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FHA reduces mortgage insurance premiums to improve home affordability
On February 22, FHA announced a 30 basis point reduction in the annual premium charged to mortgage borrowers, resulting in mortgage insurance premiums of 0.55 percent for most borrowers seeking FHA-insured mortgages (down from 0.85 percent). (See also Mortgagee Letter 2023-05.) The reduction will apply to nearly all FHA-insured Single Family Title II forward mortgages, and is applicable to all eligible property types including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts. According to the announcement, the reduction is intended to build on steps taken by the Biden administration to make homeownership more affordable and accessible, particularly for households of color, and could save an estimated 850,000 borrowers an average of $800 annually. As previously covered by InfoBytes, last September HUD modified FHA’s underwriting policies to allow lenders to consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage, and in March, the Property Appraisal and Valuation Equity Task Force outlined steps for addressing alleged racial bias in home appraisals (covered by InfoBytes here). Additional actions taken by HUD to improve homeownership accessibility can be found here.
FHA seeks feedback on enhancements to rehabilitation mortgage insurance program
On February 14, FHA issued a request for information (RFI) seeking input on ways the agency can enhance its Single Family 203(k) Rehabilitation Mortgage Insurance Program. Under the 203(k) Program, borrowers who are purchasing or refinancing a home may obtain FHA insurance on a mortgage that will cover the home’s current value plus rehabilitation costs. The 203(k) Program currently offers two options for borrowers: (i) the Standard 203(k) Mortgage, which is used for remodeling and major repairs, carries a minimum repair cost of $5,000, and requires the use of a 203(k) consultant; and (ii) the Limited 203(k) Mortgage, which is used for minor remodeling and non-structural repairs, has a maximum repair cost of $35,000, and does not require the use of a 203(k) consultant. FHA will use information gathered in response to the RFI “to identify barriers that limit the origination of 203(k) insured mortgages and lender participation in the program and consider opportunities to enhance the 203(k) Program to support HUD’s goal of increasing the available supply of affordable housing in underserved communities.” Comments on the RFI are due April 17.
HUD re-extends procedures to address Section 232 mortgage insurance issues
On December 28, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 2020-50, which extends interim procedures regarding site access issues related to Section 232 mortgage insurance applications during the Covid-19 pandemic (previously covered here, here and here). The guidance provides temporary modifications pertaining to third-party site inspections conducted for Section 232 FHA-insured healthcare facilities. The modifications are effective through March 31, 2021. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding lender underwriter site visits, appraisals, and inspections on new construction, among other things.
HUD re-extends procedures to address Section 232 mortgage insurance issues
On October 1, 2020, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 20-33, which extends interim procedures regarding site access issues related to Section 232 mortgage insurance applications during the Covid-19 pandemic (previously covered here and here). The guidance provides temporary modifications pertaining to third-party site inspections for Section 232 FHA-insured healthcare facilities effective through December 31, 2020. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding lender underwriter site visits, appraisals, and inspections on new construction, among other things.
Delaware governor issues order modifying relief relating to evictions, foreclosures, and insurance
On June 30, the Delaware governor issued an order that modifies previous relief relating to evictions, foreclosures, and insurance. Specifically, the declaration lifts the stay on residential mortgage foreclosure actions commenced prior to the state of emergency. However, subject to certain exceptions, individuals may not be removed from the residential properties as a result of a mortgage foreclosure process while the order is in effect. Further, actions for summary possession may be filed for residential units in Delaware, but must be stayed pending a determination of whether the parties would benefit from participating in court supervised mediation or alternative dispute resolution. During the eviction process, subject to certain exceptions, individuals may not be removed from the residential properties. Finally, beginning July 1, 2020, every insurer is required to provide a 90-day payment plan for certain individual policyholders and business policyholders impacted by the Covid-19 state of emergency.
Lawmakers urge HUD and FHFA to amend forbearance policies that reduce access to mortgage credit
On June 25, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), Chairman of the Subcommittee on Housing, Community Development and Insurance, Wm. Lacy Clay (D-MO), and Congressman Juan Vargas (D-CA) sent a letter to HUD and FHFA calling for amendments to policies which penalize loans that go into forbearance prior to being insured by the Federal Housing Administration (FHA) or purchased by Fannie Mae or Freddie Mac (GSEs). According to the lawmakers, policies put into place prior to the Covid-19 pandemic by HUD and FHFA prohibited loans in forbearance from FHA endorsement or from being purchased by the GSEs. While the agencies amended the policies to allow for FHA insurance and GSE purchases due to the current economic crisis (covered by InfoBytes here and here), the lawmakers claim that lenders are required to pay “significant fees” and “increased costs” for these loans, which results in lenders (i) retaining mortgages that they had no intention, or may not have the capacity to maintain; (ii) paying a steep penalty to the GSEs; or (iii) agreeing to retain additional risk in the case of FHA. As a result, lenders have started limiting loans and access to credit or requiring “credit overlays” that are “disproportionately affecting borrowers of color and other underserved borrowers.” The lawmakers also assert that if a lender retains a loan to avoid a penalty, the loan does not become federally-backed and is consequently ineligible for protections afforded by the CARES Act and other federal regulations. The lawmakers ask that the agencies amend their policies to instead “spread the costs associated with those risks across a broader single-family portfolio,” which will lead to “near-negligible costs” on individual loans and “appropriately balance the need to manage risks to the taxpayer while serving [the] agencies’ missions of promoting access to credit.”
FHA issues temporary relief in light of Covid-19 challenges
On June 22, the Federal Housing Administration announced various policy changes to address the continuing impact of Covid-19. First, the FHA suspended the requirement that mortgagees select and review all early payment defaults on a monthly basis. Second, the FHA suspended the requirement that mortgagees conduct field reviews of 10 percent of FHA-insured mortgages on a monthly basis. Third, the FHA announced that it will consider the financial impact of Covid-19 as a mitigating factor when a mortgagee’s Compare Ratio is above a designated threshold. The FHA uses Compare Ratios to identify whether a termination or suspension of certain mortgagee authorities is needed under the Credit Watch Termination and Lender Insurance Program monitoring processes.
FHA removes ten-year protection plan requirements
On March 12, HUD released Mortgagee Letter 2019-05, which alters home warranty requirements for FHA single-family mortgage insurance by removing the policy guidance that required borrowers to purchase ten-year protection plans in order to qualify for certain mortgages on newly constructed single-family homes. The borrower is still required to obtain a one-year warranty, which should commence on the date that title is conveyed to the borrower, the date that construction is completed, or the date that the borrower occupies the house, whichever occurs first. The changes are effective on March 14.
Mortgage lender settles FCA allegations
On February 13, the U.S. Attorney for the Eastern District of California announced a $3.67 million joint settlement with HUD and the Fair Housing Administration (FHA) to resolve allegations that a mortgage lender violated the False Claims Act by falsely certifying compliance with FHA mortgage insurance requirements. According to the settlement agreement, between 2007 and 2009, the mortgage lender, a participant in HUD’s Direct Endorsement Lender program, allegedly knowingly submitted false claims to the FHA loan insurance program by failing to ensure the loans qualified for FHA insurance when they were originated. The announcement notes that the settlement relates solely to allegations, and that there has been no determination of actual liability by the mortgage lender, which did not admit to liability in the settlement.
DOJ settles FCA allegations with mortgage lender for $13.2 million
On October 19, the DOJ announced a $13.2 million settlement with a mortgage lender resolving allegations that the company violated the False Claims Act (FCA) by falsely certifying compliance with the Federal Housing Administration (FHA) mortgage insurance requirements in violation of the False Claims Act (FCA). Specifically, the government alleged that, between 2006 and 2011, the lender failed to follow proper mortgage underwriting and certification rules as a participant in the direct endorsement lender program and knowingly submitted loans for FHA insurance that did not qualify. Additionally, DOJ alleged that the lender “improperly incentivized underwriters and knowingly failed to perform quality control reviews.” Under the direct endorsement lender program, FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance; accordingly lenders are required to follow rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. This settlement also resolves a related whistleblower lawsuit filed under the FCA, in which the former employee of a related entity will receive approximately $2 million.