On May 18, HUD announced that the FHA proposed a new rule that is intended to “strengthen” its Home Equity Conversion Mortgage (HECM) Program by reinforcing reforms that have taken place in the past two years, and by adding new consumer protections. New revisions to the HECM program outlined in the proposed rule include, but are not limited to, (i) ensuring that required HECM counseling occurs before a mortgage contract is signed; (ii) amending the definition of “property charges” to include utilities as a borrower responsibility; (iii) capping lifetime interest rate adjustments for adjustable interest rate products at 5%; (iv) requiring as a condition of eligibility for loan assignment that the HECM mortgage be in lien status prior to homeowners association and condo association liens; and (v) creating a “cash for keys” program to “incentivize parties with legal authority to dispose of a property that serves as the security for a HECM to complete a deed in lieu of foreclosure more quickly.” Comments on the proposal are due by Monday, July 18, 2016.
This week, FHA Principal Deputy Assistant Secretary for Housing and Head of FHA, Edward Golding, issued a letter informing stakeholders that “HUD has determined that housing finance agency down payment assistance programs are legal and consistent with the National Housing Act.” We note that the letter was not a Mortgagee Letter nor was it published in the Federal Register and may be considered informal guidance.
In the letter, Golding advised that:
- Government entities may provide borrowers with funds for down payments on FHA loans; and
- Loans that include down payment assistance (DPA) provided by state and local housing finance agencies (HFA) continue to be eligible for FHA insurance.
Golding’s letter emphasized the benefits of DPA programs, commenting that such programs facilitate access to homeownership for low- and moderate-income families. Still, Golding noted that FHA will continue to monitor and mitigate any potential risk associated with DPA programs: “[w]e will work diligently to reduce the impact of these risks on our portfolio. We know it is possible to accomplish this as the research shows carefully designed programs perform better.”
Golding’s letter purports to resolve a matter of dispute regarding DPA between FHA and the HUD Office of Inspector General (OIG). Last year, HUD OIG audited an Arizona-based mortgage lender and issued a report concluding that the lender originated FHA loans that included gift DPA that did not comply with FHA rules and regulations. Specifically, the audit found that, among other things:
- The lender inappropriately allowed premium pricing to be used as a source for the borrowers’ down payments, which were not true gifts and were indirectly repaid by the borrowers through a higher premium rate;
- The lender used programs that had a circular funding mechanism (i.e., the program was structured to generate revenues through the sale of mortgage-backed securities); and
- The lender did not perform due diligence to ensure DPA was eligible.
On March 15, HUD announced the completion of FHA’s loan-level certification, Form 92900-A. Significantly, the final certification clarifies FHA’s “longstanding position” that “minor mistakes that do not affect the decision to approve a loan are not the focus of [FHA’s] compliance efforts” and that “lenders will be held accountable for only those mistakes that would have altered the decision to approve the loan.” The certification also clarifies that lenders are required to certify only “to what they know to be true to the best of their knowledge” and that they are not responsible for “mistakes or fraud committed by a third party that the lender did not or could not have had reason to know of.” Finally, the certification removes references to the pre-endorsement review requirement. HUD issued Mortgagee Letter 2016-16 to advise mortgagees of the revised certification, which is effective August 1, 2016.
On March 15, HUD’s proposed revisions to the FHA annual lender certification were published in the Federal Register. According to HUD’s announcement, the primary revision to the annual lender certification form is the “addition of language requiring lenders to certify that they have not been involved in fraud or other serious criminal or civil violations that would call into question their ability to carry out the responsibilities of the program.” Previously, this language was included in the loan-level certification. In addition, the proposal also amends the lender-level certification statement regarding compliance with all FHA regulations and requirements by (i) adding guidebooks to cover certain FHA policy; (ii) revising the language to clarify the intent and scope of the statement; (iii) removing timeframes and revising the qualifier so that it matches the similar qualifier in other statements; and (iv) detailing reporting requirements in HUD Handbook 4000.1. Comments on the proposal are due April 14, 2016.
On February 29, HUD announced an agreement with a Kansas City-based bank over its alleged redlining practices against African-American mortgage applicants. Two fair housing organizations (Complainants) filed separate complaints with HUD in October 2015 alleging that the bank engaged in discriminatory acts and violated the Fair Housing Act. According to Complainants, the bank’s “lack of market penetration in African-American communities made residential real estate products less available to persons based on race.” Complainants further alleged that the bank “designated their service area, or assessment area, in a way that excluded areas of high African-American concentration, which resulted in making residential real estate products less available to persons based on race” – a practice generally referred to as redlining. The agreement requires that the bank must, during the three-year agreement period: (i) allocate $75,000 in subsidy funds to provide discounts on home purchase loans to majority African-American census tracts in the Kansas City area; and (ii) originate $2.5 million in mortgage loans in African-American neighborhoods. Read more…
As previously noted, the White House released the FY 2017 Budget Proposal this week. President Obama’s proposed HUD budget for FY 2017 would revise the FHA down payment assistance requirements found under Section 203(b)(9) of the National Housing Act (12 U.S.C. 1709) by (i) replacing subparagraph (C) (Prohibited sources), and adding a new subparagraph (D) (Government assistance). The proposed amendment to the National Housing Act “seeks to clarify that down payment assistance from state and local governments and their respective agencies and instrumentalities are not impermissible sources of down payment assistance.”