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FHA Increases Mortgage Insurance Premiums
On February 27, the Federal Housing Administration (FHA) announced that it is increasing its annual mortgage insurance premiums and upfront premiums in two phases. First, for loans with case numbers assigned on or after April 1, 2012 the FHA is increasing by 10 basis points the annual mortgage insurance premium, and is increasing upfront insurance premiums by 75 basis points. Subsequently, for loans with case numbers assigned on or after June 1, 2012 that exceed $625,500, the FHA is increasing the annual premium by an additional 0.25 percent. The changes are designed to encourage the return of private capital to the residential mortgage market while supplementing the FHAs Mutual Mortgage Insurance Fund, which has fallen below the congressionally mandated two percent reserve threshold. At least one report recently suggested that based on current home price and default projections the fund will become insolvent without action. The increased premiums are projected to contribute more than $1 billion to the FHA's mortgage insurance fund, and on average will cost new home buyers $5 per month.
Feds Announce Mortgage-Related False Claims Act Settlement
On February 24, HUD and the U.S. Attorney for the Southern District of New York announced that they had obtained from Flagstar Bank FSB an admission that the bank submitted false certifications to HUD when seeking government insurance for residential mortgages in violation of the False Claims Act. As part of a settlement agreement the bank also agreed to pay $132.8 million in damages and penalties, and reform its businesses practices. This is the second recent settlement of mortgage-related violations of the False Claims Act following the largest such settlement in history, announced as part of the multi-party settlement with five mortgage servicing companies. That agreement included a $1 billion settlement of False Claims Act allegations against Bank of America with regard to Countrywide loans. In all of the cases federal authorities alleged, among other things, that a financial institution participating in the FHA‘s Direct Lender Program repeatedly and falsely endorsed loans for FHA insurance that did not comply with underwriting requirements. The loans therefore should not have been eligible for government insurance, yet the federal insurance fund was unnecessarily impaired when those borrowers defaulted.
HUD Publishes Revised Proposal for Limiting Seller Concessions
On February 23, HUD published for comment a revised proposal for reducing seller concessions that supplants its initial July 15, 2010 issuance. In its previous issuance, HUD had proposed, as one of its initiatives to reduce risk to its insurance fund, reducing the cap on seller conditions from six percent of the lesser of the sales price or appraised value to three percent. In response to the significant public comment on its July proposal, HUD is now proposing to reduce the amount of seller concessions permitted as offsets to three percent or $6,000, whichever is greater, although the offsets would not be permitted to exceed the borrower’s actual costs. To address future increases to closing costs, the $6,000 cap would be indexed to increase at the same rate as the FHA national loan limit floor. HUD also proposes limiting acceptable uses of seller concession to payments toward borrower closing costs, prepaid items, discount points, the FHA Up Front Mortgage Insurance Premium, and an Interest Rate Buydown. Comments on this revised proposal are due March 26, 2012.
HUD Suspends Mortgage Insurance Program for Military Impacted Areas
On February 16, HUD published a final rule to suspend, effective March 19, 2012, the Federal Housing Administration’s mortgage insurance program for military impacted areas. The program is being halted because it is underutilized and borrower needs can be served under comparable terms and conditions through HUD’s primary single-family mortgage insurance program.
HUD Withdraws Rule Proposed to Allow Farm Credit System Institutions to Participate in FHA Mortgage Insurance Program
On February 13, HUD withdrew its proposed rule that would have allowed Farm Credit System direct lenders to participate in FHA mortgage insurance programs as FHA-approved mortgagees and lenders in an effort to increase housing credit available in rural areas. The withdrawal notice states that the rule would conflict with the Obama administration’s policy of reducing the FHA’s market share and bringing private capital back into the housing finance market.
HUD Clarifies Requirements Regarding Closing a Loan in the Name of an FHA-Approved Mortgagee Acting as a Sponsored Third Party Originator
On February 10, HUD issued Mortgagee Letter 2012-2 to clarify the requirements for the origination, closing, and submission for FHA insurance endorsement of loans via the sponsored third-party origination process. The Letter states that all third-party originators must be sponsored by an FHA-approved Direct Endorsement lender, and that sponsoring lenders are responsible for ensuring that the originators they sponsor adhere to FHA requirements. Sponsored third-party originator compliance failures may result in administrative action against the sponsoring mortgagee. Moreover, compliance failures by an FHA-approved mortgagee acting as a third-party sponsored originator may result in administrative action against both the sponsoring mortgagee and the FHA-approved mortgagee.
HUD Announces Multifamily Low Income Housing Tax Credit Pilot Program
On February 3, HUD issued Mortgagee Letter 2012-1 to launch a new pilot program to streamline FHA mortgage insurance applications for projects with equity from the Low Income Housing Tax Credit program. The program utilizes a separate application and processing system and during its first phase will provide permanent financing for low risk transactions. The Letter outlines eligibility requirements and the application process for the program and notes that the three-year rule waiver set to expire this month is extended for an additional year for tax credit projects that participate in the pilot. According to HUD’s press release, the pilot program is being launched in Chicago, Detroit, Boston, and Los Angeles.
Federal Government Obtains Settlement of False Claims Act Claims Against CitiMortgage
On February 15, HUD and the U.S. Attorney for the Southern District of New York announced that CitiMortgage, Inc. had agreed to settle the government’s claims that CitiMortgage violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act by failing to comply with certain requirements of the Fair Housing Administration’s Direct Endorsement Lender Program. According to the press release, the defendant submitted certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not, causing HUD to unnecessarily incur losses when those loans defaulted. As part of the settlement, which was approved by the United States District Court for the Southern District of New York, CitiMortgage agreed to pay $158.3 million in damages to the United States.
HUD Issues Final Rule Regarding Sexual Orientation and Gender Equal Access
On January 30, the Department of Housing and Urban Development (HUD) issued a final rule designed to ensure equal access to housing, regardless of sexual orientation, gender identity, or marital status. The rule, which will take effect thirty days after being published in the Federal Register (which publication is likely to occur the week of February 6), will (i) prohibit owners and operators of HUD-assisted housing or housing for which financing is insured by HUD from seeking information from applicants about sexual orientation and gender identity, and require such owners and operators to make housing available without regard to those factors, (ii) prohibit lenders from determining FHA-insured financing eligibility based on sexual orientation or gender identity, and (iii) clarify that otherwise eligible families will have an opportunity to participate in HUD programs, regardless of marital status, sexual orientation, or gender identity. The final rule is substantially similar to the proposed rule published in January 2011.
HUD Publishes Final Rule on FHA Single Family Lender Insurer Process
On January 24, the Department of Housing and Urban Development (HUD) published a final rule to enhance the Federal Housing Administration (FHA) Lender Insurance process. Under the final rule, (i) Lender Insurance mortgagees (mortgagees who have authority to insure mortgages on HUD’s behalf) must meet stricter performance standards to gain and maintain their approval status as an entity that can insure mortgages on HUD’s behalf; (ii) HUD may require indemnification for “serious and material” violations of FHA origination requirements and for fraud and misrepresentation; (iii) Lender Insurance mortgagees must demonstrate a two-year seriously delinquent and claim rate at or below 150 percent of the aggregate rate for the states in which they operate; (iv) FHA may monitor lender performance on an ongoing basis, and (v) HUD-approved lenders created through corporate restructuring have a new process for seeking Lender Insurance authority. The final rule follows an October 2010 proposed rule (see InfoBytes, October 15, 2010), and makes certain changes to the proposal including to (i) clarify that HUD reviews of Lender Insurance mortgagee performance will be “ongoing”, as opposed to “continual”; (ii) require indemnification of HUD when the mortgagee “knew or should have known” that fraud or misrepresentation occurred; (iii) clarify that automatic termination of Lender Insurance authority can result only from institutional and not branch activity; and (iv) provide a reinstatement process closely modeled on the existing reinstatement process regarding origination approval agreements or Direct Endorsement authority.