HUD Announces Agency Efforts to Reduce Risk From Cash-Out Refinance Lending


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.

SIFMA Sends Comment Letters to FHFA on Credit Risk Transfer


SIFMA, along with the Association of Mortgage Investors and the National Association of Real Estate Investment Trusts, and separately along with the ABA, AMI, HPC, MBA, and SFIG, submitted comment letters to the FHFA in response to the FHFA request for comments on the GSEs credit risk transfer programs, particularly with respect to exploration of more “front end” risk transfer options that share risk with the private sector before, or concurrently with, the purchase of loans by the GSEs. SIFMA, AMI, NAREIT Comment Letter Joint Trades Comment Letter.

Court Denies Challenge to FHFA Loan Sampling Methodology

On December 3, Judge Denise Cote of the Southern District of New York denied a joint motion by all defendants across fifteen related RMBS actions brought against major financial institutions by the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac (“GSEs”).  The claims in the case arise out of certificates purchased by the GSEs from 449 different securitizations backed by roughly 1.1 million mortgage loans.  The FHFA plans to reunderwrite a sample of those loans and seeks to extrapolate the results of that sample to the entire loan pools; the defendants’ motion sought an order excluding the results of the sampling from evidence at the trial of the actions, challenging the methodology that the FHFA intends to use to select the sample.  The Court rejected the defendants’ arguments, finding that at most they raised questions about the evidentiary weight that should be assigned to the samples, rather than the question whether they should be admitted into evidence.  Order.

U.S. Sues Bank of America for Alleged Mortgage Fraud Against GSEs

On October 24, the U.S. Attorney for the Southern District of New York filed suit against Bank of America and Countrywide seeking damages for over $1 billion in alleged losses suffered by Fannie Mae and Freddie Mac.  The complaint alleges that Bank of America and Countrywide violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the False Claims Act by selling defective loans originated through a fraudulent origination program called the “High-Speed Swim Lane” (HSSL) or “the Hustle” that was implemented by Countrywide from 2007 to 2009.  The Government alleges that the program intentionally was designed to process loans quickly, ignoring or eliminating quality controls, including by replacing underwriters with “loan processors” who are alleged to have been “unqualified and inexperienced clerks.”  The suit further alleges that Countrywide, and later Bank of America, concealed the defects from Fannie Mae and Freddie Mac as they continued to sell these defective loans through 2009.  The Government seeks civil penalties under FIRREA as well as treble damages under the False Claims Act.  In a press release issued the day of the filing, the U.S. Attorney described the lawsuit as a “clear message that reckless lending practices [would] not be tolerated.”

GSE Credit Risk Sharing Roundtable Discussion

On February 7, Andrew Davidson & Co., Inc. hosted a roundtable discussion in Washington, D.C. on the topic of credit risk sharing by the GSEs.  Participants representing a broad cross-section of the mortgage market discussed, among other things, the ways in which private capital can be invested in mortgage credit risk to provide protection to the taxpayer while the GSEs continue to provide liquidity for conforming MBS.  
Summary of the roundtable discussion.

Fed Housing Market White Paper

On January 4, the Fed released a white paper entitled “The U.S. Housing Market: Current Conditions and Policy Considerations” which discusses proposals for housing market and mortgage servicing practices, including a pending federal agency proposal for an REO to Rental program, servicer modification and foreclosure practices, loan underwriting standards and issues related to loan put backs by the GSEs. Fed White Paper.