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On October 20, FHA announced that homeowners experiencing a Covid-19 financial hardship with FHA-insured mortgages can request an initial forbearance or a Home Equity Conversion Mortgage (HECM) extension through December 31. Specifically, Mortgagee Letter 2020-34 extends the date by which mortgagees must approve the initial Covid-19 forbearance or Covid-19 HECM extension originally provided for in ML 2020-06 and expanded in ML 2020-22 (covered by InfoBytes here and here). FHA notes that due to the continued Covid-19 pandemic and its impact on borrowers around the country, the agency is extending the deadline through December 31 from the original deadline of October 30.
DOJ: Lender allegedly violated FIRREA, False Claims Act by forging certifications and using unqualified underwriters
On September 25, the DOJ filed a complaint against a lender alleging that it forged certifications and used unqualified underwriters to approve FHA-insured Home Equity Conversion Mortgages (HECMs) to increase its loan production in violation of the Financial Institutions Reform, Recovery and Enforcement Act and the False Claims Act. In addition, the DOJ claims that, because the lender allegedly did not employ enough direct endorsement underwriters to review each HECM loan endorsed for FHA mortgage insurance, it bypassed FHA’s underwriter requirements and (i) allowed “unqualified temporary contractors to underwrite, approve, and sign certifications for HECM loans”; (ii) “[f]orged signatures of qualified underwriters on certifications for other HECM loans” to create the appearance that they had been reviewed and approved by a qualified underwriter; (iii) pre-signed blank certifications representing that appraisals had been reviewed and approved; and (iv) used these forms and certifications to insure HECM loans that did not meet the underwriting requirements. The DOJ alleges that, accordingly, the FHA insured overvalued and underwater properties, which increased borrower expenses and raised the chances of default. The DOJ also asserts that the lender’s purported false claims for FHA mortgage insurance payments were material, as it led to the government making payments it would otherwise not have been required to make.
On April 14, HUD issued Mortgagee Letter 2020-12 to inform mortgagees of alternative documentation options and delayed documentation delivery deadlines for submitting Home Equity Conversion Mortgage (HECM) claims for during the Covid-19 related closures. In particular, alternative documentation is permitted to document that taxes are current, HOA and condominium dues are not delinquent, and the borrower will occupy the property as a principal residence. The guidance addresses delayed delivery of original notes, mortgages, and assignments to the Secretary. It also reminds mortgagees of the required repurchase of the HECM if the HECM did not meet all criteria at the time of assignment claim payment.
DOJ reaches $2.47 million settlement to resolve alleged lending violations regarding FHA-insured reverse mortgages
On March 31, the DOJ announced a $2.47 million settlement with an Oklahoma-based mortgage lender in connection with alleged violations of the False Claims Act (FCA) related to an acquired predecessor entity’s origination and underwriting of home equity conversion mortgages (HECM). According to the DOJ, these HECM loans were insured by the Federal Housing Administration (FHA) but failed to meet HUD requirements. The DOJ alleged that, prior to May 2, 2010, the predecessor entity ordered appraisals for HECM loans on forms that provided loan amounts and “otherwise improperly communicated certain information to [appraisers] in an attempt to influence the appraised value, in violation of FHA requirements.” The mortgage lender agreed to pay the DOJ $1.97 million to resolve the FCA claims, as well as $500,000 to HUD to resolve administrative liability allegations. The DOJ’s press release noted that the claims “are allegations only, and [that] there has been no determination of liability.”
On December 6, the New York governor signed AB 5626, which amends the state’s real property law related to lenders offering reverse mortgages in the state issued under the FHA’s home equity conversion mortgage for seniors program (HECM program). The Act provides that an authorized lender, or any other party or entity, is prohibited from engaging in any unfair or deceptive practices connected to the marketing or offering of reverse mortgage loans and must not: (i) use the words “public service announcement” in an advertisement or writing; (ii) use the words “government insured” or other similar language to represent that the reverse mortgage loans are “insured, supported and sponsored by any governmental entity” in any form of advertisement or writing; or (iii) “represent that any such loan is other than a commercial product.” Lenders will also be required to provide certain consumer protection information as specified by the NYDFS Superintendent, and must comply with stipulated requirements during the application process.
The Act also outlines various servicing- and foreclosure-related requirements and restrictions, and provides a private right of action to any person injured by reason of any violation of the Act, or any violation of the rules and regulations of HUD relating to the HECM program, to recover three times the person’s actual damages, plus reasonably attorney’s fees.
The Act takes effect March 5, 2020.
On December 3, HUD announced the maximum FHA loan limits for 2020, issuing Mortgagee Letter 19-19 for FHA-insured forward mortgage case numbers and Mortgagee Letter 19-20 for FHA-insured Home Equity Conversion Mortgage (HECM) case numbers. The general one-unit property limits “floor” increased to $331,760, and the “ceiling” increased to $765,600, while the HECM claim amount also increased to $765,600, effective January 1, 2020.
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.
On November 29, FHA announced that the protocols in place for the second appraisal requirement for certain reverse mortgage transactions are now fully automated. As previously covered by InfoBytes, in September, FHA announced that it would require a second appraisal for certain Home Equity Conversion Mortgage (HECM) transactions (also known as “reverse mortgages”) to mitigate the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund, according to Mortgagee Letter 2018-06. FHA will perform a collateral risk assessment of the appraisal prepared for use in all reverse mortgage originations; whether a second appraisal is required will depend on the results of the assessment. Now, once an appraisal is logged into the system, a lender will immediately receive a message indicating whether a second appraisal is required or not required.
On October 22, the Federal Housing Administration (FHA) issued Mortgagee Letter 2018-08, streamlining documentation requirements for Home Equity Conversion Mortgage (HECM) servicers when assigning FHA-insured reverse mortgages to HUD for claims payments. Effective immediately, servicers may now submit alternative supporting documentation, such as (i) documentation from a current hazard insurance provider in lieu of a declaration page; and (ii) alternative evidence of a borrower’s death, such as an obituary or healthcare documents in lieu of a death certificate. Servicers must now also submit evidence that any mobile home is “real property” under the laws of the particular state for which the home is located. FHA reminds servicers that claims for insurance benefits must be filed within 60 calendar days after receiving preliminary title approval, and notes that servicers must now provide a detailed explanation of all pre-due and payable corporate advances in the compliance package, including the date of the disbursement, the expense that was paid, and any information related to received repayments. According to a FHA’s press release, streamlining the requirements and reducing the documentation burden will help accelerate the claim payments process for servicers.
On July 11, Fannie Mae issued RVS-2018-02, which updates the Reverse Mortgage Loan Servicing Manual to include changes related to REO Hazard Insurance Coverage Requirements for Home Equity Conversion Mortgage (HECM) mortgages. Specifically, the update requires a servicer to place a property insurance policy on acquired property up to the HUD foreclosure appraisal amount or deed-in-lieu property valuation amount, in accordance with HUD guidelines. If the servicer is unable to obtain either of these valuation amounts, the servicer must place coverage up to the unpaid principal balance amount. Servicers are required to implement the changes no later than October 1 for new and existing HECM properties in REO inventory.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference