Bylined article by Financial Services Regulatory & Enforcement partners Krista Cooley and counsel Emily Booth-Dornfeld (both Washington DC).
The authors of this article explain a recent U.S. Department of Housing and Urban Development press release announcing proposed revisions to loan-level lender certiﬁcations, issuance of a revised Defect Taxonomy, a memorandum of understanding regarding False Claims Act actions against lenders for alleged violations of Federal Housing Administration requirements, and approval of a new annual lender certiﬁcation.
The U.S. Department of Housing and Urban Development ("HUD") recently issued a press release announcing four landmark achievements:
1. Proposed revisions to lenders' loan-level lender certiﬁcations in Federal Housing Administration ("FHA") insured mortgage transactions;
2. Issuance of a revised Defect Taxonomy;
3. Execution of a Memorandum of Understanding ("MOU") with the U.S. Department of Justice ("DOJ") regarding False Claims Act ("FCA") actions against lenders for alleged violations of FHA requirements; and
4. Approval of a new FHA annual lender certiﬁcation.1
These four actions together reﬂect HUD's ongoing effort to clarify the types of penalties and remedies that lenders should expect to face in connection with particular deﬁciencies in FHA loans and ensure that potential penalties align with the severity of the deﬁciencies. They demonstrate HUD's attempt to draw back to FHA programs depository institutions and other lenders that have retreated from FHA in recent years in response to FCA actions resulting in treble damages against lenders based on alleged defects in FHA loans.
PROPOSED CHANGES TO LOAN-LEVEL CERTIFICATIONS
As part of its effort to reduce uncertainty regarding the risks an FHA lender takes on when it originates an FHA loan, on October 25, 2019, HUD published proposed changes to the loan-level certiﬁcations required of lenders in FHA transactions.2 The proposed changes would reduce signiﬁcantly the number of statements a lender makes in connection with each ﬁle and generally limit the lender's certiﬁcations to those involving material deﬁciencies.
HUD requires speciﬁc forms and related documents to determine borrower and property eligibility for FHA insurance. In every FHA loan transaction, the lender and borrower use a Uniform Residential Loan Application and form HUD-92900-A, HUD/VA Addendum to Uniform Residential Loan Application ("92900-A"), to make application. The current 92900-A contains three lender certiﬁcation sections.3 Part II on page 1 contains ﬁve certiﬁcations regarding loan terms and ﬁle documentation. Page 3 contains the underwriter's certiﬁcation, requiring the underwriter to certify to, among other things, the borrower's speciﬁc qualiﬁcations for the mortgage. Page 4 contains eight certiﬁcations regarding satisfaction of approval conditions, escrows and disbursements, security instruments, fees and other matters.
HUD's proposed revisions would simplify the loan-level certiﬁcations. Instead of having to certify to a variety of statements regarding the lender's adherence to broad references to FHA guidelines, the lender would certify generally to the loan's compliance with FHA requirements pertaining to the ﬁnal underwriting decision and post-closing and endorsement, acknowledge that its certiﬁcations are materially correct and indicate an understanding that HUD will interpret the severity of any inaccuracies in accordance with the Defect Taxonomy. To this end, HUD's revisions would delete Part II on page 1 in its entirety and revise the underwriter and mortgagee certiﬁcations on pages 3 and 4.
The Banking Law Journal
* Krista Cooley, a partner at Mayer Brown LLP, and Emily J. Booth-Dornfeld, counsel at the ﬁrm, are members of the Consumer Financial Services group, concentrating their practices on regulatory enforcement and compliance issues. Resident in the ﬁrm's Washington D.C. ofﬁce, the authors may be reached at email@example.com and firstname.lastname@example.org .
1 HUD Press Release, HUD No. 19-159, HUD and Justice Department Sign Interagency Memorandum on the Application of False Claims Act—Agreement Fulﬁlls Key component of HUD Housing Finance Reform Plan, October 28, 2019, available at https://www.hud.gov/press/press_ releases_media_advisories/HUD_No_19_159.
2 84 Fed. Reg. 207, 57464 (Oct. 25, 2019), available at https://www.govinfo.gov/content/ pkg/FR-2019-10-25/pdf/2019-23240.pdf.
3 Form HUD-92900-A (08/01/2016)/VA Form 26-1802a (06/2014), available at https:// www.hud.gov/sites/documents/16-06MLATCH.PDF.
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