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  • FHA seeks feedback on enhancements to rehabilitation mortgage insurance program

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Issues HUD FHA Mortgages Mortgage Insurance Underserved Consumer Finance

  • Agencies reiterate illegality of appraisal discrimination

    Federal Issues

    On February 14, CFPB Fair Lending Director Patrice Ficklin joined senior leaders from the FDIC, HUD, NCUA, Federal Reserve Board, DOJ, OCC, and FHFA in submitting a joint letter to The Appraisal Foundation (TAF) urging the organization to further revise its draft Ethics Rule for appraisers to include a detailed statement of federal prohibitions against discrimination under the Fair Housing Act (FHA) and ECOA.

    This is the second time the agencies have raised concerns with TAF. As previously covered by InfoBytes, last February, the agencies sent a joint letter in response to a request for comments on proposed changes to the 2023 Appraisal Standards Board Ethics Rule and Advisory Opinion 16, in which they noted that while provisions prohibit an appraiser from relying on “unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value,” the “provisions do not prohibit an appraiser from relying on ‘supported conclusions’ based on such characteristics and, therefore, suggest that such reliance may be permissible.” The letter noted that the federal ban on discrimination under the FHA and ECOA is not limited only to “unsupported” conclusions, and that any discussions related to potential appraisal bias should be consistent with all applicable nondiscrimination laws. 

    In their second letter, the agencies said that the fourth draft removed a detailed, unambiguous summary covering nondiscrimination standards under the FHA and ECOA, and instead substituted “a distinction between unethical discrimination and unlawful discrimination.” The letter expressed concerns that the term “unethical discrimination” is not well established in current law or practice, and could lead to confusion in the appraisal industry. Moreover, the letter noted that “the term ‘ethical’ discrimination, and reference to the possibility of a protected characteristic being ‘essential to the assignment and necessary for credible assignment results,’ appears to resemble the concept of ‘supported’ discrimination that the agencies previously disfavored and whose removal and replacement with a summary of the relevant law significantly improved the draft Ethics Rule.” The agencies further cautioned that “[s]uggesting that appraisers avoid ‘bias, prejudice, or stereotype’ as general norms” would grant individual appraisers wide discretion in applying these norms and likely yield inconsistent results. The agencies advised TAF to provide a thorough explanation of these legal distinctions.

    Federal Issues CFPB Consumer Finance Appraisal FDIC HUD NCUA Federal Reserve DOJ OCC FHFA Fair Housing Act ECOA Discrimination

  • FHA expands Covid-19 loss mitigation options

    Federal Issues

    On February 13, HUD issued Mortgagee Letter 2023-03, which makes technical corrections to Mortgagee Letter 2023-02 issued in January that expanded and enhanced loss mitigation options for borrowers struggling to make payments on FHA-insured mortgages. The enhancements extend FHA’s Covid-19 loss mitigation options to all eligible borrowers, including non-occupant borrowers, who fall behind on mortgage payments, regardless of the cause of delinquency. Mortgage servicers must use FHA’s Covid-19 recovery loss mitigation “waterfall” of options to assess all borrowers who are in default (or at risk of imminent default). The enhancements also raise the maximum partial claim amount from 25 percent of the mortgage’s unpaid principal balance to the maximum 30 percent allowed by statute to help increase home retention. Mortgage servicers can also offer loss mitigation options to borrowers who qualified for or used homeowner assistance funds who may no longer technically be delinquent but require further assistance to avoid redefault. Additionally, the enhancements provide incentive payments to mortgage servicers when Covid-19 recovery options are successfully completed.

    The availability of FHA’s Covid-19 loss mitigation options are extended for 18 months beyond the April 30 mandatory effective date for servicers to remove “uncertainties associated with the timing of the end of the National Emergency,” HUD explained, adding that “FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with [Mortgagee Letter 2023-02]” in order to simplify loss mitigation options. Mortgage servicers may begin offering these options to borrowers immediately.

    Federal Issues HUD FHA Consumer Finance Mortgages Covid-19 Loss Mitigation Mortgage Servicing

  • Biden administration releases Renters Bill of Rights

    Federal Issues

    On January 25, the Biden administration announced new actions for enhancing tenant protections and furthering fair housing principles, which align with the administration’s Blueprint for a Renters Bill of Rights that was released the same day. The Blueprint and fact sheet lay out several new actions that federal agencies and state and local partners will take to protect tenants and increase housing affordability and access.

    • The FTC and CFPB will collect information to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing, “including the creation and use of tenant background checks, the use of algorithms in tenant screenings, the provision of adverse action notices by landlords and property management companies, and how an applicant’s source of income factors into housing decisions.” According to the White House, this marks the first time the FTC has issued a request for information that explores unfair practices in the rental market. The data will inform enforcement and policy actions under each agency’s jurisdiction.
    • The CFPB will issue guidance and coordinate enforcement actions with the FTC to ensure information in the credit reporting system is accurate and to hold background check companies accountable for having unreasonable procedures.
    • The FHFA will launch a transparent public process for examining “proposed actions promoting renter protections and limits on egregious rent increases for future investments.” Periodic updates, including one within the next six months will be provided to interested stakeholders. FHFA Director Sandra L. Thompson commented that the agency “will conduct a public stakeholder engagement process to identify tangible solutions for addressing the affordability challenges renters are facing nationwide, particularly among underserved communities. The proposals discussed during this process will focus on properties financed by [Fannie Mae and Freddie Mac].” She noted that FHFA will continue to evaluate Fannie and Freddie’s role in providing tenant protections and advancing affordable housing opportunities.
    • The DOJ intends to hold a workshop to inform potential guidance updates centered on anti-competitive information sharing, including within the rental market space.
    • HUD will publish a notice of proposed rulemaking to require public housing authorities and owners of project-based rental assistance properties to provide tenants at least 30 days’ advanced notice before terminating a lease due to nonpayment.
    • The Biden administration will also hold quarterly meetings with a diverse group of tenants and tenant advocates to share ideas on ways to strengthen tenant protections.

    According to the announcement, the agencies’ actions exemplify the principles laid out in the Blueprint, which underscores key tenant protections, including: (i) renters should be able to access safe, quality, accessible, and affordable housing; (ii) renters should be provided clear and fair leases with defined rental terms, rights, and responsibilities; (iii) federal, state, and local governments should ensure renters are aware of their rights and are protected from unlawful discrimination and exclusion; (iv) renters should be given the freedom to organize without obstruction or harassment from housing providers or property managers; and (v) renters should be able to access resources to prevent evictions, ensure eviction proceedings are fair, and avoid future housing instability.

    The administration also announced it is launching a related “Resident-Centered Housing Challenge”—a call to action for housing providers and other stakeholders to strengthen their practices and make independent commitments that will improve the quality of life for renters. The Challenge will launch this spring and encourages states, local, tribal, and territorial governments to improve existing fair housing policies and develop new ones.

    Federal Issues Biden Tenant Rights Consumer Finance FHFA CFPB FTC Fair Housing DOJ HUD Fannie Mae Freddie Mac

  • HUD proposes streamlined AFFH rule

    Agency Rule-Making & Guidance

    Recently, HUD announced plans to publish a notice of proposed rulemaking (NPRM) entitled “Affirmatively Furthering Fair Housing” (AFFH). The new rule will update a 2015 final rule that was intended to implement the Fair Housing Act’s statutory mandate that HUD ensure that recipients of its funding work to further fair housing, which was repealed by the Trump administration. In 2021, the Biden administration published an interim final rule to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (covered by InfoBytes here). “This proposed rule is a major step towards fulfilling the law’s full promise and advancing our legal, ethical, and moral charge to provide equitable access to opportunity for all,” HUD Secretary Marcia L. Fudge said in an announcement.

    The NPRM incorporates much of the 2015 AFFH rule and will streamline the required fair housing analysis for states, local communities, and public housing agencies. Program participants would be required to ensure protected classes have equitable access to affordable housing opportunities, by, for example, submitting an equity plan to HUD every five years. HUD-accepted equity plan analysis, goals, and strategies would then be incorporated into program participants’ subsequent planning documents. Program participants would also be required to conduct and submit annual progress evaluations. Both the equity plans and annual progress evaluations would be made available online.

    HUD further explained that the NPRM is intended to simplify required fair housing analysis, increase transparency for public review and comment, improve compliance oversight, provide a process for regular progress evaluations, and enhance accountability, among other things. Comments on the NPRM are due April 24. HUD’s quick reference guide provides additional information.

    Agency Rule-Making & Guidance HUD Discrimination Consumer Finance Fair Lending Fair Housing Fair Housing Act

  • HUD discusses steps to address appraisal bias

    Federal Issues

    On January 12, HUD Secretary Marcia L. Fudge announced at a Brookings Institute event that HUD is creating a process that people seeking FHA financing can use to request a review of their appraisal if they believe the results may have been affected by racial bias. According to the announcement, under the reconsideration of value (ROV) proposal, lenders will have clear guidance on how to review requests from borrowers for an ROV for the appraisal conducted in conjunction with their application for FHA-insured mortgage financing. The proposal also provides guidance for obtaining a second appraisal when material deficiencies are documented, and the appraiser is unwilling to resolve them. Fudge noted that the proposal “represents the first step to solidify the processes that lenders must follow when a borrower requests a [ROV] review if concerns arise around unlawful discrimination in residential property valuations.” Fudge also noted that the proposal supports the Biden-Harris administration’s PAVE Action Plan commitments and the continued work of the Interagency Task Force. As previously covered by InfoBytes, in March 2022, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. PAVE focuses primarily on actions to substantially reduce racial bias in home appraisals, as well as steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.”

    Federal Issues Agency Rule-Making & Guidance HUD FHA Discrimination Appraisal Mortgages Consumer Finance

  • DOJ, HUD say Fair Housing Act extends to algorithm-based tenant screening

    Federal Issues

    On January 9, the DOJ and HUD announced they filed a joint statement of interest in a pending action alleging discrimination under the Fair Housing Act (FHA) against Black and Hispanic rental applicants based on the use of an algorithm-based tenant screening system. The lawsuit, filed in the U.S. District Court for the District of Massachusetts, alleged that Black and Hispanic rental applications who use housing vouchers to pay part of their rent were denied rental housing due to their “SafeRent Score,” which is derived from the defendants’ algorithm-based screening software. The plaintiffs claimed that the algorithm relies on factors that disproportionately disadvantage Black and Hispanic applicants, such as credit history and non-tenancy related debts, and fails to consider that the use of HUD-funded housing vouchers makes such tenants more likely to pay their rents. Through the statement of interest, the agencies seek to clarify two questions of law they claim the defendants erroneously represented in their motions to dismiss: (i) the appropriate standard for pleading disparate impact claims under the FHA; and (ii) the type of companies that fall under the FHA’s application.

    The agencies first challenged that the defendants did not apply the proper pleading standard for a claim of disparate impact under the FHA. Explaining that in order to establish an FHA disparate impact claim, “plaintiffs must show ‘the occurrence of certain outwardly neutral practices’ and ‘a significantly adverse or disproportionate impact on persons of a particular type produced by the defendant’s facially neutral acts or practices,’” The agencies disagreed with the defendants’ assertion that the plaintiffs “must also allege specific facts establishing that the policy is ‘artificial, arbitrary, and unnecessary.” This contention, the agencies said, “conflates the burden-shifting framework for proving disparate impact claims with the pleading burden.” The agencies also rejected arguments that the plaintiffs must challenge the entire “formula” of the scoring system and not just one element in order to allege a statistical disparity, in addition to providing “statistical findings specific to the disparate impact of the scoring system.” According to the agencies, the plaintiffs adequately identified an “essential nexus” between the algorithm’s scoring system and the disproportionate effect on certain rental applicants based on race.

    The agencies also explained that residential screening companies, including the defendants, fall under the FHA’s purview. While the defendants argued that the FHA does not apply to companies “that are not landlords and do not make housing decisions, but only offer services to assist those that do make housing decisions,” the agencies contended that this misconstrues the clear statutory language of the FHA and presented case law affirming that FHA liability reaches “a broad array of entities providing housing-related services.”

    “Housing providers and tenant screening companies that use algorithms and data to screen tenants are not absolved from liability when their practices disproportionately deny people of color access to fair housing opportunities,” Assistant Attorney General Kristen Clarke of the DOJ’s Civil Rights Division stressed. “This filing demonstrates the Justice Department’s commitment to ensuring that the Fair Housing Act is appropriately applied in cases involving algorithms and tenant screening software.”

    Federal Issues Courts DOJ Fair Housing Act Artificial Intelligence HUD Algorithms Discrimination Disparate Impact

  • Agencies highlight downpayment assistance, child privacy in regulatory agendas

    Agency Rule-Making & Guidance

    Recently, the Office of Information and Regulatory Affairs released fall 2022 regulatory agendas for the FTC and HUD. With respect to an FTC review of the Children’s Online Privacy Protection Rule (COPPA) that was commenced in 2019 (covered by InfoBytes here), the Commission stated in its regulatory agenda that it is still reviewing comments. COPPA “prohibits unfair or deceptive acts or practices in connection with the collection, use and/or disclosure of personal information from and about children under the age of 13 on the internet,” and, among other things, “requires operators of commercial websites and online services, with certain exceptions, to obtain verifiable parental consent before collecting, using, or disclosing personal information from or about children.”

    HUD stated in its regulatory agenda that it anticipates issuing a notice of proposed rulemaking in March that would address mortgage downpayment assistance programs. The Housing and Economic Recovery Act of 2018 amended the National Housing Act to add a clause that prohibits any portion of a borrower’s required minimum cash investment from being provided by: “(i) the seller or any other person or entity that financially benefits from the transaction, or (ii) any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).” According to the agenda, FHA continues to receive questions about prohibitions on persons or entities that may financially benefit from a mortgage transaction, including “whether down payment assistance programs operated by government entities are being operated in a fashion that would render such assistance prohibited.” A future NPRM would clarify the circumstances in which government entities are deriving a prohibited financial benefit.

    Agency Rule-Making & Guidance Federal Issues FTC HUD COPPA Downpayment Assistance Mortgages Privacy, Cyber Risk & Data Security Consumer Protection FHA

  • HUD seeks public input on disaster recovery funds

    Agency Rule-Making & Guidance

    On December 20, HUD released two new requests for information (RFIs) seeking public input on how to simplify, modernize, and more equitably distribute critical disaster recovery funds. According to HUD, the RFIs are a broader element of HUD’s newly published Climate Action Plan, “which emphasizes both equity and resilience in disaster recovery, as well as the Biden-Harris Administration’s commitment to strengthening low- and moderate-income communities.” HUD noted that the Community Development Block Grant Disaster Recovery and Mitigation focus on long-term recovery and resilience efforts, targeted to families with low- and moderate-incomes in the most impacted and distressed areas. HUD also noted that both funds are “unique” from other federal disaster assistance programs by FEMA and the SBA, as well as private insurance, because it is the only federal resource with the primary purpose of benefiting low- and moderate-income communities. HUD further noted that the RFIs will inform the policy that will tear down barriers and eliminate unnecessary administrative burden, as to provide better and quicker assistance to those affected.

    Agency Rule-Making & Guidance Federal Issues HUD Disaster Relief SBA

  • HUD increases FHA loan limits for 2023

    Agency Rule-Making & Guidance

    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. 

    Agency Rule-Making & Guidance Federal Issues FHA Mortgages HECM HUD

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