HUD

HUD Expansion of Sale of Troubled Mortgages

On June 8, HUD announced the establishment of the Distressed Asset Stabilization Program, an expansion of an FHA pilot program allowing private investors to purchase pools of mortgages headed for foreclosure, and charging investors with helping to bring the loans out of default. Servicers can place a mortgage loan into a pool if (i) the borrower is at least 6 months’ delinquent on its mortgage; (ii) the servicer has exhausted all steps in the FHA loss mitigation process; (iii) the servicer has initiated foreclosure proceedings; and (iv) the borrower is not in bankruptcy. Sales are scheduled to begin in September. HUD Release.

FHA Increases Lender Indemnification and Performance Standards

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.

HUD Rule to Improve HOME Program

On November 4, HUD proposed a new rule under its Home Investment Partnerships Program (“HOME”). The proposed regulatory requirements would, among other things, require state and local governments to: (i) adopt policies and procedures to improve project oversight; (ii) develop a system for assessing the relative risk of projects, and more closely monitor HOME-funded sub-recipients; and (iii) assess the capacity of developers and the long-term viability of projects prior to committing HOME funds. HUD Release.

HUD Emergency Homeowners’ Loan Program

On June 20, HUD, in connection with NeighborWorks America, launched the Emergency Homeowners’ Loan Program to help homeowners at risk of foreclosure in 27 states and Puerto Rico. The program will help assist homeowners who have experienced a reduction in income and are at risk of foreclosure due to involuntary unemployment, underemployment, economic conditions, or a medical condition. Eligible homeowners can qualify for an interest free loan which pays a portion of their monthly mortgage for up to two years or $50,000, whichever comes first. HUD Release.

Extension of Proposed Risk Retention Rules Comment Period

On June 7, the Fed, FDIC, FHFA, HUD, OCC, and SEC extended the comment period deadline regarding their proposed rules to implement the credit risk retention requirements of Section 941of the Dodd-Frank Act from June 10 to August 1. Joint Release. Proposed Rule Extension.

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.

Joint Proposed Rule on Credit Risk Retention

The OCC, Fed, FDIC, SEC, FHFA, and HUD announced that they approved a notice of proposed rulemaking in accordance with Section 941 of the Dodd-Frank Act. The proposal would require that, unless a transaction is exempt, a securitization sponsor must retain a 5% economic interest in the credit risk of assets transferred to a securitization. Comments must be submitted by June 10. Proposed Rule.