MBA, Trade Groups Ask DOJ Meeting on Fair Lending Laws

Mike Sorohan msorohan@mba.org

July 07, 2017

The Mortgage Bankers Association and other industry trade groups asked Attorney General Jeff Sessions for a meeting to discuss concerns federal fair lending policy.

MBA; the American Bankers Association; the American Financial Services Association; the Consumer Mortgage Coalition; and the Independent Community Bankers of America requested the opportunity to meet with Sessions to discuss DOJ's approach to enforcement of fair lending laws, which have undergone controversial interpretations in recent years.

"We believe that this Administration has an opportunity to align fair lending policy with Supreme Court precedent and address constitutional concerns regarding the consideration of race in decision-making," the letter said.

The letter noted in a fair lending matter pending in the Northern District of Illinois, the Department recently espoused a concerning position of the previous Administration, which the Court then adopted.

"Other deadlines demanding the Department's views are approaching," the letter said. "Our members are committed to fair lending and expend substantial resources to ensure that credit decisions are based on a consumer's qualifications for credit and without regard to factors such as race or national origin. The civil rights team of the previous Administration, however, sought to use the rulemaking and enforcement process to establish novel and overreaching requirements that contradict Supreme Court precedent."

The letter added that the process for reevaluating the previous Administration's approach to fair lending "should be deliberative and that your civil rights team is not yet in place. We respectfully suggest, however, that the actions of the Department to date appear to further the prior Administration's policy, and with other court deadlines fast approaching, we ask that you allow us to present our concerns to you before other decisions are made."

In a separate June 14 letter to DOJ (https://www.regulations.gov/document?D=HUD-2017-0029-0231), MBA issued recommendations for regulatory amendments in three areas of HUD programs. With regard to the single-family FHA insurance program, MBA addressed regulatory burdens impacting both the origination and servicing of FHA-insured mortgage loans. MBA also made recommendations regarding HUD's multifamily loan program, as well as the Discriminatory Effects rule.

MBA noted risks associated with originating FHA-insured loans have increased exponentially over the ast few years with the Department of Justice's reliance on loan-level and annual certifications to pursue lenders for treble damages under the False Claims Act based upon loan-level defects in FHA loans. MBA said these certifications hold lenders to the "unreasonable standard of perfection and result in a threat of liability that has caused many lenders to retreat from the FHA program."

MBA recommended HUD amend the regulation governing the loan-level origination certification and the certification language itself. "We further recommend that HUD remove or amend the annual certification requirement and the certification language," MBA said. "We also recommend amendments to existing FHA origination guidelines and other policies regarding the Loan Review System and Defect Taxonomy, Property
Assessed Clean Energy ("PACE") loans, the model mortgage document, and Ginnie Mae requirements."

Second, MBA noted servicing FHA-insured loans requires adherence to a unique and often outdated set of regulatory requirements that in many ways has not kept pace with significant changes to mortgage loan servicing that have occurred in the past several years.

"While mortgage loan servicers have had to adjust their systems and processes to ensure adherence to significant changes in the regulation of loan servicing by other federal and state agencies, including the Consumer Financial Protection Bureau, HUD regulations governing servicing have remained largely stagnant," MBA said. "The resulting environment for servicers is one of increased costs for mortgagees to service FHA-insured loans differently than other loan portfolios, which results in a decreasing number of businesses willing to engage in servicing of FHA-insured loans."

To address these concerns, MBA offered the following amendments to HUD servicing regulations:

--Amend the FHA foreclosure timelines and debenture interest curtailment structure, by either (i) amending the regulations to eliminate the separate foreclosure timelines and replace with one, overall foreclosure timeframe or (ii) amending the regulations to impose pro-rata curtailment to each missed foreclosure deadline with corresponding amendments to extend the first-legal and conveyance timelines to reflect the time necessary to comply.

--Adopt a direct conveyance model and continue to increase the use of alternatives to conveyance claims.

--Standardize the FHA loss mitigation program to benefit borrowers and reduce costs by aligning toward other modification processes, such as the MBA's "One Mod" principles or the recently released GSE "Flex Mod" program, that streamline loss mitigation to focus on limited paperwork requirements and payment reduction.

--Eliminate outdated regulatory requirements that no longer reflect the realities of modern servicing standards, including the face-to-face interview requirement, reasonable rate provisions for lender-placed insurance, requirements regarding physical documentation and flood insurance.

--Amend the partial claim regulation to impose reasonable consequences for documentation delays, in addition to crafting a process to document receipt of partial claim documentation in the future.

Finally, with regard the multifamily loan program, MBA noted the FHA-Ginnie Mae Multifamily and Residential Healthcare programs financed through private sector lenders have been some of the longest running, and most successful public-private partnership programs. To preserve and enhance the continued success of these partnerships, MBA identified several regulations and policies that HUD and other executive agencies should review and eliminate or modify under the Executive Orders, to reduce the drag of regulatory burden on the prospects for continued successful performance of these public-private partnerships. MBA also recommended revision of the Discriminatory Effects Rule to conform to the recent United States Supreme Court decision in this area.

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