Top 20 Bank Settles with DOJ Over Alleged Violations of the False Claims Act

On September 13, the DOJ announced a $52.4 million settlement with a top 20 bank to resolve allegations that it violated the False Claims Act by knowingly originating and accepting FHA-insured mortgage loans that did not comply with HUD origination, underwriting, and quality control requirements. It is the smallest settlement of a False Claims Act FHA-insured mortgage loans case against a bank to date as part of the government’s recent enforcement initiative in this area. According to the Statement of Facts issued as part of the settlement agreement, from January 1, 2006 through December 31, 2011 (relevant time period), the bank, while acting as a direct endorsement lender (DEL) in the FHA program, (i) certified certain mortgage loans for FHA insurance that failed to meet HUD underwriting requirements regarding borrower creditworthiness; (ii) failed to adhere to various HUD quality control requirements; and (iii) failed to adhere to HUD’s self-reporting requirements. The DOJ noted that the “claims asserted against [the bank] are allegations only, and there has been no determination of liability.” BuckleySandler represented the bank in this matter.

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HUD OIG Sends Letter to House Committee on Financial Services Regarding Funding Arrangements in Certain Housing Finance Agency Down Payment Assistance Programs

On July 26, HUD OIG (OIG) Inspector General David A. Montoya sent a letter to Jeb Hensarling, chairman of the House Committee on Financial Services, regarding OIG’s continuing opposition to certain down payment assistance (DPA) programs. The letter reiterates OIG’s previously stated position that certain DPA programs used for loans sold on the secondary market violate the National Housing Act (NHA) and the Housing Economic and Recovery Act (HERA) by reimbursing prohibited parties for providing part of the required minimum investment funds. According to the letter, more than 60,000 FHA loans are originated per year using this borrower-reimbursed funding arrangement. HUD had previously investigated the OIG criticisms of these loans made in conjunction with local HFAs and had determined that these programs do not violate relevant HUD requirements. In the letter, Montoya critiques that determination and attempts to continue this disagreement between HUD program officials and the OIG.

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CFPB Issues Principles for the Future of Loss Mitigation

On August 2, the CFPB released consumer protection principles for mortgage servicers to use as they develop new foreclosure relief solutions in anticipation of Treasury’s Home Affordable Modification Program’s (HAMP) upcoming expiration date (CFPB Principles). The CFPB Principles echo those summarized in FHFA’s, HUD’s, and Treasury’s recently published white paper, “Guiding Principles for the Future of Loss Mitigation: How the Lessons Learned from the Financial Crisis Can Influence the Path Forward.” As previously covered in InfoBytes, the white paper recommends that future loss mitigation programs promote accessibility, affordability, sustainability, transparency, and accountability. The CFPB Principles address accessibility, affordability, sustainability, and transparency, and cite to separate CFPB mortgage servicing rules for standards concerning accountability. In its press release, the CFPB notes that the four principles “do not establish binding legal requirements but instead are intended to complement ongoing discussions among industry, consumer, groups, and policymakers.”

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FHA Updates Initial and Annual Lender Certification Language

On August 1, HUD announced that FHA updated its lender-level certification statements. Pursuant to the Single Family Housing Policy Handbook 4000.1, all lenders seeking FHA approval must complete the Initial Certification as part of the online application process, and all FHA-approved lenders must complete the Annual Certification at each fiscal year’s end thereafter. As outlined in FHA INFO 16-51, use of the revised certifications is mandatory beginning August 1, 2016. After that date, all new LEAP recertification packages will reflect the revised Annual Certification statements, and all lenders applying anew for FHA approval must complete the revised Initial Certification statements. FHA INFO 16-51 further notes that the revised language “may also affect some in-process applications.” FHA released separate documents for supervised/non-supervised mortgagees and investing and government mortgagees to outline the changes implemented. The changes included in the certification statements range from  rewording, reformatting, and the refining of policy citations to adding instructions, new requirements, and certain exemptions/qualifiers.

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Agencies Issue White Paper Regarding Loss Mitigation Programs

On July 25, FHFA, HUD, and Treasury published a white paper titled “Guiding Principles for the Future of Loss Mitigation: How the Lessons Learned from the Financial Crisis Can Influence the Path Forward.” The paper examines the effect of the 2008 financial crisis on the mortgage servicing industry with a focus on loss mitigation programs. Under the 2009 Making Home Affordable (MHA) program, foreclosure alternatives were established to address the needs of homeowners and to improve the mortgage servicing industry’s loss mitigation practices. According to the paper, between April 2009 and the end of May 2016, 10.5 million modification and mortgage assistance arrangements were completed through government programs and private sector efforts. The paper further notes that, as a result of  FHFA’s, HUD’s, and Treasury’s programs, regulatory actions, and private sector initiatives, the mortgage industry is “generally better prepared now to provide assistance to struggling homeowners than it was before the crisis.” The improvement “is due, in part, to the adoption of certain homeowner engagement standards including continuity of contact, solicitation timeframes, and certain notice and appeal processes required by the [CFPB].” At the end of 2016, MHA programs, such as HAMP, will come to a close. Based on the agencies’ collective experience with MHA programs, the paper identifies  five guiding principles for loss mitigation programs: (i) accessibility, guaranteeing homeowners a simple process for obtaining mortgage assistance; (ii) affordability, “providing homeowners with meaningful payment relief that addresses the needs of the homeowner, the servicer and the investor, to support long-term performance”; (iii) sustainability, offering long-term solutions intended to resolve delinquency; (iv) transparency, “[e]nsuring that the process to obtain assistance, and the terms of that assistance, are as clear and understandable as possible to homeowners, and that information about options and their utilization is available to the appropriate parties”; and (v) accountability, ensuring sufficient oversight of the process to obtain mortgage assistance.

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