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FHA Proposes Revisions to Reverse Mortgage Program
On May 18, HUD announced that the FHA proposed a new rule that is intended to “strengthen” its Home Equity Conversion Mortgage (HECM) Program by reinforcing reforms that have taken place in the past two years, and by adding new consumer protections. New revisions to the HECM program outlined in the proposed rule include, but are not limited to, (i) ensuring that required HECM counseling occurs before a mortgage contract is signed; (ii) amending the definition of “property charges” to include utilities as a borrower responsibility; (iii) capping lifetime interest rate adjustments for adjustable interest rate products at 5%; (iv) requiring as a condition of eligibility for loan assignment that the HECM mortgage be in lien status prior to homeowners association and condo association liens; and (v) creating a “cash for keys” program to “incentivize parties with legal authority to dispose of a property that serves as the security for a HECM to complete a deed in lieu of foreclosure more quickly.” Comments on the proposal are due by Monday, July 18, 2016.
HUD Releases Final Loan-Level Certification: Lenders Should Not Be Penalized for Minor Mistakes
On March 15, HUD announced the completion of FHA’s loan-level certification, Form 92900-A. Significantly, the final certification clarifies FHA’s “longstanding position” that “minor mistakes that do not affect the decision to approve a loan are not the focus of [FHA’s] compliance efforts” and that “lenders will be held accountable for only those mistakes that would have altered the decision to approve the loan.” The certification also clarifies that lenders are required to certify only “to what they know to be true to the best of their knowledge” and that they are not responsible for “mistakes or fraud committed by a third party that the lender did not or could not have had reason to know of.” Finally, the certification removes references to the pre-endorsement review requirement. HUD issued Mortgagee Letter 2016-16 to advise mortgagees of the revised certification, which is effective August 1, 2016.
On March 15, HUD’s proposed revisions to the FHA annual lender certification were published in the Federal Register. According to HUD’s announcement, the primary revision to the annual lender certification form is the “addition of language requiring lenders to certify that they have not been involved in fraud or other serious criminal or civil violations that would call into question their ability to carry out the responsibilities of the program.” Previously, this language was included in the loan-level certification. In addition, the proposal also amends the lender-level certification statement regarding compliance with all FHA regulations and requirements by (i) adding guidebooks to cover certain FHA policy; (ii) revising the language to clarify the intent and scope of the statement; (iii) removing timeframes and revising the qualifier so that it matches the similar qualifier in other statements; and (iv) detailing reporting requirements in HUD Handbook 4000.1. Comments on the proposal are due April 14, 2016.
HUD Reaches $2.8 Million Settlement Over Redlining Allegations
On February 29, HUD announced an agreement with a Kansas City-based bank over its alleged redlining practices against African-American mortgage applicants. Two fair housing organizations (Complainants) filed separate complaints with HUD in October 2015 alleging that the bank engaged in discriminatory acts and violated the Fair Housing Act. According to Complainants, the bank’s “lack of market penetration in African-American communities made residential real estate products less available to persons based on race.” Complainants further alleged that the bank “designated their service area, or assessment area, in a way that excluded areas of high African-American concentration, which resulted in making residential real estate products less available to persons based on race” – a practice generally referred to as redlining. The agreement requires that the bank must, during the three-year agreement period: (i) allocate $75,000 in subsidy funds to provide discounts on home purchase loans to majority African-American census tracts in the Kansas City area; and (ii) originate $2.5 million in mortgage loans in African-American neighborhoods. Additional fair lending financing commitments pursuant the agreement require that the bank: (i) establish a loan pool of $105,000 to rehabilitate vacant or destroyed homes; (ii) spend $50,000 on marketing and outreach to African-American communities; (iii) provide $30,000 to support financial education in African-American communities; and (iv) spend $50,000 in support of the Complainants’ fair lending and community reinvestment work. The bank will also be required to appoint a Community Development Lender to focus on African-American neighborhoods and other lower-income communities. Finally, dependent upon the OCC’s approval of the bank’s application for a merger, the bank will be required to maintain three full-service branches in majority-minority census tract in the Kansas City area.
FY 2017 Budget Proposal: Implications for FHA Down Payment Assistance Programs
As previously noted, the White House released the FY 2017 Budget Proposal this week. President Obama’s proposed HUD budget for FY 2017 would revise the FHA down payment assistance requirements found under Section 203(b)(9) of the National Housing Act (12 U.S.C. 1709) by (i) replacing subparagraph (C) (Prohibited sources), and adding a new subparagraph (D) (Government assistance). The proposed amendment to the National Housing Act “seeks to clarify that down payment assistance from state and local governments and their respective agencies and instrumentalities are not impermissible sources of down payment assistance.”
FHA Publishes Consolidated Multifamily Handbook
Recently, the FHA published a new Multifamily Accelerated Processing Guide (MAP Guide) that consolidates underwriting and program requirements in one document. The revised MAP Guide is intended to “cut the time required to approve loan applications and to assure consistent application of program requirements and credit standards across all HUD processing offices.” The revised MAP Guide comes after the FHA’s February 2015 release of a draft version of the guide and incorporates revisions into four main areas: (i) technical corrections and edits based on operational guidance; (ii) incorporation of previously published policy issued since 2011, including Mortgagee Letters, Housing Notices, and Memos; (iii) inclusion of significant organizational and operational business model changes related to the Multifamily for Tomorrow transformation initiative; and (iv) revisions to policy. The new MAP Guide will become effective for all applications for FHA multifamily mortgage insurance received after May 28, 2016.
HUD Announces $1.9 Million Settlement with Memphis-Based Bank over Alleged FHA Discrimination
On February 1, HUD announced a $1.9 million settlement with a Memphis-based bank to resolve alleged violations of the Fair Housing Act. Specifically, the complainant alleged that the bank “was responsible for discriminatory terms and conditions for making loans, discrimination in the making of loans, and discriminatory financing, with respect to real estate transactions.” In addition, the complainant alleged that the bank engaged in discriminatory practices by failing to place bank branches in minority-concentrated areas, ultimately denying African-American and Hispanic applicants mortgage loans. The bank denied the allegations, but agreed to “voluntarily settle [the] controversy and resolve [the] matter without the necessity of an evidentiary hearing or other judicial process . . . .” Under the agreement, the bank will (i) establish a subsidy fund of $1.5 million over three years to provide interest rate reductions on home mortgages, along with down payment or closing cost assistance to qualified borrowers in identified regional areas; (ii) contribute $270,000 over the course of three years to support governmental or community-based organizations’ efforts to help homeowners repair properties in predominantly minority communities, or to provide credit, financial, homeownership, or foreclosure-prevention services to homeowners in affected areas; (iii) pay directly to the complainant $105,000 to fund similar home repair, credit, financial, homeownership, and foreclosure services; and (iv) pay directly to the complainant $25,000 in damages.
FHA Loan Limits for Forward Mortgages to Increase in 2016
On December 9, FHA announced new maximum loan limits for forward mortgages for 2016 in 188 counties due to changes in housing prices. The new loan limits for forward mortgages are effective for case numbers assigned on or after January 1, 2016 through the end of the year. FHA noted that no areas saw a decrease in the maximum loan limits for forward mortgages and that, as detailed in Mortgagee Letter 2015-30, the national standard loan limits for low cost and high cost areas remain unchanged at $271,050 and $625,500, respectively.
DOJ Announces Mortgage Lending Discrimination Charges Against Massachusetts Bank
On November 30, the DOJ announced the filing of a complaint and proposed consent order against a Massachusetts-based bank alleged to have violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by charging African-American and Hispanic borrowers higher prices for home loans than similarly situated white borrowers. From 2011 until at least 2014, the bank allegedly used a “target pricing” mortgage origination policy, assigning loan officers with a Minimum Base Price (MBP) they were expected to achieve on each home loan without regard to the borrower’s creditworthiness. According to the DOJ’s complaint, “African-American and Hispanic borrowers were served disproportionately by loan officers with higher MBPs than the loan officers serving white borrowers.” The complaint further alleges that, from April 2011 through December 2013, the bank authorized loan officers to price a loan higher than their assigned MBP, without documenting the reasons for doing so. Pending court approval, the DOJ’s proposed consent order will require the bank to (i) pay $1,175,000 as compensation to borrowers affected by its practices; (ii) establish a new loan pricing policy and a new loan officer compensation policy; (iii) provide fair lending and fair housing training to loan officers and bank employees; and (iv) establish a monitoring program designed to, at a minimum, assess loan pricing disparities.
In May 2013, the FDIC conducted a consumer compliance examination of the bank and found reason to believe that its lending practices violated the FHA and ECOA, prompting the agency to refer the matter to the DOJ on February 7, 2014.
FHA Submits Annual Report to Congress, Capital Reserves Exceed 2%
On November 16, HUD released FHA’s annual report to Congress on the financial condition of its Mutual Mortgage Insurance (MMI) Fund. For the first time since 2008, the report shows that FHA’s MMI fund’s capital ratio exceeds the congressionally required 2% threshold, standing at 2.07%. The report points to FHA policy changes and program improvements as the driving factors behind the improved MMI fund capital ratio. Notably, the report states that the agency’s decision to reduce annual mortgage insurance premiums by a half percent (i) marginally decreased the projected time to reach the 2% capital ratio; (ii) enabled over 75,000 new creditworthy borrowers to purchase homes; and (iii) compensated for the credit risk of the Forward mortgage loan program. Finally, the report highlights the agency’s efforts to reduce risk and improve loss mitigation by making substantial revisions to its credit guidelines, including strengthening its underwriting guidelines to discourage extreme risk layering and prohibiting seller-funded down-payment assistance.
HUD Proposes "Quid Pro Quo" Rule to Amend FHA Regulations
On October 21, HUD announced a proposed rule that would formalize the standards for evaluating harassment claims in housing or housing-related transactions under the FHA. The rule – “Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices under the Fair Housing Act” – would define “quid pro quo harassment” and “hostile environment harassment,” respectively, as (i) subjecting a person to an unwelcome request or demand because of the person’s protected characteristic and submission to the request or demand is, explicitly or implicitly, made a condition related to the person’s housing; and (ii) subjecting a person to unwelcome conduct that is sufficiently severe or pervasive such that it interferes with or deprives the person the right to use and enjoy the housing or to exercise other rights protected by the FHA. In addition, the proposed rule also would describe standards for “direct liability” and “vicarious liability”, which would apply to all violations under the Act, not solely harassment. In particular, the proposed rule would define “direct liability” to include (i) a person’s own conduct; (ii) failure to take prompt action with respect to a discriminatory housing practice by an employee or action; and (iii) failing to fulfill a duty to take prompt action to correct and end a discriminatory housing practice by a third-party, where the person knew or should have known of the discriminatory conduct. The proposal was published in the Federal Register on October 21, and comments are due by December 21, 2015.