Category: FHA/VA

1
Financial Institutions & Services Litigation Group Highlights Key Legal Issues at MBA Conference
2
HUD’s Approach to Disparate Impact Remains Under Fire—Lending Trade Associations Weigh In
3
VA Issues QM FAQs, Focuses on IRRRLs
4
TRID/KBYO Rule: The CFPB Tries to Calm Lender Fears
5
GSEs Release Revised Framework for Origination Defects and Remedies — The Proof Will Be in the Execution
6
HUD’s Proposal to Terminate FHA Insurance Policies Could Terminate the FHA Program
7
STATEMENT OF PAUL F. HANCOCK, K&L GATES LLP, ON DECISION OF U.S. SUPREME COURT UPHOLDING ‘DISPARATE-IMPACT LIABILITY’ UNDER THE FAIR HOUSING ACT
8
HUD Reached Record-Breaking Settlement in Redlining Case
9
Navigating HUD’s New Single Family Housing Policy Handbook
10
Webinar: Navigating the New HUD Origination Handbook

Financial Institutions & Services Litigation Group Highlights Key Legal Issues at MBA Conference

Members of the K&L Gates Financial Institutions & Services Litigation Group will speak on key topics at the upcoming the MBA’s Legal Issues and Regulatory Compliance Conference in Miami, FL (May 7-10).

Olivia Kelman will review the Home Mortgage Disclosure Act (HMDA) as well as other lending-related requirements of the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) on Sunday afternoon (May 7).

Andrew C. Glass will address major litigation and enforcement trends, including cases heard or pending before the Supreme Court and other federal courts on Monday afternoon (May 8).

Paul F. Hancock will discuss fair lending issues affecting business models and practices, a topic of particular interest with the entrance of a new administration, on Monday afternoon (May 8). Paul also will facilitate a fair lending roundtable discussion later that same afternoon.

In addition, many of our group’s attorneys are attending the conference. We look forward to seeing you all in Miami!

HUD’s Approach to Disparate Impact Remains Under Fire—Lending Trade Associations Weigh In

By Paul F. Hancock, Andrew C. Glass, John L. Longstreth, Olivia Kelman and Joshua Butera

K&L Gates LLP recently presented the views of the major banking and lending trade associations, as amici curiae, in a federal challenge to HUD’s Fair Housing Act disparate-impact rule. The views expressed are those of the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Financial Services Roundtable, the Independent Community Bankers of America®, and the Mortgage Bankers Association. The HUD rule challenge is likely to have a far-reaching effect on the housing industry and affiliated sectors of the economy. The lending industry argued that the HUD rule fails to comply with binding Supreme Court precedent governing disparate-impact claims. Moreover, HUD—which lacks the power to legislate—impermissibly adopted a legal standard that Congress enacted for a different civil rights law. And compounding its error, HUD cherry-picked only the plaintiff-friendly portions of that standard while ignoring substantial limitations Congress had imposed. Amici filed their brief to assist the trial court in understanding the full potential effect of the HUD disparate-impact rule, urging the court to overturn the rule.

To read the full alert, click here.

VA Issues QM FAQs, Focuses on IRRRLs

On May 9, 2014, the Department of Veterans Affairs (“VA”) issued an Interim Final Rule defining which VA-guaranteed loans would be “qualified mortgages” or “QMs” for the purposes of the Truth in Lending Act’s (“TILA”) ability-to-repay requirements. With its recent release of Circular 26-13-3, the VA has now clarified the application of that rule through FAQs focusing largely on Interest Rate Reduction Refinance Loans (“IRRRLs”). These loans are VA streamlined refinances, which generally allow for reduced income verification for eligible veterans’ loans. IRRRLs represent a small sliver of mortgage lending in the United States, but their treatment under VA’s Interim Final Rule has presented significant problems for some lenders.

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TRID/KBYO Rule: The CFPB Tries to Calm Lender Fears

On December 29, 2015, CFPB Director Richard Cordray responded to MBA President and CEO David Stevens’ desperate plea for clarity to address what the MBA claimed is a significant rejection by large aggregators and investors of correspondent lending channel loans for minor or technical TRID errors. In its December 21, 2015 letter to Director Cordray, Mr. Stevens noted that these minor and technical errors include “issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.” The MBA feared that without some clarity from the CFPB disruption and liquidity issues would overwhelm the mortgage markets.

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GSEs Release Revised Framework for Origination Defects and Remedies — The Proof Will Be in the Execution

By: Laurence E. Platt, Jennifer A. Overall

By recently releasing yet another revised representation and warranty framework, Fannie Mae and Freddie Mac continued their efforts to assuage the concerns of the lending industry that a default by a borrower poses an unfair risk of a loan repurchase demand.  On October 7, 2015, Fannie Mae and Freddie Mac (the “GSEs”), at the direction of the Federal Housing Finance Agency (“FHFA”), announced a framework for  origination defects and remedies (the “Framework”) that expands on existing frameworks governing the rights and responsibilities of lenders that sell or securitize loans to or with the GSEs.  For example, permitting repricing or cure in lieu of the remedy of repurchase represents a concession by the GSEs.  Nevertheless, the language of the new Framework is ambiguous enough that one may have to rely on the GSEs’ apparent spirit of good intentions rather than the precision of their language to take total comfort in the changes.

To read the full alert, click here.

HUD’s Proposal to Terminate FHA Insurance Policies Could Terminate the FHA Program

By: Krista CooleyKathryn M. Baugher

If there is anything that galls servicers of government-insured loans, it is the forfeiture or curtailment of all accrued interest from mortgage insurance claims resulting from the failure to foreclose fast enough within artificially created state time lines. At first glance, the U.S. Department of Housing and Urban Development (“HUD” or the “Department”) listened to the complaints of servicers who argued that they should not be penalized for pursuing foreclosure avoidance options or experiencing delays in the legal system beyond their control. HUD’s proposed regulation regarding changes to the Federal Housing Administration’s (“FHA”) single-family mortgage insurance claim filing process includes proposals that pro rate the curtailment of interest based on actual delays caused by the servicer, proposing to eliminate the complete forfeiture of accrued interest for only one day of delay. So far, so good, but HUD did not stop there. HUD also proposed the complete extinguishment of an FHA insurance policy if the servicer does not complete foreclosure within a new set of artificial time lines. Read together, HUD’s reform is to provide servicers with more accrued interest if they do not foreclose fast enough, unless, of course, HUD invalidates the whole insurance policy—the loss of both principal and interest—by virtue of HUD’s subjective definition of unreasonable delays. Few servicers think that is progress.

This proposal raises significant questions and concerns for FHA mortgagees that hold and service FHA-insured loans, many of which could have a chilling effect on FHA lending and servicing activities if HUD were to implement the proposed claim filing deadline as proposed and without significant changes to HUD’s claim filing guidelines and procedures.

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STATEMENT OF PAUL F. HANCOCK, K&L GATES LLP, ON DECISION OF U.S. SUPREME COURT UPHOLDING ‘DISPARATE-IMPACT LIABILITY’ UNDER THE FAIR HOUSING ACT

By: Paul F. Hancock

The Court’s decision today resolves an important legal issue about which there has been principled disagreement among White House administrations, as well as among advocacy and industry groups, for decades. While the Court, by a razor thin margin, upheld the application of disparate impact under the Fair Housing Act, the Court also imposed important limitations on the application of the legal theory. For example, the Court held that a racial imbalance, without more, does not establish a case of discrimination, and directed lower courts to “examine with care” the claims presented at the pleading stage. The Court further directed that remedial orders in disparate impact cases must “concentrate on the elimination of the offending practice” and employ “race-neutral [remedial] means.” The limitations that were announced were believed necessary by the Court to “avoid serious constitutional questions that might arise” and “to protect potential defendants against abusive disparate-impact claims.”

Navigating HUD’s New Single Family Housing Policy Handbook

By: Phillip L. SchulmanHolly Spencer BuntingKrista CooleyEmily J. Booth-Dornfeld, Christa Bieker

Last fall the Department of Housing and Urban Development (“HUD”) issued the first section of its new Single Family Housing Policy Handbook (“Single Family Handbook” or “Handbook”). The Single Family Handbook is designed to achieve a consolidated, authoritative source of single-family housing policy. In addition to consolidating all policy into a single document, the Handbook makes numerous substantive changes to Federal Housing Administration (“FHA”) requirements. The Handbook will be effective for FHA-insured loans with case numbers assigned on and after June 15, 2015. This client alert analyzes key changes introduced by the Handbook.

To read the full alert, click here.

Webinar: Navigating the New HUD Origination Handbook

27 January 2015

2:00 – 3:30 p.m. EST

With the New Year comes impending changes to FHA origination, underwriting, and closing guidelines in the form of HUD’s updated FHA’s Single Family Housing Policy Handbook 4000.1. As announced on September 30, 2014, FHA’s origination through post-closing and endorsement sections of its new Single Family Housing Policy Handbook will be effective for FHA-insured loans with FHA Case Numbers assigned on and after June 15, 2015. With less than six months until these new requirements go into effect, mortgagees need to focus on these important requirements that will govern origination through post-closing and endorsement. It is imperative that mortgagees familiarize themselves with the new lending guidelines and ensure that their systems, procedures, underwriting practices, and personnel will be ready to go by June 15, 2015. Quality Control departments would also benefit from a review of these requirements, as they may need to amend their review processes to identify and resolve any findings of noncompliance with the amended guidelines.

On Tuesday, January 27, 2015, from 2 p.m. to 3:30 p.m. EST K&L Gates will sponsor a webinar in which we will discuss the most significant changes to HUD origination and underwriting requirements included in the new Handbook. We will leave time at the end of the webinar to answer your questions. We hope you will be able to join us.

Presenters:

Phillip L. Schulman, Partner, Washington, D.C.

Krista Cooley, Partner, Washington, D.C.

Holly Spencer Bunting, Partner, Washington, D.C.

Emily J. Booth-Dornfeld, Counsel, Washington, D.C.

To RSVP, click here.

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