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  • HUD Secretary Carson Testifies at House Financial Services Committee Hearing, Discusses Use of FCA Against FHA Lenders

    Federal Issues

    On October 12, Secretary of HUD, Ben Carson, testified at a hearing before the House Financial Services Committee. The hearing entitled “The Future of Housing in America: Oversight of the Department of Housing and Urban Development,” provided an update on HUD’s vision for federal housing policy and touched upon topics such as the conservatorship of Fannie Mae and Freddie Mac, the agency’s role in hurricane disaster relief, and regulatory reform efforts. In his written testimony, Carson reaffirmed his personal interest, and that of the President Trump’s Administration, in working with the Committee on housing finance reform, specifically referencing the FHA mortgage insurance program and Ginnie Mae mortgage-backed security guaranty as “vital components” of the housing finance system. Towards the end of the three-hour-long hearing, Carson was asked by Representative Dave Trott (R-MI) about the federal government’s “unprecedented” use of the False Claims Act (FCA) as a means to “impose outrageous penalties against lenders for immaterial defects” in HFA loan originations, which, according to Rep. Trott, is turning lenders away from FHA lending and is resulting in increased costs to borrowers. Carson stated that his staff is already engaged in discussions with the DOJ staff and is “committed to getting that resolved, because it’s ridiculous, quite frankly.” Carson added, “I’m not exactly sure why there had been such an escalation previously, but the long-term effects of that escalation is obviously providing fewer appropriate choices for consumers, and that’s exactly the opposite of what we should be doing.”

    Federal Issues HUD House Financial Services Committee DOJ False Claims Act / FIRREA Mortgages FHA

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  • District Court Fines Mortgage Brokers More Than $298 Million for Alleged FCA/FIRREA Violations

    Courts

    On September 14, a federal judge in the U.S. District Court for the Southern District of Texas ruled after a five-week jury trial that defendants, who allegedly submitted fraudulent insurance claims after acquiring risky loans, were liable for treble damages and the maximum civil penalties allowed under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). According to the court, the evidence presented at trial demonstrated that the damages suffered by the U.S. were a “foreseeable consequence” of the defendants’ misconduct and that such misconduct was part of an “prolonged, consistent enterprise of defrauding the [U.S.],” warranting a higher level of penalties. The jury found that one of the defendants along with its CEO “submitted or caused to be submitted 103 insurance claims” while misrepresenting that its branches were registered by HUD, causing the Federal Housing Administration (FHA) to sustain damages in excess of $7 million. A separate mortgage broker defendant was found to have submitted or caused to be submitted 1,192 insurance claims causing over $256 million in damages to the FHA due to the “reckless” underwriting of loan applications, in violation of FCA. The court rejected the defendants’ request for lenient civil penalties, finding the defendants’ behavior to be “custom-designed to flout the very program that relied upon [defendants’] diligence and compliance” and demonstrating “a patent unwillingness to accept responsibility for their actions.” The FIRREA penalties resulted from defendants submitting false annual certifications to HUD that were intended “to serve as a separate and independent quality check on the [defendant’s] branches,” but instead led to injury in the form of borrowers entering into default or foreclosures, as well as elevated mortgage insurance premiums.

    The judge imposed over $291 million in FCA treble damages and penalties against the three defendants. Additionally, each defendant was fined $2.2 million in FIRREA penalties for actions that “were neither isolated or relatively benign . . . [but] were reckless, egregious, and widely injurious.”

    Courts Lending Mortgages False Claims Act / FIRREA Litigation Insurance FHA HUD

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  • HUD Releases Mortgagee Letter Providing Home Equity Conversion Mortgage Servicing Implementation Guidance

    Agency Rule-Making & Guidance

    On August 24, HUD published Mortgagee Letter 2017-11, which provides directions for FHA-approved mortgagees to implement certain servicing policy changes outlined in the Federal Housing Administration: Strengthening the Home Equity Conversion Mortgage Program Final Rule (HECM Final Rule), published in the Federal Register in January 2017. The HECM Final Rule’s servicing requirements (including the additional guidance set forth in Mortgagee Letter 2017-11), will take effect for all FHA case numbers assigned on or after September 19, 2017. The Mortgagee Letter furnishes additional details on the following areas of servicing policy included in the HECM Final Rule: (i) “Default for Unpaid Property Charges”; (ii) “Sale of Property Securing a Due and Payable HECM”; and (iii) “Cash for Keys Incentive and Relocation Incentive.”

    Agency Rule-Making & Guidance HUD FHA Mortgage Servicing Federal Register Home Equity Loans HECM

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  • DOJ Announces Settlements with Non-Bank Mortgage Lender to Resolve Alleged False Claims Act Violations

    Lending

    On August 8, the DOJ announced a $74.5 million settlement with a non-bank mortgage lender and certain affiliates to resolve potential claims that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development and the Veterans Administration (VA), and by selling certain loans to Fannie Mae and Freddie Mac that did not meet applicable requirements. According to the terms of the two settlement agreements, $65 million of the settlement will be paid to resolve allegations relating to FHA loans, and $9.45 million will be paid to resolve potential civil claims relating to certain specified VA, Fannie Mae, and Freddie Mac loans. The settlements also fully resolved a False Claims Act qui tam lawsuit that had been pending in the United States District Court for the Eastern District of New York.

    The settlement included no admission of liability by the lender. The lender issued a statement responding to the settlements: “We have agreed to resolve these matters, which cover certain legacy origination and underwriting activities, without admitting liability, in order to avoid the distraction and expense of potential litigation. While we cooperated fully in these investigations since receiving subpoenas in 2013, we concluded that settling these matters is in the best interest of [the company] and its constituents.”

    Lending Mortgages False Claims Act / FIRREA Mortgage Origination HUD Fannie Mae Freddie Mac FHA Settlement DOJ Nonbank Supervision

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  • City Agrees to Settlement of Housing Discrimination Suit with DOJ

    Courts

    On May 26, the Department of Justice (DOJ) and the city of Jacksonville, Florida (city), agreed on a settlement over claims that the city violated the Fair Housing Act (FHA) and the Americans with Disabilities Act (ADA). The DOJ alleged that the city denied permission for the development of permanent supportive housing for individuals with disabilities in an historic district and discriminated on the basis of the intended residents’ disabilities.

    The settlement provides for a civil penalty of $25,000 to be paid to the U.S. Treasury as well as the creation by the city of a $1.5 million grant to be awarded to a qualified developer of permanent supportive housing in the community. The city also agreed to take additional specific steps to comply with the requirements of the ADA and FHA.

    Two other plaintiffs whose suits were consolidated with the DOJ’s—Ability Housing, Inc. and Disability Rights Florida, Inc.—also received compensation for reasonable attorneys’ fees and other costs.

    As part of the settlement, the city denied any wrongdoing alleged by the DOJ.

    Courts State Issues DOJ FHA Department of Treasury Litigation

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  • City of Philadelphia Sues National Bank for Discriminatory Lending Practices

    Lending

    On May 15, the City of Philadelphia filed a lawsuit against a national bank (Bank) alleging that it violated the Fair Housing Act by engaging in discriminatory lending practices that targeted minority borrowers. (See City of Phila. v. Wells Fargo & Co., Case No. 2:17-cv-02203-LDD, 2017 WL 2060317 (E.D. Pa.).) The complaint alleges that beginning in 2004 and continuing through the present, the Bank engaged in “a continuous and unbroken discriminatory pattern and practice of issuing higher cost or more onerous mortgage loans to minority borrowers” while offering better terms to similarly situated non-minority borrowers. The City’s complaint alleges discrimination under both disparate treatment and disparate impact theories. The City claims that the Bank has a long history of both redlining (the practice of refusing to make loans in minority neighborhoods) and reverse redlining (the practice of targeting higher cost loans or loans with less favorable terms to minority neighborhoods). The complaint further describes a pattern of knowing and intentional discrimination by the Bank, relying on statistical analyses finding, among others, that: (i) a loan for a home in a predominantly minority neighborhood was 4.7 times more likely to go into foreclosure than a loan on a home in a mainly white neighborhood; (ii) African American and Latino borrowers were more than twice as likely to receive a high-cost loan as white borrowers; and (iii) when credit scores were factored in for borrowers with FICO scores of more than 660, African American borrowers were more than 2.5 times more likely than white borrowers to receive a high cost loan, and Latino borrowers more than twice as likely. As a result of the foreclosures and vacant homes, the City says it suffered a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services.

    City of Miami Suit. As previously covered in InfoBytes, the Supreme Court recently ruled that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act (FHA) against lenders for injuries allegedly flowing from discriminatory lending practices, although the five-justice majority held that such injuries must be proximately caused by the FHA violations. The Supreme Court returned the City’s lawsuit to the U.S. Court of Appeals for the Eleventh Circuit because, while the Court found that the City’s injuries appeared to be a foreseeable result of the lender’s practices, this was not enough to establish proximate cause. Therefore, it remains to be seen whether the City can show proximate cause.

    Lending Courts FHA Mortgage Lenders Consumer Finance

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  • Special Alert: Supreme Court Holds Cities Have Standing Under FHA, But Limits Potential Claims

    On May 1, the Supreme Court ruled 5-3 that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act against lenders for injuries allegedly flowing from discriminatory lending practices. However, the Court held that such injuries must be proximately caused by the alleged misconduct—rather than simply a foreseeable result. Some commentators suggest that the Court’s zone of interest analysis will result in the filing of new claims. Our view of this decision is that it will reduce such litigation efforts as prospective municipal plaintiffs recognize that it will be more difficult to survive early dispositive motions focused on whether the damages claims bear a direct relationship to the conduct alleged.

    ***
    Click here to read full special alert.

    If you have questions about the ruling or other related issues, visit our Fair Lendingpractice page for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.

    FHA Fair Lending U.S. Supreme Court

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  • FHA Price Cut Officially Halted by New Administration

    Federal Issues

    On January 20, the newly-installed Trump Administration issued Mortgagee Letter 2017-07, which indefinitely suspended the reduction in Federal Housing Administration (FHA) premiums that had been scheduled to go into effect January 27 under a policy approved by outgoing HUD Secretary Julian Castro. In suspending the rate change, FHA explained that it remains “committed to ensuring its mortgage insurance programs [remain] viable and effective in the long term for all parties involved, especially our taxpayers,” and that, “more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.” FHA also confirmed that it “will issue a subsequent Mortgagee Letter at a later date should this policy change.”

    Federal Issues Mortgages FHA Mortgagee Letters Trump

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  • CFPB Requests Rehearing of Decision Threatening Agency's Structure

    Federal Issues

    Earlier today, the CFPB filed its much-anticipated response in PHH Corp. v. CFPB, requesting reconsideration by the full D.C. Circuit. As discussed in our special alert, on October 11, 2016, a three-judge panel of the D.C. Circuit vacated the CFPB’s $109 million penalty against PHH under the Real Estate Settlement Procedures Act (RESPA). In addition, a majority of the panel held that, to resolve a constitutional defect in the CFPB’s structure, the Director was removable by the President at will, meaning that President Trump could remove Director Cordray upon taking office. However, the panel’s decision is stayed until seven days after the court rules on the CFPB’s request.

    Rather than proceeding directly to the Supreme Court, the CFPB proceeded as expected by requesting rehearing en banc by the full D.C. Circuit, which is generally disfavored and granted only for matters of “exceptional importance.” Perhaps most significantly, the Bureau’s petition does not request rehearing of the panel’s conclusion that RESPA’s three-year statute of limitations applied to administrative as well as judicial actions brought under that statute. 

    The CFPB’s petition argues that the panel’s constitutional ruling on the CFPB’s structure should be reheard because it “sets up what may be the most important separation-of-powers case in a generation.” Specifically, the Bureau argues that the panel’s determination that a multi-member commission is an essential component of an independent agency runs contrary to Supreme Court precedent and “unduly limits Congress’s flexibility to respond to the various crises of human affairs … by creating independent administrative agencies headed by a single director.” The Bureau further states that the panel’s reasoning “may affect not only the Bureau but also other agencies headed by a single director removable only for cause,” such as the Social Security Administration, Federal Housing Finance Agency, and the Office of Special Counsel.

    The Bureau also asks the D.C. Circuit to rehear the panel’s determination that RESPA permits lenders and mortgage insurers to enter into tying arrangements under which the lender refers mortgage insurance businesses to the insurer in exchange for the insurer purchasing reinsurance from the lender’s affiliate. In support of this request, the Bureau argues that “the panel’s decision misinterpreted [RESPA] in a manner that so fundamentally defeats the statutory purpose [of prohibiting kickbacks] as to warrant rehearing en banc.” Specifically, the Bureau states that “[t]he panel’s reading of the statute would permit any mortgage lender to condition referrals on the purchase of goods or services in any related or unrelated business line. Such schemes flout the core purposes of RESPA.”

    Under the D.C. Circuit’s rules, PHH is not permitted to file a response to the CFPB’s petition unless ordered by the court to do so. However, the court will not modify the panel’s opinion without allowing PHH to respond to the petition. There is no deadline for action by the court.

    Federal Issues Consumer Finance CFPB RESPA FHA PHH v. CFPB Trump U.S. Supreme Court

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  • Release Updated FHA Guidance on State and Local Land Use Laws

    Federal Issues

    On November 10, DOJ and HUD issued a Joint Statement updating guidance on the application of the FHA to state and local land use and zoning laws. The guidance—which is provided in the form of frequently asked questions and answers thereto—is designed to help state and local governments better understand how to comply with the FHA when making zoning and land use decisions as well as to help members of the public understand their rights under the FHA. The first section of the Joint Statement, questions 1–6, describes generally the FHA’s requirements as they pertain to land use and zoning. The second and third sections, questions 7–25, discuss more specifically how the FHA applies to land use and zoning laws affecting housing for persons with disabilities, including guidance on regulating group homes and the requirement to provide reasonable accommodations. The fourth section, questions 26–27, addresses HUD’s and DOJ’s enforcement of the FHA in the land use and zoning context.

    Federal Issues Consumer Finance HUD DOJ FHA

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