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  • President Trump Releases 2018 Budget Proposal; Key Areas of Reform Target Financial Regulators, Cybersecurity, and Student Loans

    Federal Issues

    On May 23, the White House released its fiscal 2018 budget request, A New Foundation for American Greatness, along with Major Savings and Reforms, which set forth the President’s funding proposals and priorities. The mission of the President’s budget is to bring spending under control by proposing savings of $57.3 billion in discretionary programs, including $26.7 billion in program eliminations and $30.6 billion in reductions.

    Financial Regulators. The budget stresses the importance of reducing the cost of complying with “burdensome financial regulations” adopted by independent agencies under the Dodd-Frank Act. However, the proposal provides few details about how the reform applies to federal financial services regulators. Identifying the CFPB specifically, the budget states that restructuring the Bureau is necessary in order to “ensure appropriate congressional oversight and to refocus [the] CFPB’s efforts on enforcing the law rather than impeding free commerce.” Major Savings and Reforms assert that subjecting the Bureau to the congressional appropriations process would “impose financial discipline and prevent future overreach of the Agency into consumer advocacy and activism.” The budget projects further savings of $35 billion through the end of 2027, resulting from legal, regulatory, and policy changes to be recommended by the Treasury once it completes its effectiveness review of existing laws and regulations in collaboration with the Financial Stability Oversight Council. The Treasury review is being performed as a result of the Executive Order on Core Principals.

    Dept. of Housing and Urban Development. As previously reported in InfoBytes, the budget proposes that funding be eliminated for the following: (i) small grant programs such as the Self-Help Homeownership Opportunity Program, which includes, among others, the Capacity Building for Community Development and Affordable Housing Program (a savings of $56 million); (ii) the CHOICE Neighborhoods program (a savings of $125 million), stating state and local governments should fund strategies for neighborhood revitalization; (iii) the Community Development Block Grant (a savings of $2.9 billion), over claims that it “has not demonstrated results”; and (iv) the HOME Investment Partnerships Programs (a savings of $948 million). The budget also proposes reductions to the Native American Housing Block Grant and plans to reduce costs across HUD’s rental assistance programs through legislative reforms. Rental assistance programs generally comprise about 80 percent of HUD’s total funding.

    Cybersecurity. The budget states that it “supports the President’s focus on cybersecurity to ensure strong programs and technology to defend the Federal networks that serve the American people, and continues efforts to share information, standards, and best practices with critical infrastructure and American businesses to keep them secure.” Law enforcement and cybersecurity personnel across the Department of Homeland Security (DHS), Department of Defense, and the FBI will see budget increases to execute efforts to counter cybercrime. Furthermore, the National Cybersecurity and Communications Integration Center—which DHS uses to respond to infrastructure cyberattacks—will receive an increase under the budget.

    Student Loan Reform. Under the proposed budget, a single income driven repayment plan (IDR) would be created that caps monthly payments at 12.5 percent of discretionary income—an increase from the 10 percent cap some current payment plans offer. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the Public Service Loan Forgiveness program and subsidized loans will be eliminated, and reforms will be established to “guarantee that borrowers in IDR pay an equitable share of their income.” These proposals will only apply to loans originated on or after July 1, 2018, with the exception of loans provided to borrowers in order to finish their “current course of study.”

    Dept. of the Treasury. The budget proposes to, among other things: (i) eliminate funding for new Community Development Financial Institutions Fund grants (a savings of $220 million); and (ii) reduce funding for the Troubled Asset Relief Program by 50 percent, “commensurate with the wind-down of TARP programs” (a savings of $21 million).

    Response from Treasury. In a statement released by the Treasury, Secretary Steven T. Mnuchin said the budget “prioritizes investments in cybersecurity, and maintains critical funding to implement sanctions, combat terrorist financing, and protect financial institutions from threats.” Furthermore, it also would “achieve savings through reforms that prevent taxpayer bailouts and reverse burdensome regulations that have been harmful to small businesses and American workers.”

    Federal Issues Treasury Department POTUS HUD budget Privacy/Cyber Risk & Data Security Student Lending Bank Regulatory FSOC

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  • National Fair Housing Alliance Settles Lending Discrimination Claims Brought Against National Bank

    Lending

    On May 19, the National Fair Housing Alliance (NFHA) announced it had reached an agreement with a major national bank (Bank) related to a housing discrimination complaint the NFHA filed with HUD in 2014. The complainant alleges that NFHA conducted a series of tests over a period of several months revealing a “pattern of discriminatory conduct.” Latino prospective qualified borrowers were often quoted higher monthly payment and closing costs and were denied opportunities to speak with loan officers. The complainants also cited data showing that the number of purchase loan applications received from Latinos had declined over the past few years. While the Bank denied all allegations in the complaint, it agreed to contribute more than $400,000 towards fair housing efforts in South Carolina and nationwide. Separately, the original complaint led to HUD filing charges against the Bank last December on behalf of the NFHA for lending discrimination—citing, in particular, that prospective Latino borrowers were treated less favorably than non-Latinos, in violation of the Fair Housing Act.

    Lending HUD Enforcement Fair Lending Mortgage Lenders

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  • HUD Issues Restated Consolidated Financial Statements for 2016 and 2015 Correcting $520 Billion in Errors

    Federal Issues

    On March 1, HUD-OIG  issued an Independent Auditor's Report (Auditor’s Report) (2017-FO-0005) on HUD’s fiscal years 2016 and 2015 (Restated) consolidated financial statements.  The Auditor’s Report—issued in accordance with the Chief Financial Officers Act of 1990—revealed, among other things, eleven “material weaknesses,” seven “significant deficiencies,” and five “instances of noncompliance” with applicable laws and regulations.  Each of these findings related to what the auditor described as HUD’s “inability to establish a compliant control environment, implement adequate financial accounting systems, retain key financial staff, and identify appropriate accounting principles and policies.” The dollar amount of errors corrected in HUD’s 2016 and 2015 notes and consolidated financial statements were $516.4 billion and $3.4 billion, respectively. The Auditor’s Report further noted that there were several “unresolved audit matters,” which “restricted [the auditor’s] ability to obtain sufficient, appropriate evidence to express an opinion. Based on these observed issues, the Auditor’s Report recommended, among other things, that HUD (i) reassess its current consolidated financial statement and notes review process to ensure that sufficient internal controls are in place to prevent and detect errors; (ii) evaluate the current content of HUD’s consolidated note disclosures to ensure compliance with regulations and GAAP; and (iii) develop a plan to ensure that restatements are properly reflected in all notes impacted.

    Testimony before the House Subcommittee on Transportation, Housing and Urban Development. On March 16, shortly after the Restated Financial Statements and Auditor’s Report were released, David A. Montoya, Inspector General of HUD, testified before the House Subcommittee on Transportation, Housing and Urban Development, and Related Agencies concerning, among other things, “HUD’s inability to maintain an effective financial management governance structure, which [the OIG has] reported on for the last 3 years and which contributed to [the OIG’s] issuing disclaimers of opinion as part of [their] annual audits of HUD’s financial statements.”

    • A link to an archived webcast of Hearing can be accessed here.
    • A copy of the Inspector General’s Testimony before the House Subcommittee on Transportation, Housing and Urban Development can be accessed here.

    A copy of the Inspector General’s October 2016 Statement Summarizing the Major Management and Performance Challenges Facing HUD for Fiscal Year 2017 and Beyond can be found here.

    Federal Issues HUD OIG

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  • President Trump Releases Budget Plan Proposal; HUD and Treasury Among Many Who Would Face Significant Cuts

    Federal Issues

    On March 16, the White House released its budget blueprint America First: A Budget Blueprint to Make America Great Again, which sets forth the President’s discretionary funding proposals in advance of the “full Budget”—scheduled for release later this spring. Among the many agencies and programs that would experience substantial cuts under the President’s budget are both the Department of Housing and Urban Development and the Department of the Treasury.

    Department of Housing and Urban Development (“HUD”). For HUD, the President’s 2018 budget requests $40.7 billion in gross discretionary funding for HUD, which is a $6.2 billion or 13.2 percent decrease from the 2017 annualized continuing resolution level. The White House budget also proposes that: (i) funding be eliminated or redirected to the State and Local level for the Community Development Block Grant program, which the White House estimates would save $3 billion from 2017 levels; (ii) funding be eliminated for “lower priority programs,” which the White House says include “the HOME Investment Partnerships Program, Choice Neighborhoods, and the Self-help Homeownership Opportunity Program”; (iii) funding be eliminated or redirected to the State and Local level for Section 4 Capacity Building for Community Development and Affordable Housing (at an estimated savings of $35 million from 2017 levels); (iv) support be provided for “homeownership through provision of Federal Housing Administration mortgage insurance programs.”

    Dept. of the Treasury. And, as for Treasury, the White House is proposing that the Department be granted $12.1 billion in discretionary resources. This proposal represents a $519 million or 4.1 percent decrease from the 2017 levels. Specifically, the White House’s budget proposes to, among other things: (i) preserve key operations of the Internal Revenue Service (“IRS”) to ensure that “the IRS can continue to combat identity theft, prevent fraud, and reduce the deficit through the effective enforcement and administration of tax laws,” while diverting resources away from “antiquated operations” that still rely on paper-based reviews;  (ii) “strengthen cybersecurity in a Department-wide plan to strategically enhance existing security systems and preempt fragmentation of information technology management across the bureaus”; (iii) “prioritize funding for Treasury’s array of economic enforcement tools”; (iv) “eliminate funding for Community Development Financial Institutions Fund grants”; (v) “empower the Treasury Secretary, as Chairperson of the Financial Stability Oversight Council, to ‘end taxpayer bailouts and foster economic growth by advancing financial regulatory reforms that promote market discipline and ensure the accountability of financial regulators;’” and (vi) “shrink the Federal workforce” while increasing its efficiency by redirecting resources away from "duplicative" policy offices.

    In response to the proposed budget, Treasury Secretary Steven T. Mnuchin released the following statement:

    "President Trump’s discretionary budget plan released today focuses Treasury on our core missions of collecting revenue, managing the nation’s debt, protecting the financial system from threats, and combating financial crime and terrorism financing. It will ensure that we have the resources we need to enforce the nation’s tax laws, while investing in cybersecurity and prioritizing resources on initiatives that promote technology, efficiency and modernization across the agency."

    Federal Issues Trump budget HUD Treasury Department

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  • Illinois-Based Lender, HUD Resolve Fair Housing Act Matter

    Lending

    On March 10, HUD released a Conciliation Agreement with an Illinois-based lender alleged to have discriminated against African-American and Hispanic borrowers seeking mortgage loans. The complaint, brought by HOPE Fair Housing Center (HOPE), claims the lack of bank branches in majority African-American and Hispanic communities resulted in fewer financial services being offered to applicants based on their race and national origin in violation of the Fair Housing Act. HOPE’s complaint also claims that African-American and Hispanic applicants were more likely to receive less favorable mortgage terms than other races. As part of the settlement, the lender will establish a $1 million loan program to “increase mortgage lending to residents in majority African-American and Hispanic areas” and will pay $75,000 to HOPE. Among other things, the agreement also states the lender will offer consumer education outreach in minority areas and provide fair lending training for its staff.

    Lending Mortgage Lenders Fair Housing HUD Fair Lending

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  • Senate Confirms Ben Carson for HUD Secretary

    Federal Issues

    On March 2, Dr. Ben S. Carson was sworn in as the 17th Secretary of the U.S. Department of Housing and Urban Development. Vice President Mike Pence administered the oath of office. Earlier in the day, the Senate confirmed the retired neurosurgeon as the new secretary of the HUD Secretary in a 58-41 vote, primarily along party lines. The Senate Banking, Housing, and Urban Affairs Committee unanimously voted to move Carson out of committee on January 24. Dr. Carson’s full biography is available here.

    Federal Issues HUD Senate Banking Committee U.S. Senate

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  • Trump Names Ben Carson to HUD Post

    Federal Issues

    In a press release issued December 5, President-Elect Trump named retired pediatric neurosurgeon Ben Carson as Secretary of Housing and Urban Development. Carson was a 2016 Republican presidential candidate. Raised in poverty in inner-city Detroit, he was head of pediatric neurosurgery at Johns Hopkins Hospital in Baltimore for nearly three decades, rising to national fame in 1987 when he led the first successful separation of twins conjoined at the head.

    Federal Issues Mortgages HUD President-Elect

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  • Jury Finds Mortgage Company and CEO Liable for Fraud; Awards $92 Million in Damages

    Courts

    A federal jury has ordered two Texas-based home mortgage entities and their chief executive to pay nearly $93 million for defrauding the U.S. government into insuring thousands of risky loans, the Department of Justice announced on November 30.

    The mortgage companies and their former CEO were found liable for violating the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by, among other things, failing to maintain an adequate quality control program; and submitting false annual certifications regarding quality control requirements. Specifically, the government contended that defendants operated over 100 “shadow” branch offices that originated FHA-insured mortgage loans without obtaining the necessary HUD approval, and which were therefore not subject to HUD oversight.

    Ultimately, the jury awarded $92,982,775 in total damages, including $7,370,132 against the CEO specifically—a sum that is subject to mandatory tripling. Further penalties relating to the FIRREA violations are expected, which U.S. District Judge George Hanks will set at a later date.

    Courts Mortgages HUD DOJ False Claims Act / FIRREA FCA Mortgage Fraud

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  • FHFA: No Increase on Multifamily Loan Caps for GSEs

    Federal Issues

    On November 22, FHFA announced that Fannie Mae and Freddie Mac’s caps for multifamily lending will remain at $36.5 billion for 2017. The determination was based on the agency’s projection that the overall size of the multifamily finance market will remain roughly the same as it was in 2016. Multifamily loans in designated affordable and underserved segments will remain excluded from the caps.

    Federal Issues Mortgages Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing HUD FHFA

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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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