On July 8, the Federal Housing Administration (FHA) announced an expanded array of loss-mitigation tools available to mortgage servicers. These measures require servicers to assess homeowners for multiple loan-modification options before the end of their forbearance period. These new measures are intended to assist homeowners financially impacted by the COVID-19 pandemic. Release.
On August 1, the U.S. Department of Housing and Urban Development (HUD) announced joint policy actions designed to reduce risk associated with cash-out refinance lending. The changes preserve homeowners’ ability to convert home equity to cash via a government-sponsored mortgage but also improves the risk profile of HUD’s housing finance programs. To address these concerns, the Federal Housing Administration (FHA) will lower its maximum loan-to-value (LTV) requirements for cash-out refinance transactions from 85 percent to 80 percent. This policy change will be effective for loans with case numbers assigned on or after September 1, 2019 and aligns with the maximum cash-out LTV allowed by the Government Sponsored Enterprises (GSEs). Release.
On May 9, the Federal Housing Administration (FHA) announced a package of incentives to encourage multifamily property owners to invest in thousands of neighborhoods located in Opportunity Zones across the nation. FHA is introducing reduced application fees paid by property owners applying for certain multifamily mortgage insurance programs for the development or rehabilitation of apartment units located, or proposed to be located, in Opportunity Zones. In addition, FHA is designating teams of senior underwriters to review these applications to ensure the most attentive and timely processing. Press Release. Housing Notice.
On February 21, U.S. Housing and Urban Development (HUD) Secretary Ben Carson announced a significant expansion of a Federal Housing Administration (FHA) pilot program that streamlines FHA mortgage insurance applications for affordable housing developments that have equity from the sale of Low-Income Housing Tax Credit (LIHTC) Program, the nation’s primary source of affordable housing production. Release.
On February 6, a jury in the United States District Court for the Middle District of Florida found the CEO of the now-defunct Radius Capital Corp., Robert A. DiGiorgio, knowingly or recklessly made false or misleading statements to Ginnie Mae and the investing public in connection with US$23 million in MBS Radius issued in 2005 and 2006. The Securities and Exchange Commission, which brought the case, alleged that Radius and DiGiorgio violated federal securities laws and fraudulently induced Ginnie Mae to guarantee the bonds by representing that the underlying loans were or would be insured by the Federal Housing Administration (FHA), when in fact the majority of the loans were ineligible. The suit alleged Radius employees routinely ignored FHA underwriting standards at DiGiorgio’s direction. In its verdict, the jury determined that Mr. DiGiorgio violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a), (b), and (c) promulgated thereunder. Verdict.
On November 1, 2011, the United States filed suit in the Southern District of New York against Allied Home Mortgage, a mortgage lending company, for allegedly defrauding the government into insuring its now-defaulted loans. The complaint alleges that Allied and CEO Jim Hodge violated the False Claims Act (“FCA”) by making misrepresentations to the Department of Housing and Urban Development to ensure the company could continue originating mortgages insured by the Federal Housing Administration (“FHA”). The complaint alleges that Allied submitted loans to the FHA originated out of “shadow branches” it did not disclose to the government and then illegally routed those mortgages through HUD-certified mortgage branches to avoid detection by the government. The government also contends that Allied failed to implement sufficient quality control measures to ensure underwriting standards were being met. The government seeks a permanent injunction and treble damages. Complaint.
On May 4, 2011, the law firm Keller Rohrback, which currently represents the Federal Home Loan Banks of Seattle and Chicago in various RMBS cases, announced an investigation into a number of banks and mortgage lenders for violations stemming for those banks’ status as Direct Endorsement Lenders for the Federal Housing Administration (“FHA”). According to the announcement, each of the banks, including JPMorgan Chase, Bank of America, Bear Stearns Residential Mortgage, Washington Mutual, Citigroup, Countrywide, and HSBC, received insurance from FHA for the mortgages it originated. The investigation focuses on the banks’ mortgage lending practices, which Keller Rohrback asserts were lax and riskier than FHA’s standards allowed. Specifically, the law firm intends to review the banks’ due diligence standards, evaluations of borrower income, and property appraisals. The U.S. Department of Justice earlier this week commenced an action in the Southern District of New York against Deutsche Bank alleging similar practices. Release.
On May 3, 2011, the U.S. Department of Justice filed suit in the Southern District of New York against Deutsche Bank AG and MortgageIT Inc. (which was a wholly owned by Deutsche Bank), asserting multiple claims under the False Claims Act as well as claims for breach of fiduciary duty, gross negligence, negligence and indemnity. The Complaint arises out of MortgageIT’s activities as a qualified Direct Endorsement Lender of the Federal Housing Administration (“FHA”) of the Department of Housing and Urban Development (“HUD”). From 1999 through 2009, the defendants originated mortgages that were insured by FHA. The Complaint alleges that during this time the defendants lied to FHA to maintain their Direct Endorsement Lender status which in turn allowed them to continue originating loans that were insured by FHA. The DOJ alleges that the defendants failed to abide by FHA’s standards to control the amount of risk the program would assume by funding mortgages that did not satisfy the underwriting guidelines and failing to implement quality control provisions to monitor the strength of the loans. The Complaint also alleges that HUD has paid more than $386 million in FHA insurance claims arising out of mortgages originated by the defendants. The DOJ seeks treble damages and penalties under the False Claims Act, as well as compensatory and punitive damages in connection with its other claims. Complaint.
