On behalf of the American Bankers Association and state bankers associations across the country, K&L Gates partner Paul F. Hancock and associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD” or “Department”) on August 20, 2018, in support of reopening rulemaking regarding the Department’s implementation of the Fair Housing Act’s disparate impact standard. On June 20, 2018, HUD issued an advance notice of proposed rulemaking that sought public comment on possible amendments to the Department’s 2013 final disparate impact rule in light of the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015). In that decision, the Supreme Court articulated the standards for, and the constitutional limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the rule should be amended because it adopts standards that are inconsistent with Supreme Court precedent, fails to provide much needed guidance to entities seeking to comply with the law, and is therefore outdated and ineffective. A copy of the comment is available here.
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.
Servicers of mortgage loans insured by the Federal Housing Administration (“FHA”) can breathe a sigh of relief—at least for now. Today, the U.S. Department of Housing and Urban Development (“HUD”) withdrew part of a recently proposed regulation that would have required FHA-approved servicers to file a claim for FHA insurance benefits within a certain period of time or else face termination of the FHA insurance policy. HUD stated that it withdrew the proposal to establish a claim filing deadline “[i]n response to public comments expressing concern over the implementation of the proposed provisions[.]”
On Thursday, September 24, 2015, the CFPB and DOJ filed a complaint and proposed consent order against Hudson City Savings Bank (“Hudson City”) alleging violations of the Equal Credit Opportunity Act and Fair Housing Act. The complaint alleges that Hudson City discriminated against Black and Hispanic borrowers by redlining majority-Black-and-Hispanic neighborhoods (defined in the consent order as a census tract in which more than 50 percent of the residents are identified in the 2010 U.S. Census as either “Black or African American” or “Hispanic or Latino”) in its residential mortgage lending in New York, New Jersey, and Pennsylvania. The complaint alleges that Hudson City engaged in redlining through its (1) location of branches and loan officers, (2) exclusion of Black and Hispanic census tracts from its Community Reinvestment Act (“CRA”) assessment area, (3) use of brokers outside of majority Black and Hispanic neighborhoods, (4) marketing directed at neighborhoods with relatively few minority residents, and (5) exclusion of residents from majority-minority counties from discounted home improvement loans for borrowers with low to moderate incomes.
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.
Grab a flotation device – the final decision recently issued by Director Richard Cordray of the Consumer Financial Protection Bureau (“CFPB”) in the administrative enforcement proceedings against PHH Corp. (“PHH”) has rocked the boat for the real estate settlement services industry as portions of the decision run directly counter to decades of legal precedent, and the prior writings and Policy Statements issued by the Department of Housing and Urban Development (“HUD”) – the federal agency previously tasked with interpreting the federal Real Estate Settlement Procedures Act (“RESPA”) and enforcing its provisions. As K&L Gates summarized in its June 22, 2015 Alert, the decision addresses a number of topics, including Director Cordray’s interpretation of several provisions of the federal RESPA. And while many of the CFPB’s views and interpretations attempt to expand the scope of RESPA’s reach and are subject to criticism, one of the most significant developments is Director Cordray’s conclusion that Section 8(c)(2) of RESPA is not the type of safe harbor that has long been widely accepted.
On May 26, 2015, the Department of Housing and Urban Development (“HUD” or the “Department”) announced an approximately $200 million settlement with Associated Bank resolving allegations that the bank engaged in racial redlining in violation of the Fair Housing Act.
At least for the next year, Congress has materially impaired the ability of local governments to seize underwater residential mortgage loans through eminent domain by cutting off federal insurance or guarantees to refinance the seized mortgages and then securitize the refinancings. Without this federal “take out” through mortgage insurance provided by the Federal Housing Administration (“FHA”), and guarantees of mortgage-backed securities by the Government National Mortgage Association (“Ginnie Mae”), local governments will have to find private sources of long-term funding to pay for loans that they attempt to seize.
On Monday, November 3, 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia struck down the disparate impact rule promulgated by the U.S. Department of Housing and Urban Development (“HUD”) in March 2013 under the Fair Housing Act. The court held that HUD had issued the rule—codified at 24 C.F.R. § 100.500—in contravention of the plain language of the Fair Housing Act. The case is styled American Insurance Association, et al. v. United States Department of Housing & Urban Development, et al., Case No. 1:13-cv-00966-RJL (D.D.C.).
By: Melanie Brody, Anjali Garg*
*Ms. Garg is a law clerk and is not admitted to practice law.
On March 24, 2014, the Fifth Circuit issued an opinion in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs applying HUD’s discriminatory effects rule and burden-shifting analysis to a Fair Housing Act claim. This is the first circuit court to apply the rule since it took effect on March 18, 2013. Read More