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HUD Finalizes QM Rule, Manual Underwriting Standards
On December 11, HUD issued a final rule defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. The final rule largely adopts HUD’s proposal, which was the subject of our October 2013 Special Alert. The final rule clarifies certain aspects of the HUD proposal. Among other things, it replaces provision in a CFPB’s QM rule that allows consumers to rebut the presumption of compliance based on residual income, with a provision that the consumer show that the creditor failed to underwrite consistent with HUD requirements. With the final rule, HUD also adopted new underwriting standards. The effective date for the underwriting standards will be set by a future Mortgagee Letter, but will be no earlier than March 11, 2014.
HUD Decreases FHA Maximum Loan Limits
On December 6, HUD announced new loan maximum limits for FHA-insured mortgages. As detailed in Mortgagee Letter 2013-43, effective for all FHA case numbers assigned on or after January 1, 2014 through December 31, 2014, the current high-cost area “ceiling” of $729,750 will be reduced to $625,500. HUD stated that approximately 650 counties will have lower limits as a result of this change. Mortgages that meet the requirements for streamline refinance transactions without an appraisal are not subject to the new limits. Further, the Mortgagee Letter leaves the current standard loan limit for low cost areas unchanged at $271,050, and the maximum claim amount for FHA-insured reverse mortgages (HECMs) will remain $625,500.
HUD Extends Renewal Period For Certain Lenders And Mortgagees
On November 27, HUD issued Mortgagee Letter 2013-42, granting an extension of time to Title I and II lenders and mortgagees with a December 31, 2013 fiscal year end to submit required materials and fees for annual recertification. The letter notes that FHA-approved lenders and mortgagees with a fiscal year end of December 31, 2013 or later must use the Lender Electronic Assessment Portal (LEAP) to complete the annual certification process. Given that LEAP recertification functionality will not be deployed until after March 31, 2014, lenders and mortgagees with a fiscal year end of December 31, 2013 will be unable to access LEAP within the required timeframe, and instead will have until 30 days after the deployment of LEAP functionality to complete their annual certification.
HUD Revises Lender Self-Reporting Requirements
On November 13, HUD issued Mortgagee Letter 2013-41, which, effective immediately, clarifies self-reporting requirements for all single-family FHA-approved lenders. The letter details lenders’ obligations to report all findings of fraud and material misrepresentations, as well as any material findings concerning origination, servicing, or underwriting of a loan that the lender is unable to mitigate. The letter defines “material finding” and provides a non-exhaustive list of examples, and describes the parameters for mitigating reportable findings. The letter outlines internal and external reporting timeframes: (i) internal reporting to senior management must take place within 30 days of an initial findings report; (ii) findings of fraud or material misrepresentation must be reported immediately to the FHA; and (iii) all other material findings must be reported no later than 30 days after the lender has completed its internal evaluation, or within 60 days of initial disclosure, whichever occurs first. The letter also explains that the FHA may request supporting documentation for use in reviewing a report, and that the FHA requires the reporting contact to have immediate access to: (i) the endorsement case binder; (ii) the quality control report; and (iii) any other documentation necessary to evaluate the finding. The letter further states that failure to comply with these requirements may result in the FHA taking administrative action against the lender.
HUD Clarifies FHA Loss Mitigation Requirements
On November 1, HUD issued Mortgagee Letter 2013-40, which clarifies requirements under FHA’s mandatory loss mitigation program and sets expectations for servicers engaging in loss mitigation during the foreclosure process. The letter states that servicers must (i) evaluate on a monthly basis all loss mitigation tools available for delinquent borrowers, (ii) document those evaluations, and (iii) timely evaluate borrower loss mitigation requests and provide specified written responses. HUD emphasizes that servicers may reduce challenges to foreclosure actions by providing thorough explanations about appeal or escalation processes. The letter further advises servicers that a foreclosure may not be commenced for monetary default unless at least three consecutive monthly payments are unpaid, and details other conditions under which a foreclosure may be initiated. Many of these requirements do not apply if the property has been abandoned or vacant for more than 60 days. Once a foreclosure has been initiated, HUD expects servicers to continue to attempt to communicate with borrowers about potential loss mitigation options based on changing circumstances. The letter also (i) details in a chart the actions the servicer must take when it receives a loss mitigation request from a borrower, (ii) discusses servicer requests for additional borrower documents, (iii) identifies events that trigger extensions of time for initiating a foreclosure, and (iv) outlines steps for terminating foreclosures. All of the requirements in the letter are effective January 1, 2014.
HUD Releases Draft Section Of Overhauled SF Handbook
On October 29, HUD released a draft section of its new FHA Single Family Housing Policy Handbook (SF Handbook). The draft section consolidates all FHA Single Family requirements—including content from hundreds of mortgagee letters, housing notices, and other requirements—for application through endorsement into a single, authoritative source for FHA Single Family Housing Policy. HUD stated that the new SF Handbook is “universally and fundamentally different in the format, style, content and delivery.” While many of the changes made in developing this first draft section of the SF Handbook are designed to conform FHA policy to a standard format using clear, consistent language, other proposed revisions reflect actual proposed changes to policy. The draft section and other information about the broader project are available on a new HUD website. HUD provided tips for reviewing the draft and requested that stakeholders provide comments on the draft section by November 29. HUD noted that the draft posting is the first phase of a multi-phased effort to overhaul the SF Handbook.
HUD Updates Foreclosure Procedures, Pre-Foreclosure Borrower Communication Policies
On October 28, HUD issued two mortgagee letters related to the servicing of certain FHA-insured loans. Mortgagee Letter 2013-38 provides a list of the first legal actions necessary to initiate a foreclosure and the reasonable diligence timeframes for completing foreclosure and acquisition of title in each state. The letter also outlines acceptable delays in those timeframes due to mediation or bankruptcy, or when a separate legal action is necessary to acquire possession of the title. In addition, the letter provides a new schedule of allowable attorney fees by state for services performed in connection with a mortgage default. The updated reasonable diligence timeframes apply to all cases in which the first legal action to initiate foreclosure occurs on or after November 1, 2013. The updated attorney fees are effective for all cases in which certain actions occur on or after November 1, 2013. Mortgagee Letter 2013-39 updates the timelines servicers must follow for collection communications, advises servicers regarding early engagement in loss mitigation, outlines staffing requirements to support timely borrower communications, and provides guidance on the timing, content, and method of delivery for collection letters and other borrower communications. This letter also advises servicers to pay special attention to borrowers at risk of early payment default and re-default, and provides specialized collection techniques for such borrowers. Finally, this letter details the FHA’s expectations for escalating borrower inquiries and complaints that allege (i) improper analysis of borrower information or denials of loss mitigation options, (ii) foreclosures initiated or continued in violation of HUD’s policy, or (iii) any other violations of HUD collections and loss mitigation policies. This guidance is effective for all mortgages in default as of January 1, 2014.
Bank Holding Company Resolves Federal Mortgage Claims
On October 10, a bank holding company announced that it has agreed in principle, on behalf of itself and certain affiliates, to resolve mortgage-related allegations by the federal government. The company reached agreements in principle with HUD and the DOJ to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated over a six-and-a-half year period and (ii) certain alleged civil claims regarding the company’s mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the agreements in principle, the company committed to $500 million of consumer relief, a $468 million cash payment, and the implementation of certain mortgage servicing standards. The company also reached an agreement in principle with the Federal Reserve Board to impose a $160 million civil monetary penalty, in conjunction with an April 2011 Consent Order.
HUD Issues Three Mortgagee Letters
On September 27, HUD issued three Mortgagee Letters. In Mortgagee Letter 2013-34, HUD announced the indefinite delay of pre-foreclosure sale (PFS) requirements for FHA mortgagees, which were announced in July. Mortgagee Letter 2013-35 announces that, effective March 31, 2014, HUD will consolidate the identification numbers it issues to FHA lenders under Title I and II. Finally, Mortgagee Letter 2013-36 updates guidance regarding 203(k) insured mortgages in the Hurricane Sandy disaster area.
New York Adopts Regulation Regarding Determination of Subprime Home Loans
On September 30, the New York Department of Financial Services (NY DFS) advised supervised institutions that it adopted emergency regulations to determine if a home loan qualifies as a subprime home loan under Section 6-m of the New York Banking Law. The NY DFS determined that recent changes to the calculation of mortgage insurance premiums mandated by the Federal Housing Administration in Mortgagee Letter 2013-04, which increased the annual percentage rate on subject loans, effectively decreased the threshold on certain loans and limited the availability of mortgage credit in New York. In response, the emergency regulations adjust the subprime threshold up by 75 basis points for most FHA-insured loans. The change took effect immediately.