- 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 "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- 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
- 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 "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" 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