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HUD Publishes Mortgagee Letters Regarding Underwriting and Premiums
On February 28, HUD issued Mortgagee Letter 2012-3 to address multiple underwriting changes for case numbers assigned on or after April 1, 2012. These changes include: (i) new documentation for self-employed borrowers for all FHA insured loans except non-credit qualifying streamline refinance loans and Home Equity Conversion Mortgage loans, (ii) new guidance for handling of disputed accounts or public records for all FHA insured loans except non-credit qualifying streamline refinances, and (iii) new definition of family member for the purpose of Identity of Interest Transactions for all FHA insured loans. A second letter, Mortgagee Letter 2012-4, issued on March 6, 2012 details recently announced changes to FHA single family mortgage insurance premiums.
HUD Publishes Mortgagee Review Board Actions
Recently, HUD published a notice of administrative actions taken by the Mortgagee Review Board for the period of February 14, 2011 through July 20, 2011. The notice provides the cause and description of settlement agreements, civil money penalties, withdrawals of FHA approval, suspensions, probations, reprimands, and administrative payments imposed on fifteen mortgagees. The notice also lists six mortgagees that entered into settlement agreements that required each to pay $3,500 in civil money penalties, without admitting fault or liability, for failing to timely comply with HUD's annual recertification requirements.
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.