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Mortgage lender agrees to pay $38.5 million to settle False Claims Act underwriting allegations
On December 14, the DOJ announced a $38.5 million settlement with a mortgage lender to resolve alleged False Claims Act (FCA) violations related to its origination and underwriting of mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, a former underwriter filed a lawsuit under the FCA’s whistleblower provisions alleging the lender engaged in an underwriting process that allowed employees to disregard FHA rules and falsely certify compliance with underwriting requirements. These actions, the underwriter claimed, resulted in the government later paying insurance claims on loans that were improperly underwritten. Under the terms of the settlement, the lender will pay $38.5 million to the U.S., with the whistleblower receiving more than $11.5 million. Notably, not only did the DOJ not exercise its right to join the case and take over its prosecution, but also had sought unsuccessfully to have the case dismissed. The Supreme Court heard oral argument in United States, ex rel. Polansky v. Executive Health Resources, Inc. regarding whether and when the government has authority to force such a dismissal of a False Claims Act brought by a whistleblower.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”
CFPB issues HMDA technical amendment
On December 12, the CFPB issued a technical amendment to the HMDA Rule to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) As a result of the September 23 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule.
NYDFS finds racial disparities in mortgage lending
On December 8, NYDFS announced a second report in an ongoing statewide inquiry into redlining and other forms of housing discrimination by mortgage lenders, particularly non-depository lenders. This report focuses on racial disparities in mortgage lending in Long Island, Rochester, and Syracuse, and follows one on Buffalo (covered by InfoBytes here). The report maps lending activity and details individual institutions' lending in majority-minority neighborhoods and to borrowers identifying as members of a minority group.
Analyzing HMDA data, NYDFS’s recent report concluded that: “ In Nassau county, where the population is 41.8 percent non-white, on average, lenders make 35.32 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 14.9 percent to 50.22 percent. In Suffolk county, where the population is 33.7 percent non-white, on average, lenders make 22.44 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 13.07 percent to 36.85 percent. In the Rochester metro area, where 23.9 percent of the population is non-white, on average lenders make 11.32 percent of their loans to borrowers identifying as people of color, less than half of what would be expected based solely on population make-up. Similarly in the Syracuse metro area, 18.7 percent of the population is non-white, but on average lenders make 8.67 percent of their loans to borrowers identifying as people of color.”
In the announcement, NYDFS noted that it is currently developing regulations to implement the updated New York Community Reinvestment Act, which expands oversight to non-depository mortgage lenders operating in the state. The insights uncovered through these reports’ investigations will be reflected in these proposed regulations which will be published for public comment in 2023.
FDIC announces South Carolina disaster relief
December 9, the FDIC issued FIL-51-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of South Carolina affected by Hurricane Ian from September 25 to October 4. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested 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, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted 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 regulatory relief from certain filing and publishing requirements.
Fannie expands underwriting eligibility to help "credit invisible" borrowers
On December 6, Fannie Mae announced enhancements to its Desktop Underwriter to create more homeownership opportunities for “credit invisible” borrowers by changing its automated underwriting system to expand eligibility and further simplify the borrowing process for loans where borrowers do not have a credit score. Fannie noted that close to 15 percent of Black and Latino/Hispanic people are credit invisible (as compared to nine percent of their white and Asian counterparts), explaining that these imbalances lead to racial disparities in access to credit and quality affordable housing. “We believe consumers should benefit from their responsible money management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” Mallory Evans, Executive Vice President and Head of Single-Family Business at Fannie Mae, said in the announcement. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”
Beginning December 10, enhancements made to the Desktop Underwriter will (i) update borrower eligibility criteria for those with no credit score to align with Fannie’s standard selling guide requirements; (ii) enable the system to evaluate “a borrower’s monthly cash flow over a 12-month period to potentially enhance their credit risk assessment”; and (iii) simplify the mortgage process by automating the current selling guide requirement for documenting nontraditional sources of credit.
CFPB releases spring 2022 semi-annual report
On December 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning October 1, 2021 and ending March 31, 2022. The report, which is required by Dodd-Frank, addresses several issues, including complaints received from consumers about consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) conducted an assessment of significant actions taken by state attorneys general and state regulators related to federal consumer financial law; (ii) initiated 21 fair lending supervisory activities to determine compliance with federal laws, including ECOA, HMDA, and UDAAP prohibitions, and engaged in interagency fair lending coordination with other federal agencies and states; (iii) “encouraged lenders to enhance oversight and identification of fair lending risk and to implement policies, procedures, and controls designed to effectively manage HMDA activities, including regarding integrity of data collection”; and (iv) launched a new Diversity, Equity, Inclusion, and Accessibility Strategic Plan to increase workforce and contracting diversity.
In regard to supervision and enforcement, the report highlighted the Bureau’s public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information, and proposed and final rules. These include rules and orders related to the LIBOR transition, fair credit reporting, Covid-19 mortgage and debt collection protections for consumers, small business lending data collection, and automated valuation model rulemaking.
CFPB will not initiate HMDA enforcement actions for certain reporting failures
On December 6, the CFPB issued a blog post emphasizing that financial institutions may need time to implement or adjust policies, procedures, systems and operations to come into compliance with the new HMDA volume reporting threshold and that the agency does not view action regarding institutions’ HMDA data as a current priority. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.)
According to the blog post, the Bureau “does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021 or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.”
CFPB analyzes impact of rising interest rates on borrowers
On November 30, the CFPB’s Office of Research published a blog post regarding the recent increase of mortgage interest rates. The Bureau combined the quarterly data of 55 financial institutions reporting mortgage activities for the first and second quarters of 2022 with annual data from past years. The Bureau limited the analyses to closed-end home-purchase loans secured by site-built, single-family, and first-lien principal residences, and excluded reverse mortgage loans from its analysis. Among other things, the Bureau found that after two years of decline, the mortgage interest rate began rising in 2021, with a sharp increase in 2022. The Bureau explained that a “direct consequence of higher interest rates is the higher monthly payments borne by borrowers,” and that “though monthly payment information is not reported in HMDA data, using the reported loan amount, loan term and interest rate, [the Bureau] can impute the monthly principal and interest payment of loans at origination.” The Bureau also reported that Hispanic white and Black borrowers reached new debt burden levels, specifically the average debt-to-income (DTI) ratio for Hispanic white borrowers reached over 40 percent, while the average DTI for Black borrowers rose to 39.4 percent. The Bureau noted that increasing interest rates could also affect whether consumers qualify for mortgage loans. For many mortgage applicants who are on the margin of qualifying, the higher projected DTI could potentially lead to their applications being rejected. Compared to 2021, DTI has become more likely to be reported as a denial reason for denied Black, Hispanic white and non-Hispanic white applications in 2022. Indeed, by the end of the second quarter of 2022, the Bureau reported that over 45 percent of all Black and Hispanic white applicants who were denied had DTI reported as a denial reason.
HUD increases FHA loan limits for 2023
On December 1, HUD announced the 2023 loan limits for Single Family Title II Forward and Home Equity Conversion Mortgage (HECM) insurance programs. (See also Mortgagee Letter 2022-20 and Mortgagee Letter 2022-21). For FHA case numbers assigned on or after January 1, 2023, the maximum loan limits for FHA forward mortgages will increase in 3,222 counties and remain unchanged in 12 counties. The HECM maximum claim amount will also increase from $970,800 to $1,089,300.