InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Special Alert: HUD Proposes Its Own QM Rule
On September 27, HUD released a proposal defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. We have prepared a Special Alert regarding this proposal, which, once it is finalized and takes effect, will replace the temporary QM definition for FHA loans established by the CFPB in its January 2013 Ability-to-Repay/Qualified Mortgage Rule. QMs, when made in accordance with the applicable requirements, provide lenders with some legal protection against borrower lawsuits under TILA alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.
The CFPB’s temporary QM definition will continue to apply to loans that are eligible to be guaranteed or insured by the Department of Veterans Affairs and the Department of Agriculture until those agencies establish their own QM definitions. Similarly, the CFPB’s temporary QM definition will continue to apply to loans that are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac, or any successor entity for as long as those entities remain under the conservatorship or receivership of the Federal Housing Finance Authority or until January 10, 2021, whichever is earlier.
Questions regarding the matters discussed in the Special Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Clinton R. Rockwell, (310) 424-3901
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
HUD Clarifies Changes to HECM Program, Updates FHA Loss Mitigation Home Retention Options
On September 25, HUD issued Mortgagee Letter 2013-33, which clarifies the recent changes HUD made to its HECM program earlier this month through Mortgagee Letter 2013-27. The new letter (i) defines mandatory obligation, (ii) adds additional mandatory obligations for traditional and refinance transactions, and for purchase transactions, (iii) identifies items that must be included in the first twelve-month disbursement limit and initial MIP calculation, (iv) states that the monthly increase to the principal limit must include the annual mortgage insurance rate as well as the mortgage note interest rate, (v) corrects the calculation of the life-expectancy set-aside, (vi) makes accommodations for mortgagors who entered into a bona fide sales contract and made an earnest money deposit on a property before the issuance of Mortgagee Letter 2013-27, and (vii) clarifies an exception to the general policy that a mortgagee increase the available principal limit if the mortgagor makes a partial payment. On September 20, HUD issued Mortgagee Letter 2013-32 to supersede its prior guidance regarding loss mitigation in Mortgagee Letter 2012-22. The letter, among other things, (i) defines “continuous income,” other than wages, for loss mitigation evaluations, and other terms, (ii) establishes the conditions required for a “special forbearance” to be used as a loss mitigation tool, (iii) provides guidance on capitalization of arrearages for modifications and partial claims, and (iv) discusses working with mortgagors in bankruptcy and those failing to complete trial payment plans. Mortgagees are required to implement the policies in Mortgagee Letter 2013-32 by December 1, 2013.
Southern District of New York Again Endorses DOJ Mortgage Fraud Theory
On September 24, U.S. District Court Judge Jesse Furman largely denied a bank’s motion to dismiss a complaint filed by the U.S. Attorney’s Office for the Southern District of New York (SDNY) in which the government alleges that the bank falsely certified loans under the FHA’s Direct Endorsement Lender Program in violation of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). U.S. v. Wells Fargo Bank, N.A., No. 12-7527, 2013 WL 5312564 (S.D.N.Y. Sept. 24, 2013). Addressing four primary arguments raised by the bank, the court held that the government sufficiently pleaded (i) that the bank falsely certified compliance with FHA regulations upon which payment was conditioned, (ii) that the bank fraudulently induced the government to insure loans it otherwise would not have, and (iii) that this alleged misconduct caused the FHA to pay insurance claims it otherwise would not have. It also held that the government’s claims were pleaded with sufficient particularity. Citing two recent decisions from other Southern District of New York courts, the court held that FIRREA allows the government to pursue claims against an institution for engaging in alleged fraud that “affects” itself. Further, relying in part on a recent holding by the Fourth Circuit, the court held that the government’s claims were timely because they were tolled by the Wartime Suspension of Limitations Act. Finally, relying on an order issued earlier this year by the U.S. District Court for the District of Columbia, the court rejected the bank’s argument that the release it executed as part of the National Mortgage Servicing Settlement specifically released liability arising under the FCA and FIRREA for the government’s claims. The court dismissed as untimely certain of the government’s common law and quasi-contract claims, but preserved the government’s breach of fiduciary duty claim, reasoning that whether such a duty existed is a question of fact.
HUD Finalizes Streamlined FHA Reporting Rule
On September 17, HUD issued a final rule that streamlines the FHA financial statement reporting requirements for lenders and mortgagees who are supervised by federal banking agencies and whose consolidated assets do not meet the thresholds set by their supervising federal banking agencies for submission of audited financial statements—currently set at $500 million in consolidated assets. HUD’s regulations currently require all supervised lenders and mortgagees to submit annual audited financial statements as a condition of FHA lender approval and recertification. Effective October 17, 2013, in lieu of the annual audited financial statements, small supervised lenders and mortgagees will be required to submit their unaudited financial regulatory reports that align with their fiscal year ends and are required to be submitted to their supervising federal banking agencies. Only if HUD determines that the supervised lenders or mortgagees pose heightened risk to the FHA insurance fund would such lenders be required to submit audited financial statements. The final rule also makes technical changes to current regulations regarding reporting requirements for FHA-approved supervised lenders and mortgagees.
FHA Addresses Application of Unused Escrow Funds in Refinance Transactions
On September 5, HUD issued Mortgagee Letter 2013-29 regarding the application of unused borrower funds from an escrow account on an existing mortgage in FHA-insured refinance transactions. The letter states that mortgagees processing such refinances may apply unused borrower funds from an existing mortgage for any purpose authorized by the borrower, and the return of unused funds to the borrower at closing is not considered cash back to the borrower. Further, the letter provides documentation and submission requirements evidencing borrower authorization for application of unused escrow funds. The letter also reminds mortgagees that calculating the maximum mortgage on a streamline refinance transaction starts with the outstanding principal balance of the existing loan, not the payoff amount.
HUD Announces New Reverse Mortgage Program Requirements
On September 3, HUD announced changes to the reverse mortgage program that are intended to strengthen the FHA Mutual Mortgage Insurance Fund and to ensure that it provides a financially sustainable option to senior citizens. Changes reflected in Mortgagee Letter 2013-27 affect the following aspects of the program: (i) initial disbursement limits, (ii) initial mortgage insurance premiums, (iii) initial mortgage insurance premium calculations for refinance transactions, (iv) principal limit factors, (v) financial assessment requirements, and (vi) funding requirements for the payment of property charges based on the financial assessment. In addition, it creates a new single disbursement lump sum payment option. The requirements for preparing the financial assessments are specified in Mortgagee Letter 2013-28 and an Attachment also released on September 3.
Trade Groups File Amicus Brief in Disparate Impact Case
On September 3, industry trade groups filed amici curiae briefs with the U.S. Supreme Court in support of petitioners in the case of Township of Mt. Holly v. Mt. Holly Gardens Citizens in Action, No. 11-1507. The briefs argue, among other things, that (i) neither the legislative history of the Fair Housing Act nor the text of Section 804(a) demonstrate any congressional intent to authorize claims based on a disparate impact theory of liability, (ii) an agency cannot create a right of action absent a clearly expressed intent for one, (iii) Congress did not intend to create a disparate-impact cause of action against lenders under Section 805, noting that, like Section 804, it contains no language about the “affect” or “effects” of facially neutral conduct, and that the Supreme Court has “long held” the “’normal definition of discrimination’” to be differential treatment not differential impact.
Petitioners File Supreme Court Opening Brief in Fair Housing Act Case
On August 26, the petitioners in Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. et al., No. 11-1507, filed their opening merits brief in the U.S. Supreme Court on the issue of whether disparate impact claims are cognizable under the Fair Housing Act (FHA). The petitioners argue that (i) under the ordinary meaning of the relevant FHA provision, intentional discrimination—and not a mere disparate impact—is required to establish a violation of Section 804(a) of the FHA, and (ii) because the HUD rule authorizing such claims “cannot be reconciled” with the plain language of the statute, it cannot be allowed Chevron doctrine deference and must be struck down. The respondents’ brief is due October 21.
North Carolina Amends Anti-Predatory Lending Law
On August 23, North Carolina enacted HB 692, which amends the state’s anti-predatory lending law. Effective October 1, 2013, the law increases the points and fees threshold for high cost home loans from 4% to 5% for loans of $20,000 or more and excludes from the points and fees calculation any up-front fees collected and paid to the FHA, VA, or USDA. The bill also alters the state’s rate spread home loans provisions to match federal restrictions.
Senator Warren Presses DOJ on National Mortgage Servicing Settlement FHA-Related Releases
On August 21, Senator Elizabeth Warren (D-MA) sent a letter to Attorney General Eric Holder raising concerns about the provisions of the National Mortgage Settlement that relate to the government’s release of potential FHA-related False Claims Act-based claims against the settling servicers. Senator Warren’s letter questions the settlement amount that the government obtained for the release of such claims. The Senator calls for a “clearer and more public accounting of the [alleged] damages FHA incurred” as a result of the settling servicers’ conduct, and presses DOJ more broadly on its enforcement approach to large financial institutions. Senator Warren is seeking information and documents relating to the DOJ’s assessment of any potential FHA claims and the process by which it agreed to settle those claims.