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FHFA published a final rule in the December 18 Federal Register implementing certain “Duty to Serve” provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, these provisions require that Fannie Mae and Freddie Mac adopt formal plans to improve the availability of mortgage financing in a “safe and sound manner” for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. FHFA’s new rule addresses this obligation by requiring both Fannie Mae and Freddie Mac to submit to FHFA a three-year “Underserved Markets Plan” that describes the activities and objectives they will undertake to meet their Duty to Serve requirements. The Plans will become effective January 2018, after which time, the new rule requires further that FHFA annually evaluate, rate, and report to Congress each Enterprise's compliance with its Duty to Serve obligations as required by the statute.
On December 13, the FDIC announced that its board of directors has approved a $2.18 billion operating budget for 2017, representing a 2.4 percent decrease from 2016 and a 46 percent decrease from its peak funding in 2010 at the height of the financial crisis. Commenting on the budget and staffing levels, FDIC Chairman Martin J. Gruenberg said, “This is the seventh consecutive reduction in the FDIC’s annual operating budget. These reductions are made possible by continuing steady improvement in the health of the U.S. banking industry.”
On December 14, the DOJ announced that it has obtained more than $4.7 billion in settlements and judgments in civil cases involving fraud and false claims against the government in fiscal year 2016 (ending September 30). Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The DOJ also recovered $1.6 billion from housing and mortgage settlements and judgments this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.
There were 845 new False Claims Act suits in 2016, one of the largest totals in history. Of those, 143 were initiated by the government and 702 were brought by whistleblowers. Approximately $100 million was recovered in cases handled exclusively by whistleblowers and their attorneys—a sharp drop from the record $1.1 billion recovered in 2015, but an amount comparable to the averate amount recovered in previous years. Notably, the $4.7 billion recovered in 2016 does not include state shares. Such shares were significant in 2016 because of payouts involving the federal-state Medicaid program, with the top three health care settlements alone resulting in distributions of approximately $500 million to states.
In a press release issued December 5, President-Elect Trump named retired pediatric neurosurgeon Ben Carson as Secretary of Housing and Urban Development. Carson was a 2016 Republican presidential candidate. Raised in poverty in inner-city Detroit, he was head of pediatric neurosurgery at Johns Hopkins Hospital in Baltimore for nearly three decades, rising to national fame in 1987 when he led the first successful separation of twins conjoined at the head.
NYDFS Unveils Consumer Bill of Rights for Mortgage Foreclosures; Announces New Regulations for "Zombie Properties"
On December 7, Governor Andrew M. Cuomo announced the publication of the NYDFS Residential Foreclosure Actions Consumer Bill of Rights – intended to offer guidance to homeowners facing foreclosure in New York. Concurrently, the New York Governor also announced new NYDFS regulations intended to curb the threat to communities posed by vacant and abandoned properties (“zombie properties”) by “expediting foreclosure proceedings, improving the efficiency and integrity of the mandatory settlement conferences, and obligating banks and mortgage servicers to secure, protect and maintain vacant and abandoned properties before and during foreclosure proceedings.”
The Consumer Bill of Rights acts as guidance for homeowners facing foreclosure, and specifies that homeowners have certain rights and obligations, including, among others: (i) the right to stay in the home unless and until a court orders the homeowner to vacate the property; (ii) the right to be represented by an attorney; (iii) the right to be free from harassment and foreclosure scams; (iv) the right to avoid foreclosure by making a full or negotiated payment prior to foreclosure sale; (v) the right to be notified at least 90 days prior to a foreclosure suit being filed; (vi) the right to explore loss mitigation options; and (vii) the right to receive a copy of legal papers in a lawsuit. The Consumer Bill of Rights also outlines various obligations of a homeowner, including to respond to complaints, appearing at court, and negotiating in good faith. Under the law, the court must provide homeowners a copy of the Consumer Bill of Rights at the initial mandatory settlement conference.
With respect to vacant and abandoned properties, the new regulations target blight caused by such zombie properties by, among other things, requiring that bank and mortgage servicers: (i) complete an inspection of a property subject to delinquency within 90 days; (ii) secure and maintain the property where the bank or servicer has a reasonable basis to believe that the property is vacant and abandoned; (iii) report all such vacant and abandoned properties to NYDFS; and (iv) submit quarterly reports detailing both their efforts to secure and maintain the properties and the status of any foreclosure proceedings. The NYDFS Superintendent is authorized under the new regulations to issue civil penalties of $500 per day per property for violations of the new regulations.
A federal jury has ordered two Texas-based home mortgage entities and their chief executive to pay nearly $93 million for defrauding the U.S. government into insuring thousands of risky loans, the Department of Justice announced on November 30.
The mortgage companies and their former CEO were found liable for violating the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by, among other things, failing to maintain an adequate quality control program; and submitting false annual certifications regarding quality control requirements. Specifically, the government contended that defendants operated over 100 “shadow” branch offices that originated FHA-insured mortgage loans without obtaining the necessary HUD approval, and which were therefore not subject to HUD oversight.
Ultimately, the jury awarded $92,982,775 in total damages, including $7,370,132 against the CEO specifically—a sum that is subject to mandatory tripling. Further penalties relating to the FIRREA violations are expected, which U.S. District Judge George Hanks will set at a later date.
On December 7, the CFPB announced that it had entered into consent orders with three reverse mortgage companies to settle claims that their advertisements for those mortgages were deceptive under the Mortgage Acts and Practices Advertising Rule. The alleged misconduct included deceptive advertising campaigns that misrepresented, among other things: (i) the risk of losing home and the right to remain in the home; (ii) expected costs and mortgage payments; (iii) government affiliations of the mortgage company; and (iv) the effectiveness of a reverse mortgage credit product to eliminate debt.
The consent orders require the companies to make clear and prominent disclosures in their reverse mortgage advertisements and implement systems to ensure they are following all laws. One of the three firms also cannot imply affiliation with the government and must maintain complete and accurate records. In addition, the consent orders impose civil penalties ranging from $65,000 up to $400,000.
- American Advisors Group Consent Order
- American Advisors Group Stipulation
- Reverse Mortgage Solutions Consent Order
- Reverse Mortgage Solutions Stipulation
- Aegean Financial Consent Order
- Aegean Financial Stipulation
Last week, on November 23, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased by Fannie Mae and Freddie Mac in 2017 from $417,000 to $424,000. The announcement marks the first time FHFA has increased the baseline loan limit since 2006. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $636,150. Meanwhile, limits rose in all but 87 counties in the country. View the list of counties seeing increases here.
On November 22, FHFA announced that Fannie Mae and Freddie Mac’s caps for multifamily lending will remain at $36.5 billion for 2017. The determination was based on the agency’s projection that the overall size of the multifamily finance market will remain roughly the same as it was in 2016. Multifamily loans in designated affordable and underserved segments will remain excluded from the caps.
On November 20, the CFPB released the 2017 iteration of its annual lists of rural counties and rural or underserved counties for use in conjunction with the several CFPB rules that refer to “rural or underserved” and “rural” counties, including the balloon-payment qualified mortgage definition and the exemption from the escrow requirements for higher-priced mortgage loans. Rural counties were generally defined by using a U.S. Department of Agriculture classification system and under-served counties were defined by data collected under the Home Mortgage Disclosure Act. In addition to these lists, the bureau also directs lenders to use its Rural or Underserved Areas Tool to provide a safe harbor determination that a property is located in a rural or underserved area for purposes of Regulation Z.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable