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Waters recommends Biden reverse several of Trump's actions
On December 4, Chairman of the House Financial Services Committee, Maxine Waters (D-CA) sent a letter to President-Elect Biden providing a list of regulations and other executive actions taken by the Trump administration that the Biden administration should immediately reverse, as well as recommendations for strengthening other regulations. Among other things, Waters recommended that the Biden administration (i) issue an executive order to prevent evictions by “directing the CDC to extend and improve its public health order so people can remain in their homes until emergency rental assistance is available”; (ii) amend HUD and FHFA policies that impose restrictions and increased costs for certain loans that go into forbearance prior to FHA endorsement or purchase by Fannie Mae or Freddie Mac to ensure these loans are still eligible for FHA insurance and purchase by Fannie and Freddie; and (iii) fully use Coronavirus Aid, Relief, and Economic Security (CARES) Act lending authorities, many of which will terminate at the end of December (covered by InfoBytes here).
Waters also urged the Biden administration to take measures to ensure consumer protections, including by, among other things, dismissing Director Kathy Kraninger, enforcing CARES Act protections, and directing the CFPB to (i) issue guidance to financial institutions to ensure affected borrowers are afforded “appropriate forbearance and loan modifications”; (ii) “work to replace the ’Payday, Vehicle Title, and Certain High-Cost Installment Loans’ rule with [one] that protects consumers from predatory lenders”; (iii) restore the Bureau’s Office of Fair Lending and Equal Opportunity’s roles and responsibilities; and (iv) rescind its recently issued final rule amending certain debt collection rules (covered by InfoBytes here), and instead strengthen “consumer protections against abusive debt collection practices.” Other recommendations address diversity and inclusion, financial stability, investor protection, affordable housing, and international development.
FHFA increases conforming loan limits for 2021
On November 24, the FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2021 by Fannie Mae and Freddie Mac from $510,400 to $548,250. In most high-cost areas, the maximum loan limit for one-unit properties will be $822,375. According to the FHFA, due to generally rising home values, “the maximum CLL will be higher in 2021 in all but 18 counties or county equivalents in the U.S.” A county-specific list of the maximum loan limits in the U.S. can be accessed here.
FHA proposes private flood insurance option
On November 10, the Federal Housing Administration (FHA) issued a proposed rule which would allow mortgagors the option to purchase private flood insurance on FHA-insured mortgages for properties located in Special Flood Hazard Areas (SFHAs). Under the Flood Disaster Protection Act of 1973, property owners located in an SFHA, and a community participating in the National Flood Insurance Program, are required to purchase flood insurance as a condition of receiving a mortgage backed by Fannie Mae or Freddie Mac, the Department of Veterans Affairs, the United States Department of Agriculture, or the FHA. The proposed rule would allow the purchase of private mortgage insurance for properties in SFHAs for the first time. Additionally, the proposed rule seeks comment on a compliance aid, which would “help mortgagees evaluate whether a flood insurance policy meets the definition of ‘private flood insurance.’” According to the FHA, between three and five percent of FHA borrowers could obtain a private flood insurance policy if the option becomes available.
DOJ reaches $25 million settlement with mortgage lender to resolve false claims allegations
On October 20, the DOJ announced a nearly $25 million settlement with a California-based mortgage lender in connection with alleged violations of the False Claims Act (FCA) related to originating and underwriting mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, the lender “knowingly approved ineligible loans that later defaulted and resulted in claims to FHA for mortgage insurance,” failed to comply with material program rules requiring lenders to maintain quality control programs to prevent underwriting deficiencies, and failed to self-report identified materially deficient loans. The mortgage lender agreed to pay the DOJ $24.9 million to resolve the FCA claims. In addition, a whistleblower will receive nearly $5 million under the settlement. The DOJ’s press release noted that the claims “are allegations only, and [that] there has been no determination of liability.”
FHA issues mortgagee letter extending guidance on employment reverification and appraisals
On October 28, FHA issued Mortgagee Letter 2020-37, which re-extends the effective date of the employment reverification guidance in Mortgagee Letter 2020-05, previously covered here, here, here, and here. The Mortgagee Letter also updates the appraisal scope of work inspection option providing for exterior-only appraisals, which limits face-to-face contact for certain transactions affected by Covid-19. The updated appraisal guidance is effective on November 1, 2020 and is applicable to appraisals with an effective date on or before December 31, 2020. The extension of the employment reverification guidance is effective immediately for cases closed on or before December 31, 2020.
FHA extends deadline for Covid-19 loss mitigation options
On October 20, FHA announced that homeowners experiencing a Covid-19 financial hardship with FHA-insured mortgages can request an initial forbearance or a Home Equity Conversion Mortgage (HECM) extension through December 31. Specifically, Mortgagee Letter 2020-34 extends the date by which mortgagees must approve the initial Covid-19 forbearance or Covid-19 HECM extension originally provided for in ML 2020-06 and expanded in ML 2020-22 (covered by InfoBytes here and here). FHA notes that due to the continued Covid-19 pandemic and its impact on borrowers around the country, the agency is extending the deadline through December 31 from the original deadline of October 30.
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.
DOJ: Lender allegedly violated FIRREA, False Claims Act by forging certifications and using unqualified underwriters
On September 25, the DOJ filed a complaint against a lender alleging that it forged certifications and used unqualified underwriters to approve FHA-insured Home Equity Conversion Mortgages (HECMs) to increase its loan production in violation of the Financial Institutions Reform, Recovery and Enforcement Act and the False Claims Act. In addition, the DOJ claims that, because the lender allegedly did not employ enough direct endorsement underwriters to review each HECM loan endorsed for FHA mortgage insurance, it bypassed FHA’s underwriter requirements and (i) allowed “unqualified temporary contractors to underwrite, approve, and sign certifications for HECM loans”; (ii) “[f]orged signatures of qualified underwriters on certifications for other HECM loans” to create the appearance that they had been reviewed and approved by a qualified underwriter; (iii) pre-signed blank certifications representing that appraisals had been reviewed and approved; and (iv) used these forms and certifications to insure HECM loans that did not meet the underwriting requirements. The DOJ alleges that, accordingly, the FHA insured overvalued and underwater properties, which increased borrower expenses and raised the chances of default. The DOJ also asserts that the lender’s purported false claims for FHA mortgage insurance payments were material, as it led to the government making payments it would otherwise not have been required to make.
FDIC, HUD announce Oregon wildfires regulatory and disaster relief
On September 18, the FDIC issued FIL-91-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oregon affected by wildfires that began on September 7. In the guidance, the FDIC writes that, in supervising institutions affected by the wildfires, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC will also consider relief from certain reporting and publishing requirements.
Separately, on September 17, HUD announced disaster assistance available to certain counties impacted by the Oregon wildfires, providing foreclosure relief and other assistance to affected homeowners. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
Special Alert: HUD finalizes new disparate impact regulation
The Department of Housing and Urban Development earlier this month issued a final disparate impact regulation under the Fair Housing Act (Final Rule). HUD’s new Final Rule is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Inclusive Communities). While the new Final Rule is a notable development, the relatively recent Supreme Court decision makes it unclear to what extent courts and federal agencies will look to the rule for guidance.