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  • HUD sued for allegedly failing to refund mortgage insurance premiums for early-terminated FHA-insured mortgages

    Courts

    On March 12, a putative class action complaint was filed against the Department of Housing and Urban Development (HUD) for allegedly denying homeowners their Mortgage Insurance Premium (MIP) refunds upon the early termination of their FHA-insured mortgages. According to the complaint, HUD must refund unearned MIPs, but has refused to refund homeowners by creating “unnecessary bureaucratic hurdles.” The plaintiffs alleged that the OIG had confirmed “the validity of complaints regarding HUD’s handling of MIP refunds.”

    Citing HUD regulations, the plaintiffs alleged that when an FHA mortgage is terminated early, within seven years of the purchase of the refinancing of the property, there is an overpayment of the MIP which should be refunded by HUD. According to the plaintiffs it is a “widespread practice” for HUD not to automatically refund MIPs, but instead require a burdensome, lengthy process which hindered the prompt refund of fees in multiple ways. The 2022 OIG report cited by plaintiffs allegedly found, among other things, that HUD did not have adequate controls in place to ensure that refunds were appropriately tracked, monitored, and issued. The plaintiffs alleged that Floridians are owed over $21.7 million in refunds.

    The plaintiffs are seeking injunctive and declaratory relief and a return of all unfairly retained refunds “together with damages in the amount of the total earned interest and other investment monies accrued by Defendant with Plaintiff’s and Class Members’ monies.” 

    Courts Federal Issues HUD Class Action OIG FHA

  • CFPB limits examiner term limits to five years after concurring with OIG recommendations

    On February 26, the Office of Inspector General for the CFPB (OIG) released a report entitled, “The CFPB Can Enhance Certain Practices to Mitigate the Risk of Conflicts of Interest for Division of Supervision, Enforcement and Fair Lending Employees.” The report found that the CFPB’s Office of Supervision Examinations (OSE) does not have a formal policy that requires bank examiners to rotate assignments in a specified time frame, which increases potential conflicts of interest. The OSE examines banks to check for compliance failures in federal consumer financial law and is based out of four regional offices: New York (Northeast), Atlanta (Southeast), Chicago (Midwest), and San Francisco (West). The OIG argued that a formal policy adopted by the OSE would more effectively monitor examiner rotations, promoting “objectivity, cross-training, and broader expertise” and reducing the risk of regulatory capture – or subjecting the same regulated entity to the same examiner and subsequently risking independence and objectivity of exams. The OIG’s report posited two recommendations: (i) that the CFPB implement a formal examiner rotation policy; and (ii) that the CFPB track and document assignments for examiners and its members.

    The OIG found that while some OSE offices have informal examiner rotation policies in place, there is no global system in place to track examiner assignments to ensure regular rotation. For example, OSE’s Northeast and West regional offices have written policies that require certain staff members to rotate every five years. However, the Southeast and Midwest offices do not have any written policies in place and stated having a “natural” turnover process based on needs and availability, among others.

    The CFPB concurred with both OIG recommendations, stating that it will limit the time for lead examiners and field managers to five years and develop a tool for tracking these assignments.

    Bank Regulatory CFPB OIG Enforcement Examination

  • Fed’s OIG report on CFPB says training improvements needed to meet enforcement goals

    Federal Issues

    Recently, the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations.  The report makes two key recommendations.  First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. In addition, the Office of the Inspector General also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation.

    Federal Issues OIG CFPB Enforcement

  • FDIC OIG makes recommendations based on material loss report

    On November 28, the OIG for the FDIC delivered a material loss review report. The report’s objectives were twofold: first, to determine why a bank’s issues led to a material loss to the deposit insurance fund; and second, to review the FDIC’s supervision of the bank and make recommendations to prevent similar losses in the future.

    The report outlined 11 recommendations for the FDIC to implement so it can improve its supervision process over the banking sector. The recommendations include: (i) to evaluate if and why banks may wait to issue CAMELS ratings downgrades until they issue a Report of Examination; (ii) to identify whether the training curriculum should be adjusted to emphasize why timely ratings changes are important; (iii) to review FDIC examination guidance to determine if enhancements are necessary to highlight when a bank’s practices do not align with its policies, and make recommendations; (iv) to evaluate and update examination guidance to require supervisory actions when it violates its risk-appetite statement metrics; (v) to comprehensively review the FDIC manual for any updates to the examination guidance pertinent to evaluating the stability of uninsured deposits; (vi) to comprehensively review the FDIC manual to determine if any updates are required to the examination guidance pertinent to banks’ deposit outflow assumptions for liquidity stress testing; (vii) to revisit examination guidance to determine if any updates are required for monitoring other banks, horizontally, for similar risk characteristics; (viii) to revisit examination guidance to determine if any updates are required regarding incorporating shared risk characteristics that lead to risk in the FDIC’s supervisory approach; (ix) to explore research methods to monitor large bank reputational risk; (x) to evaluate if Chief Risk Officers should place more consideration on unrealized losses and declines in fair value; and (xi) to work with other federal regulators on evaluating necessary rule changes, such as the adoption of noncapital triggers.

    Bank Regulatory Federal Issues OIG FDIC

  • FHFA OIG report reveals Federal Home Loan banks did not meet credit risk expectations

    Agency Rule-Making & Guidance

    On September 21, FHFA Office of Inspector General (OIG) released a report on Federal Home Loan Bank Supervisory Activities in 2023 in Response to Market Disruptions (report), to evaluate the Division of Federal Home Loan Bank Regulation (DBR) risk assessment. DBR is responsible for supervising the Federal Home Loan (FHL) Bank System “to ensure the safe and sound operation of FHL banks.” The OIG addressed March bank failures and how the DBR scrutinized the FHL banks’ member credit risk management practices and, more broadly, into the system’s role in lending to troubled members. The report found that DBR examiners, in response to the increased risk environment, adjusted its supervisory activities and examination planning. Additionally, the OIG noted that DBR intends to conduct a comprehensive assessment of credit risk management across the entire FHL bank system to address concerns regarding systemic vulnerabilities. The report also revealed that in the review of examiner compliance, although DBR mostly followed procedure and requirements, “in certain instances, examiners did not describe primary worksteps in their pre-examination analysis memoranda, as required by DBR procedures.”

    According to the report, FHFA also ordered an assessment of six FHL banks during or after the March market disruption, “in response to the abrupt increase in demand for FHLBank advances and the collapse of several member banks.” The report notably revealed that home loan banks’ credit risk management “fail[ed] to meet existing expectations.” As a result, DBR is preparing a supervisory letter for all the FHL banks and an advisory bulletin on member credit risk.

    Agency Rule-Making & Guidance FHFA Credit Risk Consumer Finance OIG Federal Home Loan Banks

  • HUD OIG: FHA mortgage servicers’ Covid-19 information still misleading

    Federal Issues

    On September 30, the HUD, Office of the Inspector General (HUD OIG) issued a follow-up study examining the information on mortgage loan servicers’ websites about the CARES Act loan forbearance provisions. As previously covered by InfoBytes, in April, HUD OIG issued consumer guidance noting that among the top 30 FHA mortgage servicers, information on forbearance options under the CARES Act was found to be incomplete, outdated, inconsistent, or unclear. On August 11, HUD OIG reviewed the “readily available” Covid-19 pandemic information on the websites of the same top 30 FHA mortgage servicers, noting that some of the servicers still provided misleading forbearance information. Among other things, HUD OIG found that certain mortgage servicers (i) did not offer clear information on the length of the initial forbearance period; (ii) did not make it clear that borrowers could qualify for forbearance extensions after the initial 180 day period; and (iii) did not clearly state that forbearance is an option for borrowers.

    Federal Issues HUD OIG CARES Act Covid-19 Mortgages Forbearance

  • Office of the Inspector General issues statement on Coronavirus oversight challenges

    Federal Issues

    The Office of the Inspector General of the Federal Reserve Board, which provides independent oversight of both the Consumer Financial Protection Bureau and the Federal Reserve Board, issued a statement on Coronavirus pandemic oversight challenges. The statement identifies areas of focus for the OIG, including coordination between the Reserve Banks, data aggregation, and monitoring and tracing the unique features associated with specific programs (e.g., the Paycheck Protection Program). The OIG is also actively monitoring, among other things, measures taken to encourage financial institutions to lend consistent with specific lending programs and the extent to which pandemic response lending efforts reach intended recipients and communities. The OIG has also expanded testing of critical information technology systems and has broadened the scope of security reviews.

    Federal Issues Covid-19 OIG Federal Reserve CFPB SBA Monitoring Financial Institutions

  • HUD OIG issues Covid-19 guidance to homeowners

    Federal Issues

    On April 28, the Department of Housing and Urban Development’s Office of Inspector General issued a bulletin outlining Federal Housing Administration guidance to servicers and borrowers regarding implementing the forbearance requirements of the CARES Act. The office issued the bulletin based on a review of information that the top 30 FHA mortgage servicers provide on their websites, which the office found to be incomplete, outdated, inconsistent, or unclear.

    Federal Issues Covid-19 HUD OIG FHA Forbearance CARES Act Mortgage Servicing

  • VA completes funding fee refund initiative

    Federal Issues

    On October 8, the Department of Veterans Affairs (VA) announced that it completed its home loan funding fee refund initiative, returning more than $400 million to VA borrowers. As previously covered by InfoBytes, in June the VA Office of the Inspector General (OIG) issued a report concluding that the VA improperly charged exempt veterans VA home loan funding fees. The OIG recommended that the VA develop a plan to, among other things, identify exempt veterans who were inappropriately charged funding fees and issue refunds. The VA reviewed nearly 20 years of loan originations, and identified 130,000 loans for potential refunds. VA notes that most fees were charged correctly, except for veterans whose exemption status changed after the closing of their loan. VA also announced changes to its program, in order to provide veterans with “the most up-to-date information possible on a Veteran’s funding fee exemption status,” including (i) enhancements to communications to veterans regarding the loan funding fee; (ii) new policy guidance directing lenders to inquire about a veteran’s disability claim status during the underwriting process; (iii) instructing lenders to obtain an updated Certificate of Eligibility for a veteran within three days of closing, if there was a disability claim pending; (iv) and procedural changes to ensure regulator internal oversight of funding fee activities.

    Federal Issues Department of Veterans Affairs OIG Mortgages Military Lending

  • OIG finds exempt veterans being charged VA home loan funding fees

    Federal Issues

    On June 6, the Department of Veteran’s Affairs (VA) Office of the Inspector General (OIG) issued a report concluding that the VA improperly charged exempt veterans VA home loan funding fees. According to the OIG, from 2012 through 2017, the VA charged approximately 72,900 exempt veterans around $286.4 million in funding fees, which represents 3 percent of the total amount of funding fees collected during that time. The OIG reports that, while the Certificate of Eligibility (COE) that the VA produces is intended to assist lenders in identifying the exempt veterans, “many COEs reflected an outdated, incorrect, or missing exemption status resulting in veterans being incorrectly charged a funding fee.”

    Additionally, the OIG found that the VA does not have a policy in place to identify and issue refunds for inappropriate funding fee charges. Currently the VA relies on the veterans to contact the VA and file a claim for a refund, although the VA has not published a standard form for the request. Based on the findings, the OIG recommends that the VA develop a plan to (i) identify exempt veterans who were inappropriately charged funding fees and issue refunds; (ii) create system enhancements or procedural changes that minimize inappropriate funding fee charges; (iii) conduct periodic reviews to identify exempt veterans charged funding fees from January 1, 2018, forward and issue refunds in a timely manner; and (iv) consistently obtain documentation and verify lenders apply the funding fee refunds to loan balances in a timely manner.

    Federal Issues Department of Veterans Affairs Mortgages OIG

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