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Federal Agencies Announce New Mortgage-Related Policies to Support Military Homeowners
On June 21, the CFPB, the federal prudential banking regulators, and the FHFA announced new policies to support servicemember homeowners. The CFPB, the Federal Reserve Board, the FDIC, the NCUA, and the OCC issued joint guidance that identifies specific servicing practices deemed by regulators to present risks to servicemembers. For servicemember homeowners who have received Permanent Change of Station Orders, the guidance instructs servicers to maintain adequate policies and procedures disallowing the identified practices. The guidance also informs servicers that if an agency determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws, the agency will take appropriate supervisory and enforcement actions. Concurrent with the regulators’ announcement, the FHFA announced that military homeowners with Permanent Change of Station Orders and with Fannie Mae or Freddie Mac loans will be eligible to sell their homes in a short sale even if they are current on their mortgage. Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from covered servicemembers for any property purchased on or before June 30, 2012.
Supreme Court Asked to Hear New Case Involving Disparate Impact Claims Under the Fair Housing Act
On June 11, the New Jersey Township of Mount Holly petitioned the U.S. Supreme Court to hear a case involving the use of disparate impact claims under the Fair Housing Act. Specifically, Mount Holly asks the Court to determine whether disparate impact claims are cognizable under the Fair Housing Act, and, if so, how such claims should be analyzed. The issues presented in this case are substantially similar to those the Supreme Court agreed to hear in Magner v. Gallagher, but was unable to hear because the petitioner in Magner withdrew its petition prior to oral argument. As detailed in a recent BuckleySandler article about Magner and the history of the Fair Housing Act, the Supreme Court has never decided whether the FHA permits plaintiffs to bring claims under a disparate impact theory. The U.S. Department of Justice and HUD, relying on lower court rulings permitting disparate impact claims, have increasingly employed the theory to further their policy goals. More recently, the CFPB repeatedly has stated its intention to apply disparate impact in enforcing ECOA. The instant petition could present an opportunity for the Court to alter the landscape within which federal authorities enforce the Fair Housing Act and other antidiscrimination laws.
HUD Rescinds Disputed Accounts and Collection Accounts Guidance
On June 15, HUD issued Mortgagee Letter 2012-10, which immediately rescinds prior guidance regarding the handling of disputed accounts and collection accounts. Under the prior guidance, Mortgagee Letter 2012-3, which was issued on February 28, 2012 and was to become effective on July 1, 2012, potential homebuyers with disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000 would have been required to resolve those accounts prior to closing.
HUD Announces Another Mortgage False Claims Act Settlement
On May 10, HUD and the U.S. Attorney for the Southern District of New York announced the settlement of a lawsuit alleging violation of the False Claims Act by a mortgage originator and affiliated entities. The government alleged that, for nearly a decade, MortgageIT, Inc. certified falsely that the mortgages it originated complied with HUD rules. MortgageIT and its affiliates agreed to pay $202.3 million to resolve the suit. After the Bank of America and Countrywide FCA claims settled in February, this marks the third mortgage-FCA lawsuit settled to date. A fourth case remains pending in the Southern District of New York.
NFHA Files Second REO Administrative Complaint
On April 17, the National Fair Housing Alliance and certain of its member organizations (collectively NFHA) filed an administrative complaint with the Department of Housing and Urban Development alleging discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. This is the second of several complaints and lawsuits the NFHA is expected to file with regard to these alleged practices.
Housing Groups Plan Multiple Fair Housing Act Complaints, Release Report on REO Property Maintenance
According to reports, the National Fair Housing Alliance and several of its member organizations (collectively NFHA) indicated this week that they plan to take legal action against multiple financial institutions for alleged discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. The NFHA promised that it will file administrative complaints with the U.S. Department of Housing and Urban Development and/or legal complaints in federal courts. The first such complaint could be filed as early as next week. The anticipated complaints will be based on the results of an investigation conducted by the NFHA concerning the practices of several lenders and investors responsible for maintaining and marketing REO properties in African-American and Latino neighborhoods.
According to a report that was released on April 4, the investigation covered more than 1,000 REO properties in nine metropolitan areas including Atlanta, Baltimore, Dallas, Dayton, Miami/Fort Lauderdale, Oakland, Philadelphia, Phoenix and Washington, DC. The investigation claims to have revealed that, among other things, REO properties in predominantly minority neighborhoods are 42 percent more likely to have maintenance problems and are 33 percent less likely to have a “For Sale” sign than properties in predominantly White neighborhoods. The report suggests that the poor maintenance practices and other alleged neglect can result in properties being vacant for longer periods and can increase the likelihood that a property eventually will be purchased by an investor at a discounted price, as opposed to an owner-occupier. NFHA maintains that these alleged practices violate the Fair Housing Act and HUD’s implementing regulations and leave those neighborhoods in “crisis.” The NFHA report also makes several policy recommendations. The report offers recommendations for financial institutions to (i) enhance their vendor selection and oversight, (ii) better market and sell properties, and (iii) make REO data more transparent. The NFHA also (i) urges federal regulators, including the CFPB, to conduct a major nationwide investigation into REO practices, (ii) proposes a policy to make REO properties available exclusively to owner-occupants and non-profit organizations prior to offering them more broadly, and (iii) suggests further development of lease-purchase programs for REO properties.
HUD Issues Guidance Regarding Occupied Conveyance Procedures
On March 16, HUD issued Mortgagee Letter 2012-6 to provide updated guidance for complying with the Protecting Tenants at Foreclosure Act of 2009 (PTFA). The Mortgagee Letter revises the information required in a Notice to Occupant of Pending Acquisition and provides updated sample letters and forms. The Mortgagee Letter also provides guidance regarding (i) reasonable diligence in obtaining possession of the property under PTFA, (ii) rent collection under bona fide leases and tenancies, and (iii) reimbursement for preservation and protection costs due to PTFA compliance.
HUD Issues Mortgagee Letter Regarding FHA Refinance of Negative Equity Borrowers
On March 13, HUD issued Mortgagee Letter 2012-5, which amends and updates Mortgagee Letter 2010-23 regarding FHA’s Refinance of Borrowers in Negative Equity Positions. Effective immediately, the Mortgagee Letter offers program enhancements to (i) broaden the eligibility for FHA Short Refinance Trial Payment Plans, (ii) offer an additional option for first lien holders to extinguish second lien debt, (iii) increase the allowable housing debt-to-income ratio for loans that receive a “refer” risk calculation, and (iv) extend the program expiration date to cover all loans closed on or before December 31, 2014.
Multi-Party Mortgage Servicing Settlement Filed in Court
On March 12, federal and state officials filed documents in the United States District Court for the District of Columbia formalizing a previously announced settlement (the Settlement) of various government probes into alleged mortgage-related violations by the five largest residential mortgage servicers (collectively the Servicers). The Settlement resolves investigations and inquiries by numerous federal regulators and 49 state Attorneys General (AGs). The federal agencies that have signed on to the settlement include: the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Department of Agriculture, the Department of Veterans Affairs, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Trustee. With the filing of a consolidated complaint and a separate consent judgment for each Servicer, the details of the Settlement have been made available, including its provisions regarding: (i) restitution and other relief, (ii) new servicing standards, (iii) the scope of its releases, and (iv) implementation and enforcement. For a detailed analysis of the Settlement, please see BuckleySandler LLP’s recent Special Alert.
White House Announces More Housing Initiatives
On March 6, President Obama presented additional programs designed to provide relief to homeowners. In advance of the announcement, the White House released a fact sheet outlining the programs, which attempt to reach FHA borrowers and servicemembers and veterans. With regard to FHA borrowers, the Administration is reducing up-front and annual mortgage insurance premiums for borrowers that want to refinance loans originated prior to June 1, 2009 through FHA’s streamline refinance program. For servicemembers and veterans, the announcement did not include any new relief, but rather recited the relevant terms of the multi-party settlement with five major mortgage servicers announced last month. Those terms are further described in an executive summary of the settlement.