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  • Court preliminarily approves $30 million settlement for post-payment interest charges on FHA mortgages

    Courts

    On August 22, the U.S. District Court for the Northern District of California preliminarily approved a $30 million settlement resolving allegations that a national bank improperly collected post-payment interest on FHA-insured mortgages but did not use the FHA-approved form to provide the disclosures to consumers before doing so. The settlement covers a nationwide class of borrowers who, between June 1996 and January 2015, obtained an FHA-insured mortgage loan. The settlement requires the bank to pay $30 million.

    Courts Class Action Settlement FHA Mortgages

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  • FHA updates loss mitigation options for mortgages in certain areas of Puerto Rico and the U.S. Virgin Islands

    Federal Issues

    On August 15, the Federal Housing Administration (FHA) released Mortgagee Letter 2018-05 (ML 2018-05), which updates loss mitigation options for certain FHA-insured mortgages located in Puerto Rico or Virgin Islands. The properties must be located in Presidentially-Declared Major Disaster Areas (PDMDAs) as a result of Hurricane Maria. In adition, FHA is also instituting a 30-day foreclosure moratorium on certain properties located in Puerto Rico or the Virgin Islands that FEMA has declared to be eligible for individual assistance. (As previously covered by InfoBytes, ML 2018-03 had extended an existing moratorium through August 16.) Additionally, in order to reduce foreclosures and minimize losses to the Insurance Fund, ML 2018-05 provides updated loss mitigation options “designed to provide greater alternatives to foreclosure for mortgagees to use with borrowers in the designated PDMDAs.” The new options supersede the previous ones offered in ML 2018-01 and rearrange the loss mitigation waterfall in order to provide expedited permanent loss mitigation solutions by considering “Disaster Standalone Partial Claims” earlier. This option would allow borrowers, among other things, to maintain their pre-disaster monthly payment of principle and interest and does not change interest rate and term of the mortgage. These loss mitigation options must be implemented by September 15 and expire May 1, 2019. The foreclosure mortgage moratorium is effective immediately and applies to the initiation of foreclosures and foreclosures already in process.

    Federal Issues FHA HUD Disaster Relief Loss Mitigation Mortgages Foreclosure

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  • Court preliminarily approves $11.2 million settlement for post-payment interest charges on FHA mortgages

    Courts

    On July 5, the U.S. District Court for the Southern District of Iowa preliminarily approved a $11.2 million settlement in a proposed class action against a national bank for allegedly improperly charging interest on pre-paid FHA-insured mortgages. According to the complaint filed in 2016, the bank charged post-payment interest on FHA-insured mortgages without providing the proper disclosures required by FHA. Specifically, the complaint alleges that the bank did not use the FHA-approved form to provide the disclosures to consumers. The settlement requires the bank to place $11.2 million in an escrow account for class distributions; settlement expenses; and attorneys’ fees, which, according to settlement documents, will not exceed 28 percent. The court found that the settlement fell “within the range of reasonableness” and met the requirements for preliminary approval.

    Courts Class Action Settlement FHA Prepayment Mortgages

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  • HUD publishes ANPR on Disparate Impact Regulation

    Agency Rule-Making & Guidance

    On June 20, HUD published an advance notice of proposed rulemaking (ANPR) in the Federal Register seeking comment on potential amendments to its the 2013 Disparate Impact Regulation, which implements the Fair Housing Act’s disparate impact standard, as well as the 2016 Application of the Fair Housing Act’s Discriminatory Effects Standard to Insurance (supplement). The notice requests comments on whether the 2013 regulation and the 2016 supplement are consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) While HUD is seeking feedback on any potential changes to the regulation, the agency is particularly interested in, among other things, (i) whether the burden-shifting framework appropriately assigns burdens of production and persuasion; and (ii) whether the regulation should provide defenses or safe harbors to claims of liability. Comments on the notice are due by August 20. 

    Agency Rule-Making & Guidance Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court

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  • Court allows certain City of Oakland claims to proceed against national bank

    Courts

    On June 15, the U.S. District Court for the Northern District of California granted in part and denied in part a national bank’s motion to dismiss an action brought by the City of Oakland, alleging violations of the Fair Housing Act (FHA) and California Fair Employment and Housing Act. In its September 2015 complaint, Oakland alleged that the bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing reduced property tax revenue for the city. After the 2017 Supreme Court decision in Bank of America v. City of Miami (previously covered by a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, Oakland filed an amended complaint. The amended complaint expanded Oakland’s alleged injuries to include (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. The bank moved to dismiss all of Oakland’s claims on the basis that the city had failed to sufficiently allege proximate cause. The court granted the bank’s motion without prejudice as to claims based on the second alleged injury to the extent it sought monetary relief and claims based on the third alleged injury entirely. The court allowed the matter to proceed with respect to claims based on the first injury and, to the extent it seeks injunctive and declaratory relief, the second injury.

    Courts Fair Housing FHA Lending Consumer Finance Mortgages

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  • FHA extends foreclosure moratoriums for certain properties in Puerto Rico & U.S. Virgin Islands

    Federal Issues

    On May 16, the Federal Housing Administration (FHA) released Mortgagee Letter ML 2018-03 (ML 2018-03), which extends the 180-day foreclosure moratorium on FHA-insured properties in Puerto Rico & the U.S. Virgin Islands affected by Hurricane Maria for an additional 90 days. As previously covered by InfoBytes, in March, FHA extended the moratorium an additional 60 days to May 18. The foreclosure moratorium is now in effect, for properties that meet certain conditions, until August 16.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues FHA Disaster Relief Mortgages Foreclosure

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  • HUD announces plan to seek public comment on Disparate Impact Regulation

    Federal Issues

    On May 10, the Department of Housing and Urban Development announced its intention to seek public comment on whether the 2013 Disparate Impact Regulation (Regulation), which provides a framework for establishing legal liability for facially neutral practices that have a discriminatory effect under the Fair Housing Act (FHA), is consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) The Supreme Court upheld the use of a disparate impact theory to establish liability under the Fair Housing Act, but according to HUD’s announcement, the Court only referenced the Regulation in its ruling but did not directly rule upon it.

    As previously covered by InfoBytes, in October 2017, the Treasury Department called on HUD to reconsider the Regulation as it relates to the insurance industry – specifically, to homeowner’s insurance.

     

    Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court Mortgages Mortgage Insurance

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  • District Court grants Illinois county a chance to establish proximate cause in FHA lawsuit

    Courts

    On March 26, the U.S. District Court for the Northern District of Illinois issued a ruling that Cook County (the County) may move forward with a lawsuit against a national bank (the Bank) for allegedly violating the Fair Housing Act (FHA) by engaging in discriminatory lending practices, holding that the County “‘is entitled to a chance to prove its case’” and establish proximate cause. In 2015, the district court dismissed the County’s complaint against the Bank on the grounds that the alleged facts did not fall within the scope of the FHA, and that the County itself was not an “‘aggrieved person’ entitled to sue under the [FHA].” However, the County filed a second amended complaint after the Supreme Court issued a 2017 ruling (previously covered in a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by the alleged misconduct rather than simply a foreseeable result.

    In granting in part and denying in part the Bank’s motion to dismiss the County’s second amended complaint, the district court ruled that the County may proceed on its FHA claims only “to the extent they allege that [the Bank’s] equity-stripping practice directly resulted in increased expenditures” by the County, “in connection with administering and processing an increased number of foreclosures.” According to the court, foreclosures in majority-minority neighborhoods were more likely to occur than in neighborhoods with fewer minority residents. “Statistical analysis could establish the likelihood that a loan modification denial would lead to foreclosure, and therefore could help a factfinder assess how many unnecessary foreclosures [the] County processed as a result of [the Bank’s] conduct,” the district court stated. Other claims such as “lost property tax revenue, increased demand for County services” including housing-related counseling, and “diminished racial balance and stability” were dismissed because they would require estimating too many variables. Additionally, in response to the Bank’s challenge that the County’s suit was barred by the FHA’s statute of limitations, the district court ruled that the challenge is premature because it is not apparent when the County “‘knew or should have known’” that the Bank’s equity-stripping practice was an actionable violation under the FHA.

    Courts FHA State Issues Fair Lending

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  • FHA and VA extend foreclosure moratoriums on certain disaster areas

    Federal Issues

    On March 1, the Federal Housing Administration (FHA) released Mortgagee Letter ML 2018-02 (ML 2018-02), which extends the 180-day foreclosure moratorium on FHA-insured properties in Puerto Rico & the U.S. Virgin Islands affected by Hurricane Maria for an additional 60-days. The foreclosure moratorium is now in effect until May 18.

    The Department of Veterans Affairs (VA) also released updates to VA circulars 26-17-23, 26-17-27, and 26-17-28, extending the foreclosure moratorium on VA-insured properties affected by Hurricanes Harvey, Irma, and Maria from 180 days to 270 days.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues Disaster Relief Foreclosure Mortgages Department of Veterans Affairs FHA

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  • Independent auditor agrees to $149.5 million settlement with DOJ over potential FCA liability

    Federal Issues

    On February 28, the DOJ announced a $149.5 million settlement with an independent auditor for potential False Claims Act (FCA) liability related to its auditing work of a failed mortgage origination company. According to the announcement, between 2002 and 2008, the company served as an independent auditor of a mortgage originator, which issued Fair Housing Administration (FHA) insured loans through HUD’s Direct Endorsement Lender program. The program requires mortgage companies to submit to HUD annual audit reports on financial statements and compliance with certain HUD requirements. The DOJ alleges that during that time, the now failed mortgage originator engaged in a fraudulent scheme, which, among other things, resulted in the originator’s financial distress to not be reflected in its financial statements. The DOJ alleges that the independent auditor “knowingly deviated from applicable auditing standards” and therefore, failed to detect the misleading financial statements and the originator’s allegedly fraudulent conduct, which allowed the originator to continue issuing FHA loans until it declared bankruptcy in 2009. The DOJ notes that the settlement relates to allegations only and there was no determination of actual liability against the independent auditor.

    Federal Issues DOJ False Claims Act / FIRREA Mortgages FHA HUD

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