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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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  • FHA offers further relief to eligible borrowers in disaster areas

    Federal Issues

    On February 22, the Federal Housing Administration (FHA) announced it will extend its foreclosure relief for borrowers with FHA-insured mortgages whose homes were affected by presidentially-declared natural disasters in 2017. Under Mortgagee Letter ML 2018-01 (ML 2018-01), the new “Disaster Standalone Partial Claim” loss mitigation option will allow borrowers whose property or employment is located in designated disaster areas to cover up to 12 months of missed mortgage payments through an interest-free second loan on the mortgage without a required trial payment plan. The second loan will become payable only when the borrower sells the home or refinances. Additionally, the loss mitigation option will streamline income documentation and other requirements to expedite relief to eligible borrowers struggling to pay their mortgages. ML 2018-01 instructs mortgagees to implement the policies set forth no later than May 1.

    Find more InfoBytes disaster relief coverage here.

    Federal Issues Disaster Relief FHA Mortgages Loss Mitigation

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  • FHFA releases 2018-2022 strategic plan

    Federal Issues

    On January 29, the Federal Housing Finance Agency (FHFA) released its strategic plan for 2018-2022, which sets three strategic goals and discusses multiple factors associated with achieving each goal. FHFA’s three strategic goals for 2018-2022 are:

    • Ensure safe and sound regulated entities. FHFA intends to, among other things, use a risk based system to identify supervisory concerns and monitor entities for timely remediation. Additionally, FHFA intends to monitor industry trends and market conditions for emerging risks and issue supervisory guidance and policies related to expectations for safety and soundness.
    • Ensure liquidity, stability, and access in housing finance. FHFA intends to, among other things, promote ongoing liquidity in the marketplace for new and refinanced mortgages. FHA will monitor access to mortgage credit and collaborate with other regulators to identify emerging issues. FHA will support multifamily housing needs of the underserved market and promote policies that support fair access to financial services for qualified borrowers.
    • Manage Fannie Mae and Freddie Mac’s ongoing conservatorships. FHFA will continue, among other things, to oversee Fannie Mae and Freddie Mac staffing, will address outstanding claims involving Fannie Mae and Freddie Mac, and will oversee the implementation of the Uniform Mortgage Data Program.

    The strategic plan also identifies critical factors that may affect achievement of the above goals, including (i) economic conditions and government policies of foreign markets; (ii) market developments and legislative reform affecting the U.S. housing market; (iii) financial performance of Fannie Mae and Freddie Mac; (iv) the status of the Fannie Mae and Freddie Mac conservatorship; and (v) management of FHFA resources.

    Federal Issues FHA Risk Management Fannie Mae Freddie Mac Mortgages

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  • City of Philadelphia’s discriminatory lending lawsuit moves forward

    Lending

    On January 16, a federal judge in the U.S. District Court for the Eastern District of Pennsylvania denied a national bank’s motion to dismiss the City of Philadelphia’s (City) claims that the bank engaged in alleged discriminatory lending practices in violation of the Fair Housing Act (FHA). As previously covered in InfoBytes, the City filed a complaint in May of last year against the bank alleging discrimination under both the disparate treatment and disparate impact theories. The City asserted that the bank’s practice of offering better terms to similarly-situated, non-minority borrowers or refusing to make loans in minority neighborhoods has led to foreclosures and vacant homes, which in turn, has resulted in a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services. In support of its motion to dismiss, the bank argued, among other things, that the City’s claim (i) is time barred; (ii) improperly alleges the disparate impact theory; and (iii) fails to allege proximate cause as required by a recent U.S. Supreme Court ruling (see previous Special Alert here).

    While the court expressed “serious concerns about the viability of the economic injury aspect of the City’s claim with regard to proximate cause,” the court found that the bank “has not met its burden to show why the City’s entire FHA claim should be dismissed.” Consequently, the court held that the case may proceed to discovery beyond the two-year statute of limitations period for FHA violations in order to provide the City an opportunity to prove whether the bank’s policy caused a racial disparity that constituted a violation continuing into the limitations period.

    Lending State Issues Fair Lending Redlining FHA U.S. Supreme Court Disparate Impact Mortgages

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  • U.S. government, national bank parties enter $5 million False Claims Act settlement

    Courts

    On January 5, the U.S. Government reached a $5 million settlement with a national bank and its affiliates (together, the bank parties) to resolve a lawsuit concerning allegations that the bank parties violated the False Claims Act (FCA) by engaging in improper foreclosure-related practices. The settlement is not an admission of liability by the bank parties. Specifically, as previously covered in InfoBytes, the lawsuit primarily alleged that the bank parties knowingly used rubber-stamped surrogate signed endorsements and false mortgage assignments to support false claims for mortgage insurance from the Federal Housing Administration. The lawsuit also asserted a reverse FCA claim alleging that the bank parties made false statements when entering into the 2012 National Mortgage Settlement. The U.S. Government, the bank parties, and the relator who initially brought the suit stipulated to the dismissal with prejudice concerning 39 “Implied Certification and False Statement Claims,” along with all claims brought or that could have been brought by the relator, but without prejudice as to any other claims that could be brought by the U.S. Government. Under the terms of the settlement agreement, the bank parties are required to pay $3.4 million to the U.S. Government—$891,000 of which will be paid to the relator who originally brought the suit. In addition, the bank parties will pay the relator an additional $1.6 million in attorneys’ fees and litigation costs and expenses.

    Courts Foreclosure Mortgage Servicing Mortgages Settlement False Claims Act / FIRREA FHA

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  • DOJ Announces Settlement With Mortgage Lender to Resolve Alleged False Claims Act Violations

    Lending

    The DOJ announced a $11.6 million settlement on December 8 with a Louisiana-based direct endorsement mortgage lender and certain affiliates to resolve allegations that the lender violated the False Claims Act by falsely certifying compliance with federal requirements in order to obtain insurance on mortgage loans from the Federal Housing Administration (FHA). According to the DOJ’s press release, between January 2005 and December 2014, the lender (i) certified loans that failed to meet HUD’s underwriting and origination requirements for FHA insurance; (ii) paid incentives to underwriters in violation of the “underwriter commission prohibition,” and continued to make incentive payments even after HUD notified the lender of commission prohibition noncompliance in 2010; and (iii) failed to, in a timely manner, “self-report material violations of HUD requirements” or perform quality reviews. The settlement also fully resolves a False Claims Act qui tam lawsuit that had been pending in the United States District Court for the Eastern District of Arkansas.

    Lending DOJ False Claims Act / FIRREA FHA Settlement HUD Courts

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