On September 4, the DOJ announced a settlement of more than $29 million with a Florida-based mortgage banking firm in connection with violations of the False Claims Act. The firm’s subsidiaries participated in HUD’s Home Equity Conversion Mortgages (HECM) program, which insures reverse mortgage loans by reimbursing lenders that are unable to recoup the full amount of a reverse mortgage loan once the loan becomes due and payable. HUD will reimburse sales commissions paid to real estate agents in connection with the liquidation of foreclosed properties, but will not reimburse fees paid to real estate agents for referrals of loans to be liquidated. According to the DOJ, from July 2010 to October 2014, the firm used straw companies to split commissions with real estate agents, and then later submitted claims to HUD for reimbursement of the full commission amount. Additionally, from August 2009 to March 2015, the firm encouraged its subsidiaries to submit false debenture interest claims to HUD. Specifically, the subsidiaries neglected to disclose that they had failed to meet certain required regulatory deadlines and were therefore not entitled to interest payments. The DOJ stated that the settlement “represents a significant milestone in [the DOJ’s] long standing campaign against mortgage fraud.”
On September 28, HUD, the FDIC, and the U.S. Attorney for the Eastern District of New York filed suit against a non-profit housing counseling corporation and certain mortgage lenders for allegedly running a scheme to defraud the United States and various banks out of over $5,000,000 in false claims. Filed in the Eastern District of New York, the complaint alleges that, in order to remain in HUD’s Direct Endorsement Program, a federal program that insures mortgage loans through the FHA, the mortgage lenders sought to fraudulently conceal the high default rates of their loans by funneling money through the corporation to pay their borrowers’ payments, in direct violation of FHA regulations. The mortgage lenders would then sell the federally-insured loans to FDIC-insured banks. Once either a bank’s indemnification or repurchase rights, or the period during which HUD monitored loans for early payment defaults, lapsed, the mortgage lenders would stop making payments, resulting in the ultimate default of the borrowers. The complaint seeks treble damages under the FCA, the FIRREA, and under common law theories of gross negligence, breach of fiduciary trust, and unjust enrichment.
On September 2, U.S. Attorney General Loretta Lynch delivered remarks at HUD’s Fair Housing Policy Conference. In her remarks, Lynch stressed the importance of fair housing as being a primary driver “to access to employment, to education, to credit, to transportation, to safety and to a whole range of institutions and opportunities.” Lynch stated that she is “more determined than ever to vigorously enforce the Fair Housing Act (FHA).” Among other things, Lynch provided an overview on how the DOJ is implementing new programs, technology, and research to conduct electronic testing, allowing the DOJ to expand the reach of its Fair Housing Testing Program. The Attorney General also expressed her support of HUD’s recently issued “Affirmatively Furthering Fair Housing” rule, and signaled that the DOJ intends to “vigorously enforce” the FHA using every available tool, including the disparate impact theory, which the Supreme Court ruled recently as a valid enforcement tool to challenge unfair mortgage lending practices.
On July 13, HUD announced guidance regarding discrimination on the basis of sexual orientation, gender identity, and marital status. The guidance on Multifamily Assisted and Insured Housing Programs was intended to clarify the 2012 Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity Rule (“Equal Access Rule”). HUD clarified that, in addition to individual program eligibility requirements established by HUD, a determination of eligibility for housing that is assisted by HUD or subject to a mortgage insured by the FHA “will be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.” The guidance also clarifies that owners, administrators, and other recipients and sub-recipients of HUD funds associated with HUD-assisted housing or housing whose financing is insured by HUD may not inquire about the sexual orientation or gender identity of an applicant for, or occupant of, such housing, and notes that the rule is applicable whether such housing is renter or owner occupied. HUD noted that future Management and Occupancy Reviews may include a review for compliance with the Equal Access Rule. The guidance was coordinated with the July 13 White House Conference on Aging, with the White House emphasizing that the Equal Access Rule also applies to Section 202 Supportive Housing for the Elderly.
On July 8, HUD issued a final rule aimed at helping communities who receive HUD funding meet their fair housing obligations to provide affordable housing in more communities. The rule equips grantees with various new data and tools to better analyze the state of fair housing within their communities, and assist grantees in setting locally-determined benchmarks. The rule also requires new reports from local communities detailing how HUD funds will be allocated, and provides a phase-in period for grantees to adapt to the new requirements. In conjunction with the issuance of the final rule, HUD also released an Executive Summary, a fact sheet, and FAQs to provide greater clarity and support to grantees.
On July 6, HUD’s Federal Housing Administration (FHA) proposed a rule to establish a maximum time period for FHA-approved lenders to file insurance claims for benefits following the foreclosure of FHA-insured mortgages. Currently, HUD does not require mortgagees to file claims by a certain time, but the proposed rule will require lenders to file insurance claims (i) three months from when they obtain marketable title to the property; or (ii) when the property is sold to a third party. Since the housing market collapse, which dramatically increased mortgage defaults, mortgagees have chosen to forgo promptly filing insurance claims with the FHA, instead opting to wait and file multiple claims at once. This uncertainty of when claims will be filed, along with the high number filed at the same time, has strained FHA resources and negatively impacted its ability to project the future state of the Mutual Mortgage Insurance Fund (MMIF), which it is statutorily obligated to safeguard. In addition to the deadline, the proposed rule would ban from insurance payouts certain expenses incurred by mortgagees that are the result of their failure to timely fulfill the requirements necessary to submit an insurance claim (such as promptly initiating foreclosure). Comments on the proposed rule are due September 4, 2015.
On June 1, a regional bank agreed to pay the United States $212.5 million to resolve allegations that it knowingly violated the False Claims Act by originating and underwriting FHA-insured mortgage loans that did not meet applicable requirements. The bank – through its subsidiary and as a Direct Endorsement Lender in the FHA insurance program – had the authority to approve mortgage loans for FHA insurance without having FHA or HUD review the loan application first. The DOJ Civil Division’s investigation concluded that, from January 2006 through October 2008, the bank, even though it was aware of material deficiencies in its loan origination process, “failed to report even a single deficient mortgage to FHA.” DOJ further concluded that, while the bank profited from its loan process, taxpayers suffered significant losses when the loans defaulted and FHA incurred “substantial losses when it later paid insurance claims on these loans.” The bank admitted to failing to comply with FHA origination, underwriting, and quality control regulations.
On May 26, the U.S. Department of Housing and Urban Development announced that it entered into a conciliation agreement with a Wisconsin-based bank to resolve claims that, from 2008 to 2010, the bank discriminated on the basis of race and national origin by denying loans to qualified African-American and Hispanic applicants, and making few loans in majority-minority census tracts in five metropolitan areas in Illinois, Minnesota, and Wisconsin (while making loans in nearby predominantly white tracts). Among other things, the agreement requires the bank, over a three-year period, to: (i) pay nearly $10 million in the form of lower interest rate home mortgages and down payment/closing cost assistance to qualified borrowers in majority-minority census tracts in specified housing markets in Illinois, Minnesota, and Wisconsin, (ii) invest nearly $200 million in increased mortgage lending in majority-minority census tracts in these areas, (iii) provide nearly $3 million to help existing homeowners repair their properties in these predominantly minority communities, (iv) pay $1.4 million to support affirmative marketing of loans in these census tracts, and (v) open offices in certain specified majority-minority census tract areas. According to HUD, this is the largest redlining settlement that it has initiated.
On May 26, the DOJ announced a lawsuit against the city of Beaumont, Texas (Beaumont) for allegedly violating the Fair Housing Act (FHA) and the Americans with Disabilities Act. According to the DOJ’s complaint, Beaumont’s Zoning Code imposes a one-half mile spacing restriction on small community homes for persons with intellectual or developmental disabilities; this means that no such community home may operate within one-half mile of another such community home. The DOJ alleges that Beaumont’s Zoning Code does not similarly restrict the spacing of housing for persons without disabilities. In addition, the DOJ asserts that Beaumont imposes on community homes for persons with disabilities excessive fire safety requirements that are not imposed on similarly situated housing for persons without disabilities. According to the DOJ, Beaumont’s policies have “compelled the closure of several community homes” and prohibited “new community homes from opening or operating in most of Beaumont’s residential neighborhoods,” forcing residents with disabilities to move to institutional settings or out of Beaumont. The lawsuit, which arose after complaints were filed with HUD, requests that the Court enter an Order under which Beaumont, among other things, would be (i) enjoined from enforcing the one-half mile spacing rule or fire safety requirements that apply only to community homes of persons with disabilities, (ii) required to restore (to the extent practical) the alleged victims to the position they would have been in but for the alleged violations, and (iii) required to pay monetary damages.
National Non-Profit Fair Housing Organization Files Complaint Against Fannie Mae Alleging Racial Discrimination
On May 12, 2015, the National Fair Housing Alliance (NFHA) and 19 local fair housing organizations (collectively, the “Complainants”) filed a fair housing discrimination complaint with the U.S. Department of Housing & Urban Development against Fannie Mae alleging a pattern of maintaining and marketing its foreclosed houses in white areas better than in minority areas. The complaint is the result of a five year investigation where investigators visited and documented the conditions of the foreclosed properties that Fannie Mae owns in 34 metro areas. In each of the investigated metropolitan areas, the Complainants allege that Fannie Mae engaged in the practice of maintaining and marketing its REO properties in a state of disrepair in communities of color while maintaining and marketing REO properties in predominantly White communities in a materially better condition. Fannie Mae REO properties in White communities were far more likely to have a small number of maintenance deficiencies or problems than REO properties in communities of color, while REO properties in communities of color were far more likely to have large numbers of such deficiencies or problems compared to those in White communities. As a result, the Complainants allege that Fannie Mae violated the Fair Housing Act, Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988, including but not limited to 42 U.S.C. §§ 3604(a)-(d). The housing advocacy groups are calling for Fannie Mae to clean up the neglected properties and spend “millions” of dollars on grants or other compensation for those trying to buy foreclosed houses and people living in communities affected by them.
On April 30, the FHA announced revisions to its Single Family Housing Policy HandBook (HandBook) and extended the effective date for various policies contained within from June 15 to September 14, 2015. The policy topics affected include, (i) the annual mortgage insurance premium reductions, (ii) the maximum mortgage limits 2015, (iii) the electronic appraisal delivery portal, and (iv) the refinance of borrowers in negative equity positions program.
U.S. Files Complaint Against Leading Non-Bank Mortgage Lender For Alleged Improper Underwriting Practices on FHA-Insured Loans After Lender Files Suit Against U.S. Alleging Arbitrary and Capricious Investigation Practices
On April 17, Quicken Loans filed a preemptive lawsuit against the DOJ and HUD in the Eastern District of Michigan against HUD, the HUD-IG, and DOJ, asserting that it “appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” Specifically, the complaint alleged that HUD, the HUD-IG, and DOJ retroactively changed the process for evaluating FHA loans, from an individual assessment of a loan’s compliance, taking into account a borrower’s individual situation, the unique nature of each property, and the specific underwriting guidelines in effect, to a sampling method which extrapolates any defects found in a small subset of loans across the entire loan population, contrary to HUD’s prior guidance and in violation of the Administrative Procedures Act. The complaint further alleged that the sampling method used by the government was flawed, and asked for declaratory and injunctive relief against the government’s use of sampling. Quicken also asked the court to rule that the FHA loans it made between 2007-2011 in fact were “originated properly in accordance with the applicable FHA guidelines and program requirements, and pose no undue risk to the FHA insurance fund,” asserting that “HUD reviewed a number of these loans and, except in a few rare instances, either concluded the loans met all FHA guidelines or that any issues were immaterial or had been cured.” Read more…
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 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 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.