On January 20, the FHA announced a final rule to: (i) revise the process by which the FHA requires lenders to indemnify HUD for insurance claims on mortgages that do not meet the agency’s guidelines and (ii) require all lenders with authority to insure mortgages on HUD’s behalf to meet stricter performance standards. In a separate Federal Register notice, the FHA will propose to reduce the maximum allowable seller concession to reflect public comments to a proposal published on July 15, 2010. The new proposal will have a 30 day comment period. FHA Release. Final Rule.
FHA
Government Sues Allied Home Mortgage For Fraud Under the False Claims Act
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.
GSE and FHA Conforming Loan Limits Extension Bill
On July 15, Representatives Campbell (R-CA) and Ackerman (D-NY) introduced a bill to the House of Representatives that would extend the 2008 levels of the GSE and FHA conforming loan limits through fiscal year 2013. The limits are scheduled to adjust downward this fall from $729,750 to $625,500 in compliance with the Housing and Economic Recovery Act of 2008. The bill has been referred to the House Committee on Financial Services. House Bill.
FHA and Fannie Green Refinance Program for Affordable Apartment Buildings
On May 31, HUD announced Green Refinance Plus, a program between FHA and Fannie Mae to allow owners of existing affordable rental housing properties to refinance mortgages to fund energy- and water-saving upgrades and other needed property renovations. HUD Press Release.
Plaintiffs Firm Announces “Investigation” Into Various Banks Regarding FHA Mortgage Insurance
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.
DOJ Sues Deutsche Bank and MortgageIT for $1.1 Billion Related to Mortgage Lending Activities
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.
SEC Charges Mortgage Company and Its President/CEO with Fraud
On March 7, 2011, the SEC filed a complaint against Radius Capital Corporation and its president and CEO, Robert A. DiGiorgio in the US District Court for the Middle District of Florida. The complaint alleges that the defendants falsely represented to investors and Ginnie Mae that the residential loans underlying RMBS it issued were or would be insured by the FHA. The SEC alleges that 70% the loans were not FHA-insured and could not be FHA insured because they failed to meet the FHA’s minimum requirements. The SEC alleges violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and SEC Rule 10b-5. Complaint.
HUD Announces New Reverse Mortgage Option
On September 22, the FHA announced that a modified version of its Home Equity Conversion Mortgage product will be available as of October 4. The option, known as HECM Saver, will allow homeowners who want to borrow a smaller amount than what would be available with an original HECM Standard to pay lower upfront closing costs. The mortgage insurance premium for both the HECM Saver and HECM Standard will be charged monthly at an annual rate of 1.25% of the outstanding loan balance, increased from 0.50% in effect for current HECM Standards. In addition, the amount of HECM loan proceeds available to both HECM Saver and HECM Standard borrowers will be reduced. HUD Release.
Senate Passes FHA Bill
On August 4, the Senate passed H.R. 5981, a bill giving the FHA more flexibility to adjust its premiums for single-family housing mortgage insurance by allowing it to raise its annual premium from the current maximum of 0.55% to a maximum of 1.55%. H.R. 5981.