On September 29, the DOJ announced a settlement with a large regional bank, whereby the bank agreed to pay $83 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable FHA requirements. In addition to underwriting defects, the DOJ alleged deficiencies in the bank’s quality control function, especially during periods of increased loan volume, as well as failures to adequately self-report loans with material defects. The settlement is not an admission of liability by the bank. BuckleySandler represented the bank in this matter.
On October 14, the HUD Office of Inspector General (HUD-OIG) published a report on HUD’s monitoring and payment of conveyance claims upon termination of FHA-insured mortgages. According to the report, mortgage servicers’ failure to foreclose on properties or meet conveyance deadlines may have cost the FHA an estimated $2.23 billion in unreasonable and unnecessary holding costs. HUD-OIG concluded that deficiencies in 24 CFR Part 203 did not “enable HUD to provide effective oversight and HUD monitored only a small percentage of servicers after the claim had been paid.” As a result of its findings, HUD-OIG recommended that HUD (i) amend 24 CFR Part 203 to include “a maximum period for filing insurance claims and disallowance of expenses incurred beyond established timelines”; (ii) develop an IT plan that that ensures significant operational changes to how HUD monitors single-family conveyance claims; and (iii) establish and implement controls to identify noncompliance with 24 CFR 203.402.
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.
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.
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.”