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  • HUD updates consultant fees for its mortgage insurance program

    Agency Rule-Making & Guidance

    On July 9, HUD released Mortgagee Letter 2024-13 which revised Section 203(k) of the Rehabilitation Mortgage Insurance Program and specifically updated the 203(k) Consultant Requirements and Fees among other changes. The FHA 203(k) Rehabilitation Mortgage Insurance Program provided mortgage insurance to purchase a home or refinance an existing home mortgage. These updates will be on minor remodeling and nonstructural repairs, and the rehabilitation costs for the rehabilitation mortgage must not exceed $75,000. The Mortgagee Letter also specified that a 203(k) Consultant will be required to obtain a standard 203(k) Rehabilitation Mortgage and provided a schedule of updated 203(k) Consultant fees:

    • Paid up to $1,000 for repairs less than $50,000.
    • Paid up to $1,200 for repairs between $50,001 and $85,000.
    • Paid up to $1,400 for repairs between $85,001 and $140,000.
    • Up to 1 percent of the repair costs or $2,000, whichever would be lower, for repairs over $140,000.

    Section 203(k) Consultants may also charge a maximum of $375 in draw inspection fees, $120 in change order fees, $225 in reinspection fees, and mileage fees subject to IRS limitations. This Mortgagee Letter will go into effect for FHA case numbers assigned on or after November 4.

    Agency Rule-Making & Guidance HUD FHA Mortgages

  • HUD proposes rule to govern the sale of FHA mortgage notes

    Agency Rule-Making & Guidance

    On July 17, HUD announced a rule to regulate the sale of seriously delinquent mortgage loans insured by FHA. According to HUD, the proposed rule would increase the availability of affordable homes and enhance the stability of communities.

    HUD proposed the merger of two existing demonstration programs, the Single Family Loan Sale Program (SFLS) and the HUD-held Vacant Loan Sales Program for Home Equity Conversion Mortgages (HLVS), into a single permanent program called the Single Family Sale Program. The new program will continue to sell forward and reverse mortgage loans separately, but it will be designed to provide FHA with the flexibility to maximize returns to the Mutual Mortgage Insurance Fund and manage defaulted loans more efficiently, including the sale of such loans.

    The proposed rule would codify the demonstration structure and process under SFLS and HVLS. Additionally, the proposal will include guidelines for servicers on borrower notifications regarding loan sales and establishes post-sale requirements, such as a “first-look” provision for certain entities when properties become owned after foreclosure.

    The proposed rule further set forth (i) HUD’s ability to reduce or reject claims that were filed late or remain in suspended status, (ii) mortgagees’ requirements to certify certain mortgages, (iii) what constitutes qualified participants in the Single Family Sale; (iv) requirements of Purchasers; (v) settlement procedures for a Single Family Sale; (vi) purchasing servicing requirements; (vii) disqualifications; and (viii) relevant definitions, among other things.

    HUD is seeking public comment on the proposed rule and comments must be received by September 16. 

    Agency Rule-Making & Guidance Federal Issues FHA HUD Mortgages

  • FHA expands its definition of Government-Sponsored Enterprises (GSEs)

    Federal Issues

    Recently, HUD issued Mortgagee Letter 2024-12, updating its regulations to redefine Government-Sponsored Enterprises (GSEs) as separate from other governmental institutions with respect to FHA requirements for specific loan and mortgage origination activities. Acknowledging that GSEs do not have the infrastructure to comply with FHA origination requirements due to the nature of their lending activities, HUD has exempted GSEs from those specific FHA rules. After a period of public comment, on April 23 HUD published the final rule in the Federal Register, which amends regulations in 24 CFR Parts 202 and 5. The update also clarifies the definition of “Investing Mortgagee” to specify that it is not approved as a Supervised Mortgagee, a Nonsupervised Mortgagee, or a Government Mortgagee. These changes have also been incorporated into HUD Handbook 4000.1.

    Federal Issues HUD FHFA GSEs Mortgages

  • FHA issues reporting requirements on significant cybersecurity incidents

    Privacy, Cyber Risk & Data Security

    On May 23, HUD issued Mortgagee Letter (ML) 2024-10 titled “Significant Cybersecurity Incident (Cyber Incident) Reporting Requirements” which required FHA-approved mortgagees to notify HUD when a “Cyber Incident” occurs. A Cyber Incident would be any unauthorized event that could harm information or computer systems, breaching security rules, and affecting a mortgagee’s ability to meet FHA program requirements. It also would include actions that threaten data confidentiality, integrity, or availability, potentially disrupting mortgage operations. Mortgagees must report all suspected Cyber Incidents to HUD's FHA Resource Center and Security Operations Center within 12 hours of detection. The report must include several details, including the mortgagee's name and ID, contact information, a description of the incident (including the date, cause, and impact to PII, login credentials, and IT systems), any affected subsidiary or parent companies, and the status of the mortgagee’s incident response, including whether law enforcement has been notified. The provisions of this ML are effective immediately and will be reflected in a forthcoming update to the HUD Handbook 4000.1.

    Privacy, Cyber Risk & Data Security HUD FHA

  • HUD and mortgage lender reach agreement on Montana fair lending complaint

    Federal Issues

    On May 13, HUD announced an agreement with a mortgage lender to resolve allegations of Fair Housing Act violations. According to the redacted agreement, a complaint was filed with HUD last August accusing the mortgage company of engaging in housing discrimination based on race, in violation of the Fair Housing Act. The complainants claim they faced discriminatory housing terms, were denied housing, and were subject to racially discriminatory notices and advertisements. The mortgage company denied all allegations of discrimination, asserted its commitment to fair housing and equal opportunity, and agreed to a Conciliation Agreement to resolve the matter without admitting any wrongdoing or liability.

    The mortgage company agreed to a $65,000 settlement and will commit to upholding its fair lending policies, ensuring applicants on Native American reservations are able to obtain residential mortgage loans without fear of discrimination based on race, color or national origin. Respondent will also contribute at least $30,000 towards initiatives designed to enhance housing conditions, financial literacy, and homeownership education for Native Americans near reservations. During the three-year term of the agreement, HUD may review compliance and conduct fair housing tests, among other oversight methods. The terms of the agreement also required the mortgage company to submit a training curriculum on its fair lending training courses for new employees and perform annual trainings with current employees; additionally, the mortgage company must submit an annual report on the mortgage company’s progress and performance in complying with the public interest provisions of the agreement. The agreement has been approved by the regional director of the Office of Fair Housing and Equal Opportunity.

    Federal Issues HUD Enforcement Settlement Montana Consumer Finance Fair Lending Mortgages

  • HUD guidance on AI to prevent housing discrimination

    Federal Issues

    On April 29, the Office of Fair Housing and Equal Opportunity of HUD issued two guidance documents concerning the use of artificial intelligence (AI) in housing-related practices, specifically in tenant screening and housing advertising. The guidance came in response to Biden's Executive Order to address potential biases in automated systems within the housing sector (covered by InfoBytes here).

    HUD emphasizes the need for transparency and fairness when housing providers and screening companies use AI-assisted tenant screening processes. The tenant screening guidance recommended best practices for housing providers and screening companies to prevent discrimination based on race, color, national origin, religion, sex, disability, and familial status. The HUD guidance provided the following six “Guiding Principles for Non-Discriminatory Screenings”: (i) choose relevant screen criteria; (ii) use only accurate records; (iii) follow the applicable screening policy; (iv) be transparent with applicants; (v) allow applicants to challenge negative information; and (vi) design and test complex models for Fair Housing compliance.

    Regarding housing advertising, HUD’s guidance warned advertisers and online platforms about the risks of using targeted advertising tools that could violate the Fair Housing Act by denying consumers information about housing opportunities or targeting individuals based on their protected characteristics. To reduce the risk of violating the Fair Housing Act, HUD recommended that advertisers should: (i) utilize advertising platforms that are taking steps to manage the risk of discriminatory delivery of housing-related ads; (ii) ensure the advertisements related to housing are accurately identified to the platform; (iii) analyze the composition of audience datasets; and (iv) monitor outcomes of advertising campaigns to identify and mitigate discriminatory outcomes. Advertising platforms are recommended to: (i) ensure that housing-related ads are run in a separate process designed to avoid discrimination; (ii) avoid providing targeting options for housing-related ads that describe or are related to FHA-protected characteristics; (iii) conduct regular end-to-end testing of advertising systems; (iv) proactively identify and adopt less discriminatory alternatives for AI models and algorithmic systems; (v) ensure that algorithms are similarly predictive; (vi) ensure that ad delivery systems are not resulting in differential charges on the basis of protected characteristic; and (vii) document, retain, or publicly release in-depth information about ad targeting functions and internal auditing.

    Federal Issues HUD Artificial Intelligence Biden Discrimination

  • HUD announces FFRMS final rule

    Agency Rule-Making & Guidance

    Recently, HUD announced a final rule to implement the Federal Flood Risk Management Standard to “protect communities from flood risk, heavy storms, increased frequency of severe weather events and disasters, changes in development patterns, and erosion.” The final rule will enact the FFRMS as mandated by Executive Order 13690 by amending two HUD regulations: (i) Part 55, Floodplain Management and Protection of Wetlands; and (ii) Part 200, Minimum Property Standards. Among other things, the final rule will raise the elevations and flood proofing requirements of properties in flood-prone areas that use federal funds for new construction or are financed through HUD’s grant or subsidy programs. The revisions to Minimum Property Standards specifically target Federal Housing Administration-insured new constructions located within the 100-year floodplain. The final rule becomes effective on May 23.

    Agency Rule-Making & Guidance Federal Issues HUD Flood Insurance

  • FHA implements changes to branch office registration requirements

    Agency Rule-Making & Guidance

    On March 19, the FHA issued Mortgagee Letter 2024-04 to implement the provisions of a Final Rule, “Changes in Branch Office Registration Requirements.” The Final Rule will eliminate the requirement for mortgagees and lenders to register with HUD in each branch office from which they conduct FHA business, making branch registration optional and branch registration fees applicable only to branch offices that mortgagees or lenders choose to register with FHA. As previously covered by InfoBytes, FHA proposed the rule last March. Following public comments, HUD published the Final Rule without changes from the proposed rule, and the Final Rule became effective on March 4.

    The Final Rule will exclude branch offices not registered with HUD from the HUD Lender List Search page. The Mortgagee Letter will summarize changes that will be incorporated into Handbook 4000.1 to implement the Final Rule, including updating the policy for registering branch offices, clarifying the “Area Approved for Business” for home offices and branch offices, updating the definitions for Branch Manager and Regional Manager, and clarifying the policy requirements that apply to registered branch offices. Although the Mortgagee Letter will go into effect immediately, it will not impact annual recertifications due to be completed by March 31; rather, the recertification fee “will be calculated based on the registered branches as of the last business day of the mortgagee’s certification period (fiscal year end).”

    Agency Rule-Making & Guidance Federal Issues FHA Mortgagee Letters Mortgages HUD

  • HUD sued for allegedly failing to refund mortgage insurance premiums for early-terminated FHA-insured mortgages

    Courts

    On March 12, a putative class action complaint was filed against the Department of Housing and Urban Development (HUD) for allegedly denying homeowners their Mortgage Insurance Premium (MIP) refunds upon the early termination of their FHA-insured mortgages. According to the complaint, HUD must refund unearned MIPs, but has refused to refund homeowners by creating “unnecessary bureaucratic hurdles.” The plaintiffs alleged that the OIG had confirmed “the validity of complaints regarding HUD’s handling of MIP refunds.”

    Citing HUD regulations, the plaintiffs alleged that when an FHA mortgage is terminated early, within seven years of the purchase of the refinancing of the property, there is an overpayment of the MIP which should be refunded by HUD. According to the plaintiffs it is a “widespread practice” for HUD not to automatically refund MIPs, but instead require a burdensome, lengthy process which hindered the prompt refund of fees in multiple ways. The 2022 OIG report cited by plaintiffs allegedly found, among other things, that HUD did not have adequate controls in place to ensure that refunds were appropriately tracked, monitored, and issued. The plaintiffs alleged that Floridians are owed over $21.7 million in refunds.

    The plaintiffs are seeking injunctive and declaratory relief and a return of all unfairly retained refunds “together with damages in the amount of the total earned interest and other investment monies accrued by Defendant with Plaintiff’s and Class Members’ monies.” 

    Courts Federal Issues HUD Class Action OIG FHA

  • HUD Secretary Fudge resigns effective March 22

    Federal Issues

    On March 11, Housing and Urban Development Secretary Marcia L. Fudge announced her resignation and will transition to life as a private citizen. Her statement highlighted her five decades of public service, including as a mayor, congressional staffer, congresswoman, and Secretary. According to Secretary Fudge, during her tenure, HUD has helped more than two million families avoid foreclosure; removed barriers for those with student loans buy a home with an FHA mortgage; and strengthened the number of Black and Hispanic borrowers based on the percentage of volume, among other accomplishments. According to the White House’s brief, Fudge provided HUD with the largest investment in affordable housing in U.S. history. Secretary Fudge’s resignation will go into effect on March 22, and Deputy Secretary Adrianne Todman will succeed her as Acting Secretary.

    Federal Issues HUD

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