On March 26, 2015, the Mortgage Bankers Association (MBA) sent a letter to HUD’s Deputy Assistant Secretary Zadareky seeking clarification, guidance, and answers to outstanding questions raised by HUD’s early drafts of its new comprehensive Federal Housing Administration Single-Family Housing Policy Handbook. The MBA raises five particular concerns and requests a possible delay for the scheduled implementation date of June 15, 2015 for the following reasons in order to give the industry time to adapt including (i) some of the policy changes in the Handbook are expected to mean changes for the TOTAL Scorecard, and lenders will need access to a revised Developers Guide in order to align their systems with HUD’s systems; (ii) lenders are adapting to a large number of new legal and regulatory requirements. The TILA-RESPA Integrated Disclosure rule alone constitutes a major shift for lenders; (iii) it is currently not clear where a lender would go to find out if a borrower’s federal debt has been referred to the US Treasury for collection in order to comply with the Handbook’s requirement that delinquent Federal debt be resolved in accordance with the Debt Collection Improvement Act; (iv) the new required treatment of excluded parties puts an impossible burden on lenders because the lender must now guarantee that an employee of another company with which the lender is working does not have an employee who has been suspended or debarred by HUD; and (iv) the Handbook’s new definition of satisfactory credit is unclear and conflicts with payment history requirements in other sections of the Handbook.
On April 1, HUD held a special Fair Housing event and announced a national media campaign to help ensure that all Americans – regardless of race, color, national origin, religion, gender, family status, and disability – receive equal access to housing, as per the FHA. Through various media channels, the new campaign will (i) increase the public’s awareness of housing discrimination; and (ii) explain how to report violations of the FHA. The new campaign is designed to further the agency’s enforcement efforts when FHA violations occur. At the same event, DOJ Acting Assistant AG Gupta delivered remarks regarding recent actions taken in response to alleged housing discrimination. Specifically, Gupta noted that while racial discrimination remains prevalent, familial status discrimination has recently become a significant concern and that the DOJ and HUD “continue to see the scourge of sexual harassment in housing.” Finally, Gupta emphasized that HUD’s proposed rule on Affirmatively Furthering Fair Housing is “an important way to ensure that the promises of the Fair Housing Act will continue to be fulfilled.”
On February 11, HUD Secretary Julián Castro delivered remarks at the U.S. House Financial Services Committee (HFSC) hearing, “The Future of Housing in America: Oversight of the Federal Housing Administration.” In his testimony, Castro stressed that FHA did not cause the housing crisis, but actually saved the market stating, “FHA stepped in and stepped up to fill the void created when private capital retreated – work that independent economists say prevented a further collapse in home prices.” Looking forward, Castro noted that FHA’s challenge will be to make homeownership more affordable, and he emphasized the importance of improving underwriting standards and strengthening the agency’s Mutual Mortgage Insurance Fund.
On January 21, the U.S. Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). In their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions of the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether the Court should defer to HUD’s disparate impact rule. The Court is expected to issue its ruling by the end of June. For more information on the oral argument, please refer to our previously issued Special Alert.
This morning, the Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). Twice before, the Court granted certiorari on this issue, but in both cases the parties reached a settlement prior to oral arguments.
As described further below, in their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions within the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether they should defer to HUD’s disparate impact rule.
On January 8, HUD announced that the Federal Housing Administration (FHA) will reduce the annual insurance premiums new borrowers pay by 50 basis points. This policy initiative is intended to boost FHA lending, and FHA projects that, as a result of the policy change, 250,000 new homebuyers will purchase their first home over the next three years.
On December 3, the ABA sent a letter to HUD’s General Deputy Assistant Secretary for the Office of Housing requesting guidance on the use of form HUD-92070 under the Servicemembers Civil Relief Act. HUD Form 92070 relates to the debt protections servicemembers receive under the SCRA. However, the most current version of the form expired on November 30, 2014. The letter seeks guidance regarding (i) compliance requirements now that the form has expired; and (ii) how to provide an accurate notice to servicemembers since the current form will be inaccurate effective January 1, 2015. Finally, the letter requests that HUD advise lenders as to how they should remain in compliance with the Congressional mandate until a new form is published.
On December 2, the U.S. Senate confirmed Nani Coloretti to be appointed as the new Deputy Secretary of HUD. Nominated in March, Coloretti currently serves as the Assistant Secretary for Management at the Department of Treasury where she advises on the development and execution of Treasury’s budget, strategic plans, and the internal management of the Department and its bureaus. Following the passage of the Dodd-Frank Act, she also helped stand-up the CFPB by serving as its Acting COO.
Recently, a federal district court held that a homeowners association (HOA) foreclosure sale is not valid against HUD-insured loans. The District Court noted that the Ninth Circuit has held that federal rather than state law applies in cases involving FHA-insured mortgages to assure the protection of the federal program against loss, state law notwithstanding. The court reasoned, therefore, that in situations where a mortgage is insured by a federal agency under the FHA insurance program, state laws cannot operate to undermine the federal agency’s ability to obtain title after foreclosure and resell the property. Because an HOA foreclosure on property insured under the FHA insurance program would have the effect of limiting the effectiveness of the remedies available to the United States, the District Court held that the Supremacy Clause of the U.S. Constitution bars such foreclosure sales and renders them invalid. Washington & Sandhill Homeowners Association v. Bank of America and HUD, U.S. Dist. Ct., District of Nevada, No. 2:13-cv-01845-GMN-GWF (Sept. 25, 2014).
On November 3, the United States District Court for the District of Columbia vacated HUD’s Disparate Impact Rule under the Fair Housing Act (FHA). The court, in American Insurance Association v. United States Department of Housing and Urban Development, held that “the FHA prohibits disparate treatment only,” and therefore HUD, in promulgating the Disparate Impact Rule, “exceeded [its] authority under the [Administrative Procedures Act].” (Emphasis in original.)
In the Disparate Impact Rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.” 24 C.F.R. § 100.500. It then articulated a burden shifting framework for such claims. Id. § 100.500(c)(1)-(3). In vacating HUD’s Disparate Impact Rule, the court reviewed the text of the FHA and concluded that “the FHA unambiguously prohibits only intentional discrimination.” (Emphasis in original.) The court explained that the FHA lacks the “effects-based language” that makes disparate impact claims cognizable under other anti-discrimination statutes. The court reasoned that this lack of effects-based language created “an insurmountable obstacle to [HUD’s] position regarding the plain meaning of the Fair Housing Act.” The court further reasoned that this textual reading is consistent with the FHA’s statutory scheme and, in the case of insurance products, required by the McCarran-Ferguson Act.
Today, the United States District Court for the District of Columbia vacated HUD’s Disparate Impact Rule under the Fair Housing Act (FHA). The court, in American Insurance Association v. United States Department of Housing and Urban Development, held that “the FHA prohibits disparate treatment only,” and therefore HUD, in promulgating the Disparate Impact Rule, “exceeded [its] authority under the [Administrative Procedures Act].” (emphasis in original).
In the Disparate Impact Rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.” 24 C.F.R. § 100.500. It then articulates a burden shifting framework for such claims. Id. § 100.500(c)(1)-(3).
On October 22, coordinated by the Department of Treasury, six federal agencies – the Board of Governors, HUD, FDIC, FHFA, OCC, and SEC – approved a final rule requiring sponsors of securitized transactions, such as asset-backed securities (ABS), to retain at least 5 percent of the credit risk of the assets collateralizing the ABS issuance. The final rule, which largely mirrors the proposed rule issued in August 2013, defines a “qualified residential mortgage” (QRM) and exempts securitized QRMs from the new risk retention requirement. Government-controlled Fannie and Freddie are exempt from the rule. Most notably, the final rule’s definition of a QRM parallels with that of a qualified mortgage as defined by the CFPB. Further, initially part of the proposed rule, the final rule does not include down payment provisions for borrowers. The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securities, and two years after publication for all other types of securitized assets.
On October 15, HUD announced the award of more than $38 million to fair housing and non-profit organizations in 43 states and the District of Columbia to address discrimination in the housing industry. Through HUD’s Fair Housing Initiatives Program, grants are funded with the intent that they will “help enforce the Fair Housing Act through investigations and testing of alleged discriminatory practices.” Additionally, the grants are meant to help provide education on rights and responsibilities under the Fair Housing Act to housing providers, local governments, and potential victims of housing discrimination. HUD’s most recent categories of grants included: (i) Private Enforcement Initiative Grants; (ii) Education and Outreach Initiative Grants; and (iii) Fair Housing Organizations Initiative.
On September 24, the CFPB published an updated reverse mortgage guide on its blog to account for HUD’s recent changes to reverse mortgage programs. The blog post highlights new limits to lump sum, first-year payouts under reverse mortgages, as well as HUD’s new protections for non-borrowing spouses. For example, non-borrowing eligible spouses no longer need to choose between paying off the reverse mortgage or moving out when their borrowing spouse dies; instead, depending on the circumstances, they may be able to stay in the home. Consistent with its first reverse mortgage guide, issued in July 2012, the Bureau’s new guide strongly encourages consumers to consider all options before obtaining a reverse mortgage and points to HUD-approved housing counselors as their best resource.
Federal Housing Administration Posts Draft Servicing Section of its Single Family Housing Policy Handbook
On September 11, as part of its initiative to develop a single authoritative source for Federal Housing Administration (“FHA”) Single Family Policy, the FHA posted a draft of the servicing section of its Single Family Housing Policy Handbook. The draft servicing section covers post endorsement to the end of the mortgage insurance contract and provides specific guidance on the following: (i) general servicing requirements for FHA-insured mortgages; (ii) servicing of performing mortgages; (iii) default servicing, including HUD’s Loss Mitigation Program and conveyance standards; (iv) loss mitigation performance; and (v) special mortgage program servicing for active and inactive programs. On September 18, 2014, the FHA will host an industry briefing call to go over the organization and structure of the draft servicing section. The FHA is accepting comments on the draft servicing section through October 17, 2014.