On April 11, HUD issued Mortgagee Letter 2013-11, which amends prior guidance related to the origination and servicing of FHA-insured loans in declared disaster areas. The letter stresses that prior guidance requiring a moratorium on foreclosures of properties in disaster areas for 90 days applies to the initiation of foreclosures and foreclosures already in process. The letter outlines steps servicers should take to determine the appropriate course of action for each borrower, including a review of individual facts and circumstances to determine whether to offer forbearance and other loss mitigation alternatives. The letter details such loss mitigation options and servicer requirements. The policy changes took effect immediately.

On April 9, HUD issued Mortgagee Letter 2013-10 to explain enhancements to the Lender Insurance program that allows high-performing mortgagees to conduct pre-endorsement reviews and insure loans. Those enhancements were implemented by a January 2012 HUD rule. The letter summarizes changes made by that rule, reviews mortgagee eligibility requirements for participation in the Lender Insurance program, and outlines the initial application process. Among other things, the letter also discusses the conditions under which a mortgagee’s lender insurance authority can be terminated or suspended and explains how mortgages with such authority are subject to a revised indemnification policy.

On February 12, the U.S. District Court for the District of Columbia declined to enjoin the government from pursuing alleged False Claims Act violations against a bank that argued such claims were precluded by the terms of the national servicing settlement. United States v. Bank of Am. Corp., No 12-361, 2013 WL 504156 (D.D.C. Feb. 12, 2013). The bank petitioned the court to halt a suit filed by the government in the Southern District of New York, in which the government alleges that the bank’s certification of loans under the FHA’s Direct Endorsement Lender Program violated the False Claims Act. The bank argued that the national mortgage servicing settlement contains a comprehensive release for certain liability with respect to its alleged FHA mortgage lending conduct. Finding the consent judgment effectuating the settlement to be clear and unambiguous, the court rejected the bank’s interpretation of the settlement. The court left it to the Southern District of New York to determine the nature of the claims at issue, but held that the release does not cover the claims as described by the bank. The court therefore denied the bank’s motion to enforce the consent judgment and enjoin the New York action.

On February 6, HUD published a proposed rule that would eliminate two regulations in order to streamline the FHA inspection and warranty requirements. HUD proposes to repeal the regulations requiring a FHA-approved inspector to determine the construction quality of homes for which borrowers seek FHA insurance. HUD acknowledges that the market is sufficiently competitive and regulated to provide quality inspectors without FHA approval. HUD also proposes to remove requirements for borrowers to purchase 10-year protection plans to qualify for FHA insurance for high loan-to-value (LTV) mortgages on newly constructed homes. HUD expects the changes to yield savings for lenders and borrowers, and to eliminate related FHA administrative costs. Public comments are due by April 8, 2013. Also on February 6, HUD published in the Federal Register its previously announced proposal to increase the minimum down payment for FHA-insured loans over $625,500 by setting the maximum LTV ratio at 95 percent. HUD proposed this increase because the FHA Mutual Mortgage Insurance Fund reported a decline from fiscal year 2011. HUD is accepting comments on the proposal through March 8, 2013.

On January 31, HUD and the FHFA announced that the FHA, Fannie Mae, and Freddie Mac will extend for an additional 90 days protections against foreclosure actions for borrowers whose properties were damaged or destroyed due to Hurricane Sandy. Those protections were set to expire on January 31, 2013. For borrowers in certain counties, FHA is extending until April 30, 2013 its foreclosure moratorium and eviction suspension. Fannie Mae, through Lender Letter LL-2013-02, and Freddie Mac, through Bulletin 2013-1, also are extending their foreclosure and eviction moratoriums through the end of April.

On January 30, HUD announced that for FHA case numbers assigned on or after April 1, 2013, FHA will use a consolidated pricing option for its home equity conversion mortgages, as explained in more detail in Mortgagee Letter 2013-01. Separately, HUD also announced that effective April 1, 2013, the mortgage insurance premiums for most new mortgages will increase by 10 basis points, and by 5 basis points for jumbo mortgages. To further support the stability of the Mutual Mortgage Insurance Fund, FHA also issued Mortgagee Letter 2013-04 to require most borrowers to continue paying annual premiums for the life of their mortgage loan, reversing a policy adopted in 2001 under which FHA cancelled premium requirements on loans when the outstanding principal balance reached 78 percent of the original principal balance. FHA also will (i) require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43 percent, (ii) increase from 3.5 to 5 percent the minimum down payment for jumbo loans, and (iii) increase its enforcement for FHA-approved lenders with regard to aggressive marketing to borrowers with previous foreclosures. Separately, HUD issued Mortgagee Letter 2013-02, which updates the certification language for all late endorsement requests for reverse mortgages. Finally, through Mortgagee Letter 2013-03, HUD extended to March 15, 2013 the date by which lenders must begin to assess borrowers in default under a new loss mitigation priority order and policies, as outlined in Mortgagee Letter 2012-22.

On January 2, HUD announced that a lender agreed to settle a claim that it refused to provide FHA financing to a lesbian couple. HUD noted that the agreement is the first enforcement action taken under a rule finalized in January 2012 that aims to provide equal access to housing, regardless of sexual orientation, gender identity, or marital status, including by prohibiting lenders from determining FHA-insured financing eligibility based on sexual orientation or gender identity. The lender denies the allegations, but HUD required the lender to pay $7,500 so the parties could avoid additional costs associated with the administrative proceedings. The agreement also requires the lender to update its fair lending training program to support compliance with the new rule.

On December 30, the Senate confirmed Carol Galante as Assistant Secretary of Housing and Urban Development and Federal Housing Administration Commissioner. Ms. Galante, who was nominated for the position in October 2011, has been serving in an acting role. Her confirmation was made possible after certain Senators, including Bob Corker (R-TN), who had expressed concerns about the pace of reforms at the FHA, secured a commitment from Ms. Galante to (i) place a moratorium on the full drawdown reverse mortgage program, (ii) substantially increase underwriting criteria for borrowers with FICO scores between 580 and 620 by establishing a meaningful maximum debt-to-income ratio, (iii) increase the down payment requirement and the insurance pricing for loans between $625,000 and $729,000, and (iv) increase underwriting requirements for borrowers who have been foreclosed upon within the last seven years. On January 1, as described in media reports, the Senate confirmed Joshua Wright as FTC Commissioner and Mignon Clyburn as FCC Commissioner, and also confirmed Richard Berner for the new position of Director of the Treasury Department’s Office of Financial Research.

Last month, HUD issued Mortgagee Letter 2012-28, which restates and updates guidance regarding flood zone requirements for FHA-insured mortgages. The letter states that, effective February 9, 2012, (i) FHA will require all mortgagees to obtain a flood zone determination on all properties and to retain evidence that clearly indicates that the flood zone determination service is for the life of the loan, and (ii) properties within a designated Coastal Barrier Resource System unit will not be eligible for an FHA-insured mortgage. The letter attaches a chart demonstrating the Flood Zone Requirements within a given scenario. A second letter, Mortgagee Letter 2012-29, advises supervised lenders of the method by which they should submit their call reports in place of audited financial statements, as permitted by prior HUD guidance.

On December 13, the California Court of Appeal for the First Appellate District held that the HUD servicing requirements were incorporated by reference into the borrowers’ FHA deed of trust and served as conditions precedent to the acceleration of the debt or to foreclosure. Pfeifer v. Countrywide Home Loans, No. A133071, 2012 WL 6216039 (Cal. Ct. App. Dec. 13, 2012). In this case, after the lender declared the borrowers’ FHA-insured mortgage in default and commenced nonjudicial foreclosure proceedings, the borrowers filed suit against the lender seeking general and punitive damages, as well as to enjoin the foreclosure proceedings and to obtain declaratory relief, for failure prior to provide the 30-day advance debt validation notice required by the Fair Debt Collection Practices Act (FDCPA) or to conduct a face-to-face interview required by HUD’s servicing regulations prior to commencing foreclosure proceedings. On appeal, the court affirmed the lower court’s ruling that the borrowers did not have a claim for damages against the collection firm under the FDCPA, because that firm was not a debt collector under the statute. However, the court reversed the trial court’s judgment as to the borrowers’ request for injunctive relief based on their wrongful foreclosure claim and their request for declaratory relief. The court agreed with the borrowers that the deed of trust incorporates by reference the servicing requirements of HUD, including the face-to-face interview, and the lenders had to comply with the servicing terms prior to commencing a valid nonjudicial foreclosure. The court also held that tender was not required, because the borrowers were seeking to enjoin a pending foreclosure sale based on the lenders’ failure to comply with the HUD servicing requirements. Concurring with those courts that distinguish an offensive action from a defensive action, the court explained that the borrowers had no private right of action for failure to comply with the HUD regulations and could not seek damages based on their wrongful foreclosure action, but held that the HUD regulations may be used as an affirmative defense to a judicial foreclosure action instituted by the creditor.

On December 11, Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2012-27, which changes the way the Federal Housing Administration (FHA) will calculate the recertification fee for its approved lenders. Effective immediately, FHA will calculate recertification fees based on the number of FHA-approved branch offices as of the first business day of the lender’s annual reporting period. Lenders that wish to terminate branches and thereby not pay a recertification fee for the next annual period must do so on or before the last business day of the annual reporting period. On December 6, Mortgagee Letter 12-26 announced the FHA’s single-family loan limits for 2013. The FHA national loan limit floor remains at 65 percent of the national conforming limit (which holds constant at $417,000 for a one-unit property). The letter also lists the maximum FHA loan limits by property size for areas designated as high-cost. The letter also identifies certain exceptions to the limits, and notes that the FHA maximum claim amount for reverse mortgages remains at the statutory limit of $625,500.

In an annual rite of autumn, on September 18 the Federal Financial Institutions Examination Council released 2011 Home Mortgage Disclosure Act (HMDA) data for U.S. mortgage lenders.  The public data contains information regarding nearly all home mortgage applications acted on in the prior calendar year, designated by loan purpose (i.e., home purchase, home refinance and home improvement).  The HMDA data covers home loan applications made to over 7,600 U.S. financial institutions, including banks, savings associations, credit unions and mortgage companies, and contains information on approximately 11.7 million applications, 7.1 million originations and 2.9 million purchases.

HMDA data provides a wealth of mortgage industry-related information, including data on application and loan volume, the proportion of loans backed by the Fair Housing Administration and Veterans Administration, and lender concentration in the mortgage market.  However, its most important function and the reason HMDA was enacted is the role the data plays in fair lending enforcement.  Toward this end, the outcome of each home mortgage loan application is classified according to the applicant’s race, ethnicity and gender.  HMDA data further allows analyses based on the site of the subject property, as well as the location of the lender. Read more…

On October 9, the U.S. Attorney for the Southern District of New York and the U.S. Department of Housing and Urban Development (HUD) announced a civil fraud suit against a mortgage lender alleged to have falsely certified loans under the FHA’s Direct Endorsement Lender Program. The suit, filed in coordination with the Financial Fraud Enforcement Task Force (FFETF), claims that from May 2001 through October 2005, the lender regularly and knowingly engaged in reckless origination and underwriting of FHA loans, while certifying to HUD that those loans met the FHA Direct Endorsement Lender Program requirements and were therefore eligible for FHA insurance. Further, the suit alleges that the lender failed to conduct adequate quality control, failed to comply with HUD self-reporting requirements, and later attempted to cover up its reporting failures. The government claims that it was required to pay, and will continue to have to pay, FHA benefits on defaulted loans that contained material violations, and seeks treble damages and penalties under the False Claims Act, as well as Financial Institutions Reform, Recovery, and Enforcement Act penalties. The government also seeks compensatory damages under the common law theories of breach of fiduciary duty, gross negligence, negligence, unjust enrichment, and payment under mistake of fact. This suit follows the settlements earlier this year of several other cases involving similar claims. One other similar suit is currently pending.

On September 18, the Federal Financial Institutions Examination Council (FFIEC) released data collected in 2011 under the Home Mortgage Disclosure Act (HMDA). The data include information on loan amount, loan type and purpose, property type and location, pricing, and applicant characteristics. The FFIEC release notes that the 2011 data reflect that (i) the FHA’s share of first-lien loans declined in 2011, but there remains a heavy reliance on the FHA program, (ii) only a small minority of first lien loans had APRs above the loan price reporting thresholds, and (iii) for conventional home-purchase loans, black and Hispanic white applicants experienced higher denial rates than non-Hispanic white applicants, similar to in prior years. While examiners consider HMDA data when assessing lender compliance with fair lending laws, the FFIEC cautions that such data do not include many potential determinants of creditworthiness and loan pricing, such as the borrower’s credit history, debt-to-income ratio, and the loan-to-value ratio.

On September 11, the U.S. House of Representatives voted overwhelmingly to pass legislation that seeks to bolster and protect FHA capital reserves. The bill, H.R. 4264, would set a minimum 0.55% annual premium and would increase the maximum annual premium from 1.55% to 2.05% for all FHA-insured single-family mortgage loans. The bill also would authorize the Secretary of Housing and Urban Development to require lenders to indemnify the FHA for claims paid on loan, if the lender knew or should have known that the loan included serious or material violations of FHA requirements under the direct endorsement program, regardless of whether the violations caused the loss. In cases of fraud or misrepresentation in connection with the origination or underwriting of a loan on which the FHA suffers a loss, the Secretary would be required to seek indemnification from the lender. As a condition of obtaining FHA lending approval, lenders would be required to notify HUD if the lender terminates purchases of FHA mortgages or servicing rights from another FHA lender based on evidence of fraud or material misrepresentation. Finally, under the bill, lenders could have their approval to originate and underwrite FHA mortgages terminated if their delinquency rates are comparatively high.