FHA – Consumer Financial Services Watch

American Bankers Association, Consumer Bankers Association, and Housing Policy Council Joint Comments on HUD’s Proposed Rule on the Fair Housing Act’s Standard of Disparate Impact

Oct 24 2019

On behalf of the American Bankers Association, Consumer Bankers Association, and Housing Policy Council, K&L Gates Partner Paul F. Hancock and Associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD”) on October 18, 2019, addressing the proposed amendments to HUD’s interpretation of the Fair Housing Act’s disparate impact standard. The preamble to the proposed rule states that HUD “proposes to amend” its disparate impact regulation “to better reflect the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015).” [1] In that decision, the Supreme Court articulated the standards for, and limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the proposed amendments properly reflect binding precedent and provide necessary guidance regarding the application of the law, and supports the amendments in HUD’s Proposed Rule, with some suggested modifications. A copy of the comment is available here.

DACA Recipients Are Ineligible for FHA Mortgage Insurance Officially, but Lending to DACA Recipients and Other Immigrant Communities Is Subject to Many Unresolved Compliance Challenges

Jun 27 2019

By Andrew C. Glass, Gregory N. Blase, and Daniel S. Cohen

For the past six months, the mortgage lending industry has reported receiving conflicting messages from the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) regarding Deferred Action for Childhood Arrivals (“DACA”) recipients’ eligibility for FHA-insured mortgages. In December 2018, Senators Robert Menendez (D-NJ), Cory Booker (D-NJ), and Catherine Cortez Masto (D-NV) asked HUD to clarify whether it has “developed a policy regarding DACA recipients’ eligibility for FHA-insured mortgage loans.” If not, the senators requested HUD to “promptly provide clear and written guidance to FHA-approved lenders clarifying” that DACA recipients are not ineligible for FHA insurance simply because of their DACA status. [1] In response, HUD issued a letter explaining that is has “not implemented any policy changes” with respect to “FHA’s eligibility requirements” for non-U.S. citizens who are lawful residents. HUD reiterated that “non-U.S. citizens without lawful residency are ineligible for FHA financing.” [2] In early 2019, Fannie Mae issued a guide regarding “non-citizen borrower eligibility,” explaining that mortgages provided to DACA recipients are eligible to be purchased by Fannie Mae because DACA recipients are lawful nonpermanent residents because they have a valid Employment Authorization Document number. [3] During congressional testimony in April, HUD Secretary Ben Carson seemingly clarified that DACA recipients are eligible for FHA-insured mortgages. The secretary commented that “plenty of DACA recipients … have FHA mortgages,” and that he would be surprised if lenders received statements to the contrary from HUD staff.

HMDA Reality Check: What You Can and Cannot Conclude from New Mortgage Loan Data

Apr 03 2019

Authors: Paul F. Hancock, Olivia Kelman

Extensive data about mortgage lending activity collected pursuant to the Home Mortgage Disclosure Act (“HMDA”) was just made available to the public for the first time on March 29, 2019. More detail about borrowers, about underwriting, and about loan features is now available than ever before, and that information also is easier for the public to access than it ever has been. The mortgage lending industry should expect that the expanded HMDA data will receive significant attention and scrutiny from private organizations and individuals, and the data is certain to spark controversy about the racial, ethnic and gender fairness of mortgage lending.

American Bankers Association Weighs In With a Comment on HUD’s Disparate Impact Rule

Aug 22 2018

By Paul F. Hancock, Olivia Kelman

On behalf of the American Bankers Association and state bankers associations across the country, K&L Gates partner Paul F. Hancock and associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD” or “Department”) on August 20, 2018, in support of reopening rulemaking regarding the Department’s implementation of the Fair Housing Act’s disparate impact standard. On June 20, 2018, HUD issued an advance notice of proposed rulemaking that sought public comment on possible amendments to the Department’s 2013 final disparate impact rule in light of the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015). In that decision, the Supreme Court articulated the standards for, and the constitutional limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the rule should be amended because it adopts standards that are inconsistent with Supreme Court precedent, fails to provide much needed guidance to entities seeking to comply with the law, and is therefore outdated and ineffective. A copy of the comment is available here.

HUD Withdraws Proposal to Establish Claim Filing Deadline

Oct 16 2015

By: Krista Cooley, Kathryn Baugher

Servicers of mortgage loans insured by the Federal Housing Administration (“FHA”) can breathe a sigh of relief—at least for now. Today, the U.S. Department of Housing and Urban Development (“HUD”) withdrew part of a recently proposed regulation that would have required FHA-approved servicers to file a claim for FHA insurance benefits within a certain period of time or else face termination of the FHA insurance policy. HUD stated that it withdrew the proposal to establish a claim filing deadline “[i]n response to public comments expressing concern over the implementation of the proposed provisions[.]”

HUD’s Proposal to Terminate FHA Insurance Policies Could Terminate the FHA Program

Sep 01 2015

By: Krista Cooley, Kathryn M. Baugher

If there is anything that galls servicers of government-insured loans, it is the forfeiture or curtailment of all accrued interest from mortgage insurance claims resulting from the failure to foreclose fast enough within artificially created state time lines. At first glance, the U.S. Department of Housing and Urban Development (“HUD” or the “Department”) listened to the complaints of servicers who argued that they should not be penalized for pursuing foreclosure avoidance options or experiencing delays in the legal system beyond their control. HUD’s proposed regulation regarding changes to the Federal Housing Administration’s (“FHA”) single-family mortgage insurance claim filing process includes proposals that pro rate the curtailment of interest based on actual delays caused by the servicer, proposing to eliminate the complete forfeiture of accrued interest for only one day of delay. So far, so good, but HUD did not stop there. HUD also proposed the complete extinguishment of an FHA insurance policy if the servicer does not complete foreclosure within a new set of artificial time lines. Read together, HUD’s reform is to provide servicers with more accrued interest if they do not foreclose fast enough, unless, of course, HUD invalidates the whole insurance policy—the loss of both principal and interest—by virtue of HUD’s subjective definition of unreasonable delays. Few servicers think that is progress.

This proposal raises significant questions and concerns for FHA mortgagees that hold and service FHA-insured loans, many of which could have a chilling effect on FHA lending and servicing activities if HUD were to implement the proposed claim filing deadline as proposed and without significant changes to HUD’s claim filing guidelines and procedures.

STATEMENT OF PAUL F. HANCOCK, K&L GATES LLP, ON DECISION OF U.S. SUPREME COURT UPHOLDING ‘DISPARATE-IMPACT LIABILITY’ UNDER THE FAIR HOUSING ACT

Jun 25 2015

By: Paul F. Hancock

The Court’s decision today resolves an important legal issue about which there has been principled disagreement among White House administrations, as well as among advocacy and industry groups, for decades. While the Court, by a razor thin margin, upheld the application of disparate impact under the Fair Housing Act, the Court also imposed important limitations on the application of the legal theory. For example, the Court held that a racial imbalance, without more, does not establish a case of discrimination, and directed lower courts to “examine with care” the claims presented at the pleading stage. The Court further directed that remedial orders in disparate impact cases must “concentrate on the elimination of the offending practice” and employ “race-neutral [remedial] means.” The limitations that were announced were believed necessary by the Court to “avoid serious constitutional questions that might arise” and “to protect potential defendants against abusive disparate-impact claims.”

FHA Announces Annual Mortgage Insurance Premium Reductions

Jan 14 2015

By: Krista Cooley, Kara M. Ward

Last week, President Barack Obama announced that, at the end of this month, the U.S. Department of Housing and Urban Development (“HUD” or “Department”) will implement a 50-basis-point reduction in the annual mortgage insurance premium (“MIP”) borrowers pay to obtain a Federal Housing Administration (“FHA”) insured loan. On Friday, HUD released Mortgagee Letter 2015-01, as well as instructions on FHA Case Number assignments, which include details about the timing and scope of the annual MIP reduction. Below, we summarize these events.

FHA Annual Premium Reduction

In Mortgagee Letter 2015-01, HUD announced revised annual MIP rates for most FHA-insured, Title II forward mortgages. Specifically, for FHA-insured loans with terms greater than 15 years, the Department will reduce the annual MIP rate by 50 basis points. Depending on the loan amount and loan-to-value (“LTV”) ratio, the new annual MIP rates will range from 80–105 basis points. For example, for an FHA-insured loan with a term greater than 15 years, a base loan amount less than or equal to $625,500, and an LTV ratio greater than 95%, the annual MIP rate will be reduced from 135 to 85 basis points. The reduced annual MIP rates will apply to FHA-insured purchase-money loans, as well as FHA-insured refinance loans with loan terms greater than 15 years. The annual MIP rates for FHA-insured loans with terms of 15 years or less remain unchanged. HUD also did not make any changes to the upfront MIP paid by borrowers at the closing of FHA-insured loans at this time.

Mortgagee Letter 2015-01 contains a notable exclusion from the annual MIP rate reduction announcement. Pursuant to a policy implemented in 2012 that was designed to encourage borrowers with existing FHA-insured loans to refinance into a lower rate loan without incurring a higher annual MIP rate, the annual MIP rate for single-family streamlined refinance transactions that refinance existing FHA-insured loans that were endorsed on or before May 31, 2009, has remained at 55 basis points. When HUD increased annual MIP rates in 2013, it excluded this specific subset of FHA streamlined refinance transactions from those increases. Similarly, Mortgagee Letter 2015-01 excludes this limited subset of streamlined refinance transactions from the Department’s most recent announcement, to provide borrowers with existing FHA-insured loans endorsed on or before May 31, 2009, the continued opportunity to refinance into another FHA-insured loan while maintaining an annual MIP rate of 55 basis points. Mortgagee Letter 2015-01 also excludes loans insured under Section 247 of the National Housing Act from the most recent annual MIP reduction announcement.

HUD Issues Self-Reporting Guidance

Nov 18 2013

By: Krista Cooley

Last Thursday, HUD issued Mortgagee Letter 2013-41 to clarify its self-reporting requirements for FHA-approved lenders. The Mortgagee Letter updates HUD’s prior guidance regarding an FHA-approved lender’s obligation to self-report instances of fraud, material misrepresentations, and material findings identified in connection with the origination, underwriting, or servicing of FHA-insured loans. New guidance set forth in this Mortgagee Letter includes direction on the timeframes to which lenders must adhere in reporting findings to senior management and to HUD, as well as clarification regarding what constitutes a “mitigated” finding in connection with the self-reporting requirements. Read More

HUD Extends Foreclosure Timeframes with Mortgagee Letter 2013-38

Nov 01 2013

By: Krista Cooley, Kathryn M. Baugher

On October 28, 2013, with the publication of Mortgagee Letter 2013-38, HUD provided a much-needed update to the schedule of claimable attorney fees and reasonable diligence timeframes for prosecuting a foreclosure on loans insured by the FHA. These updates expressly apply to both forward mortgages and Home Equity Conversion Mortgages (“HECMs”).

As FHA servicers are aware, with respect to foreclosure on FHA-insured loans, HUD sets limits on the attorney fees that servicers can claim and requires servicers to prosecute foreclosure in a specific amount of time, referred to as the “reasonable diligence timeframe.” In light of the substantial changes in state foreclosure requirements in recent years, HUD’s guidance on fees and reasonable diligence timeframes, which was last updated in 2005, presented significant challenges for FHA servicers striving to meet reasonable diligence timeframes and recoup actual attorney fees expended in prosecuting foreclosures in connection with FHA-insured loans. The updates announced in Mortgagee Letter 2013-38 bring welcome increases for both claimable attorney fees and reasonable diligence timeframes in many jurisdictions.

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