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VA encourages loan holders to extend relief to Iowa borrowers
On March 29, the Department of Veterans Affairs (VA) issued Circular 26-19-10, encouraging relief for VA borrowers impacted by severe storms and flooding in Iowa. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until April 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief here.
White House calls for end to GSE conservatorships; Senate holds housing finance hearings
On March 27, the White House released a Memorandum on Federal Housing Finance Reform, which directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Specifically, the memo states that the U.S. housing finance system is “in urgent need of reform,” as taxpayers are “potentially exposed to future bailouts” and programs at HUD have outdated operations and are “potentially overexposed to risk.” The President directs the Treasury and HUD to create specific plans addressing a number of reforms “as soon as practical.” Among other things, the directives include:
- Treasury to reform GSEs. With the ultimate goal of ending the conservatorships, the memo directs Treasury to develop proposals to, among other things, (i) preserve access to 30 year fix-rate mortgages for qualified homebuyers; (ii) establish appropriate capital and liquidity requirements for the GSEs; (iii) increase private sector participation in the mortgage market; (iv) evaluate the “QM Patch” with the HUD Secretary and CFPB Director; and (v) set conditions necessary to end conservatorships.
- HUD to reform programs. In addition to outlining specific objectives, the memo directs HUD to achieve three goals: (i) ensure that the FHA and the Government National Mortgage Association (GNMA) assume the primary responsibility for providing housing finance support for low income or underserved families; (ii) improve risk management, program, and product design to reduce taxpayer exposure; and (iii) modernize the operations of the FHA and GNMA.
Similarly, on March 26 and 27, the Senate Banking Committee held a two-part hearing (here and here) on housing finance reform. The hearing reviewed the legislative plan released by Chairman Mike Crapo (R-ID) in February. As previously covered by InfoBytes, the plan would, among other things, end the GSEs conservatorships, make the GSEs private guarantors, and allow other nonbank private guarantors to enter the market. Additionally, the plan would (i) restructure FHFA as a bipartisan board of directors, which would charter, regulate, and supervise all private guarantors; (ii) place a percentage cap on all outstanding mortgages for guarantors; and (iii) replace current housing goals and duty-to-serve requirements with a fund intended to address housing needs of underserved communities. In his opening statement at the hearing, Crapo said that, “approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government” and “the status quo is not a viable option” for the housing finance market. Ranking Member Sherrod Brown (D-Ohio) emphasized that “any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families.”
Over the two days, the Senators and witnesses discussed the positive objectives of Crapo’s plan while recognizing hurdles that exist in implementing housing finance reform. While many Senators and witnesses expressed support for a requirement that private guarantors serve a national market, others suggested that regionalized or specialized guarantors could have advantages, including reaching underserved markets. Many Democrats stressed the importance of keeping a catastrophic government guarantee in place, while Republicans emphasized the need for legislative reforms to be implemented as soon as possible. With respect to equal access for small lenders, Senators discussed the concern over credit unions being able to sell loans in a multiple guarantor market.
Montana adds capital and net worth requirements for mortgage servicers and originators
On March 19, the Montana governor signed HB 107, which amends the Montana Mortgage Act to, among other things, add capital requirements for mortgage servicers and net worth requirements for mortgage originators licensed in the state. The bill provides that a failure to meet or maintain the outlined standards could result in a license application denial or the suspension or revocation of a current license. Additionally, the bill adds a definition for mortgage “servicer providers” and authorizes the banking division of the Montana Department of Administration to adopt rules to (i) define false, deceptive, or misleading advertising; and (ii) establish requirements for licensee advertising using the internet. The bill is effective October 1.
FHA updates manual underwriting requirements for single-family mortgages
On March 14, the FHA announced updates to its manual underwriting requirements for single-family mortgages with credit scores under 620 and debt-to-income ratios greater than 43 percent. The updates to the Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard will apply to mortgages with FHA case numbers assigned on or after March 18. This announcement reverses a decision made in August 2016 to remove a manual underwriting rule from the TOTAL Mortgage Scorecard, which the FHA claims has resulted in a “significant increase in higher-risk loans FHA endorses.” Lenders that submit higher-risk mortgages to the TOTAL Mortgage Scorecard through an automated underwriting system now may be informed that these mortgages must be manually underwritten. The FHA noted that “[t]he lender’s final underwriting review decision for those mortgages must be documented in accordance with existing FHA requirements for manually underwritten mortgages.”
FDIC resolves bank auditing claim for $335 million
On March 15, the FDIC announced a settlement with an accounting firm to resolve a professional negligence action stemming from allegations that the firm failed to detect a massive mortgage fraud in its audits of an Alabama-based bank that failed in 2009. According to a July 2018 order entered by the U.S. District Court for the Middle District of Alabama, the court originally ruled that the accounting firm owed more than $625 million in damages for negligent audits. The court’s findings, among other things, determined that the firm “did not design its audits to detect fraud,” which prevented it from detecting the mortgage fraud scheme.
One member of the FDIC Board, Martin J. Gruenberg, released a statement noting that he “voted against authorizing the settlement because the settlement did not include a written admission of liability” from the accounting firm.
District Court approves $13.8 million class settlement for loan modifications
On March 14, the U.S. District Court for the Western District of North Carolina issued an order certifying a settlement class of individuals who alleged that, while they were subject to Chapter 13 bankruptcy proceedings, a national bank imposed “no-application loan modifications” (NAMs) to their mortgages without consent. The class members claimed that the bank filed payment change notices in their bankruptcy proceedings around the time it sent out the NAM solicitations, which asserted that the mortgage payments had been adjusted to the amount of the proposed NAM payment, even though borrowers had not requested or accepted the changes. As a result, class members’ mortgage loans went into contractual default. According to the class, the bank has since ended the alleged practice. Under the terms of the settlement approved by the court, the bank has agreed to pay approximately $13.8 million into a common fund that will go to class members, account remediation, and attorneys’ fees and costs, as well as to injunctive relief.
District Court dismisses whistleblower’s mortgage fraud claims
On March 12, the U.S. District Court for the Northern District of Illinois granted a national bank’s motion to dismiss a former associate vice president/lending manager’s whistleblower claims that it violated the False Claims Act (FCA) by submitting fraudulent claims and providing false information about loan applications to Fannie Mae and Freddie Mac. The whistleblower alleged that the bank (i) knowingly submitted fraudulent claims for payment to the U.S. government; (ii) told Fannie Mae and Freddie Mac that the applications met underwriting standards; and (iii) later terminated his employment as retaliation for notifying his superiors about the alleged false statements. However, according to the court, the whistleblower failed to sufficiently plead that the bank actually submitted the false claims, did not provide enough specificity as to whom the bank sent the alleged false claims to, and failed to “allege specific facts that link [the bank’s] fraudulent conduct to a claim submitted to the government.” Moreover, the court stated that under the FCA’s public disclosure bar, a whistleblower cannot base his case on allegations raised in prior litigation or publicly disclosed information, and identified several similarities between the whistleblower’s allegations and previously disclosed claims. Because the whistleblower’s FCA claims failed, the retaliation claims were also dismissed.
Nebraska amends mortgage licensing law
On March 7, the Nebraska governor approved LB 355, which amends various sections of the state’s financial laws, including the Nebraska Residential Mortgage Licensing Act (RMLA). Among other things, the RMLA is being amended to (i) provide requirements for the submission of fingerprints for specified principals of mortgage firm applications; (ii) adopt the transitional licensing process required by federal law, effective November 24, 2019, to allow certain federally-registered mortgage loan originators and mortgage loan originators licensed by another state to temporarily conduct business in Nebraska for up to 120 days after becoming employed by a Nebraska-licensed mortgage firm; (iii) limit the term of inactive mortgage loan originator licensees; and (iv) change the records retention period from three to five years. The amendments take effect September 2019.
FHA removes ten-year protection plan requirements
On March 12, HUD released Mortgagee Letter 2019-05, which alters home warranty requirements for FHA single-family mortgage insurance by removing the policy guidance that required borrowers to purchase ten-year protection plans in order to qualify for certain mortgages on newly constructed single-family homes. The borrower is still required to obtain a one-year warranty, which should commence on the date that title is conveyed to the borrower, the date that construction is completed, or the date that the borrower occupies the house, whichever occurs first. The changes are effective on March 14.
OCC identifies key data fields for HMDA reporters
On March 7, the OCC released Bulletin 2019-12, which identifies the key HMDA data fields for full and partial reporters. Specifically, the Bulletin highlights the 37 key data fields for banks required to report all of the data set forth in the CFPB’s October 2015 and August 2017 HMDA amendments, as well as, the 21 key data fields required for banks that qualify for the partial HMDA exemption pursuant to the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act. According to the Bulletin, OCC examiners will focus on the identified key data fields during transaction testing pursuant to HMDA for data collected on or after January 1, 2018. The Bulletin rescinds OCC Bulletin 2017-41, “Home Mortgage Disclosure Act: Interagency Key Fields.”
As previously covered by InfoBytes, in December 2018, the Federal Reserve Board, the FDIC, and the OCC issued joint guidance regarding the same key data fields that Federal Reserve examiners would use to evaluate the accuracy of HMDA data collected since January 1, 2018.