Periodically, we review with you the types of administrative actions taken by HUD's Mortgagee Review Board (MRB).
The review of the MRB's published administrative actions should be considered a teaching moment for all FHA approved mortgagees, inasmuch as the MRB is empowered to enforce its administrative sanctions, through, among other things, reprimand, probation, suspension or withdrawal of approval and/or underwriting authority, cease-and-desist orders, and civil money penalties.
Trust me - you don't want to go there!
On February 24, 2012, HUD published the administrative actions taken by the Mortgagee Review Board (MRB) against certain FHA mortgagees. The period covered in the issuance is February 14, 2011, to July 20, 2011.
In this newsletter, I will provide an outline of the kinds of violations and respective sanctions that the MRB recently sustained.
Best wishes, Jonathan Foxx*
IN THIS ARTICLE
A Word to the Wise
Rule of Thumb
Administrative Actions
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A Word to the Wise
In representing clients before the MRB, I can vouch for the exhaustive due diligence that is virtually mandated, the considerable costs involved, the experienced legal counsel and requisite regulatory compliance expertise that is needed, and the significant adverse impact on an FHA lender's ability to conduct or even continue in business.
It's easy to get lulled into a sense of false confidence by thinking that some violations are minor. But if the MRB gets involved, those minor violations will become a part of the causes for administrative action, and even in some instances the proximate cause of the administrative action.
Nothing should be considered a "minor" violation, when originating HUD/FHA mortgage loans.
It is instructive to note the causes for the administrative action brought against an FHA-approved mortgagee.
Ignorance is a futile defense, when it comes to the causes that can affirmatively contribute to disciplinary action.
Rule of Thumb
The MRB is not sympathetic to a mortgagee that violates HUD/FHA requirements which are, or are expected to be, within the mortgagee's control.
Violations that are not, or not expected to be, in the mortgagee's control provide the MRB with a more nuanced basis upon which to provide some leniency.
Administrative Actions
VIOLATION:
Improperly entered incorrect information as "cash reserves'' into HUD's automated underwriting system in order to receive approvals for seven loans; failed to adequately document the stability of borrowers' employment or income and failed to adequately document other income used to qualify borrowers; failed to consider mortgage payment debt and liabilities when underwriting and approving FHA-insured loans; failed to adequately document the source of gift funds for one loan; and failed to obtain confirmation concerning cash saved at home with regard to two other loans.
Improperly entered incorrect information as "cash reserves'' into HUD's automated underwriting system in order to receive approvals for seven loans; failed to adequately document the stability of borrowers' employment or income and failed to adequately document other income used to qualify borrowers; failed to consider mortgage payment debt and liabilities when underwriting and approving FHA-insured loans; failed to adequately document the source of gift funds for one loan; and failed to obtain confirmation concerning cash saved at home with regard to two other loans.
ACTION:
Indemnify HUD for any future losses on six FHA-insured mortgage loans; reimburse HUD for losses in the amount of $496,727.53 for mortgage insurance claims paid by HUD; and pay a civil money penalty in the amount of $45,500.
Indemnify HUD for any future losses on six FHA-insured mortgage loans; reimburse HUD for losses in the amount of $496,727.53 for mortgage insurance claims paid by HUD; and pay a civil money penalty in the amount of $45,500.
VIOLATION:
Failed to notify HUD that the mortgagee, its principals, and its originators had entered into a consent order with a state, which required the payment of an $11,000 fine for originating mortgages in that state without originator licenses; failed to notify the HUD that it entered into a consent order with another state, which required the payment of a $1,500 penalty for failing to file its annual report; and falsely certified on its 2010 Yearly Verification Report that it had not been involved in a state proceeding that resulted in adverse action and had not relinquished a license in any jurisdiction in which it originates or services FHA-insured mortgages.
Failed to notify HUD that the mortgagee, its principals, and its originators had entered into a consent order with a state, which required the payment of an $11,000 fine for originating mortgages in that state without originator licenses; failed to notify the HUD that it entered into a consent order with another state, which required the payment of a $1,500 penalty for failing to file its annual report; and falsely certified on its 2010 Yearly Verification Report that it had not been involved in a state proceeding that resulted in adverse action and had not relinquished a license in any jurisdiction in which it originates or services FHA-insured mortgages.
ACTION:
Mortgagee required to pay a civil money penalty in the amount of $12,500.
Mortgagee required to pay a civil money penalty in the amount of $12,500.
VIOLATION:
Several mortgagees failed to timely remit upfront mortgage insurance premiums to HUD/FHA.
Several mortgagees failed to timely remit upfront mortgage insurance premiums to HUD/FHA.
ACTION:
Mortgagees were required to pay civil money penalties ranging from $7,500 to $138,900.
Mortgagees were required to pay civil money penalties ranging from $7,500 to $138,900.
VIOLATION:
Mortgagee and its subsidiary failed to timely remit mortgage insurance premiums to HUD/FHA, and failed to notify HUD/FHA within 15 days of the termination of contracts of mortgage insurance.
Mortgagee and its subsidiary failed to timely remit mortgage insurance premiums to HUD/FHA, and failed to notify HUD/FHA within 15 days of the termination of contracts of mortgage insurance.
ACTION:
Required a civil money penalty in the amount of $215,000 and remittance outstanding MIPs and late fees owed by the mortgagee and/or its subsidiary.
Required a civil money penalty in the amount of $215,000 and remittance outstanding MIPs and late fees owed by the mortgagee and/or its subsidiary.
VIOLATION:
Failed to implement an adequate Quality Control ("QC'') Plan during the years 2006, 2007, 2008 and 2009; failed to report to the HUD serious deficiencies and patterns of noncompliance in twenty loans that the mortgagee discovered during QC reviews; approved loans that did not meet FHA's minimum credit requirements; approved a loan with a total fixed payment-to-income ratio that exceeded FHA benchmarks without significant compensating factors and without documentation sufficient to support those factors; failed to properly calculate the income used to qualify the borrowers in two loans; failed to ensure that parties were not charged fees that were excessive or unreasonable for the services provided; and failed to provide adequate documentation to support the excessive interest rate and discount points charged to borrowers.
Failed to implement an adequate Quality Control ("QC'') Plan during the years 2006, 2007, 2008 and 2009; failed to report to the HUD serious deficiencies and patterns of noncompliance in twenty loans that the mortgagee discovered during QC reviews; approved loans that did not meet FHA's minimum credit requirements; approved a loan with a total fixed payment-to-income ratio that exceeded FHA benchmarks without significant compensating factors and without documentation sufficient to support those factors; failed to properly calculate the income used to qualify the borrowers in two loans; failed to ensure that parties were not charged fees that were excessive or unreasonable for the services provided; and failed to provide adequate documentation to support the excessive interest rate and discount points charged to borrowers.
ACTION:
Required the mortgagee to indemnify HUD for losses on five loans; refund $9,368.38 in impermissible fees charged to borrowers; and pay a civil money penalty in the amount of $72,500.
Required the mortgagee to indemnify HUD for losses on five loans; refund $9,368.38 in impermissible fees charged to borrowers; and pay a civil money penalty in the amount of $72,500.
VIOLATION:
Mortgagee approved 30 FHA-insured mortgage loans for borrowers who did not meet HUD/FHA's minimum credit requirements; approved four loans with debt-to-income ratios that exceed HUD's benchmarks without documentation of significant compensating factors; failed to adequately document the source of gift funds used to close a loan; failed to ensure that a credit qualification on a streamline refinance loan transaction was completed as required; permitted loan correspondents to be improperly compensated with mortgage broker fees; failed to ensure that commitment fees were properly charged in accordance with HUD requirements; and failed to conduct pre-insurance reviews or ensure the accuracy of data submitted to HUD through FHA Connection, as required by HUD's Lender Insurance Program.
Mortgagee approved 30 FHA-insured mortgage loans for borrowers who did not meet HUD/FHA's minimum credit requirements; approved four loans with debt-to-income ratios that exceed HUD's benchmarks without documentation of significant compensating factors; failed to adequately document the source of gift funds used to close a loan; failed to ensure that a credit qualification on a streamline refinance loan transaction was completed as required; permitted loan correspondents to be improperly compensated with mortgage broker fees; failed to ensure that commitment fees were properly charged in accordance with HUD requirements; and failed to conduct pre-insurance reviews or ensure the accuracy of data submitted to HUD through FHA Connection, as required by HUD's Lender Insurance Program.
ACTION:
Required the mortgagee to indemnify HUD for its existing and future losses on twenty-one loans, including losses totaling $91,008.12; refund $17,702.25 in improper fees charged to borrowers; and pay a civil money penalty in the amount of $127,500.
Required the mortgagee to indemnify HUD for its existing and future losses on twenty-one loans, including losses totaling $91,008.12; refund $17,702.25 in improper fees charged to borrowers; and pay a civil money penalty in the amount of $127,500.
VIOLATION:
Disseminated a misrepresentative advertisement to the public; failed to properly analyze borrowers' credit in connection with two HUD/FHA-insured mortgage loans; failed to resolve inconsistencies and/or discrepancies when originating and/or underwriting a HUD/FHA-insured mortgage loan; failed to ensure compliance with HUD's 203(k) program by failing to demonstrate that the completed construction would meet FHA's minimum property standards and/or comply with the local building code; originated a HUD/FHA 203(k) mortgage on an ineligible property; accepted and closed loans that were originated by individuals who were not exclusively employed by the mortgagee; and failed to properly verify rental income by obtaining the required tax documentation.
Disseminated a misrepresentative advertisement to the public; failed to properly analyze borrowers' credit in connection with two HUD/FHA-insured mortgage loans; failed to resolve inconsistencies and/or discrepancies when originating and/or underwriting a HUD/FHA-insured mortgage loan; failed to ensure compliance with HUD's 203(k) program by failing to demonstrate that the completed construction would meet FHA's minimum property standards and/or comply with the local building code; originated a HUD/FHA 203(k) mortgage on an ineligible property; accepted and closed loans that were originated by individuals who were not exclusively employed by the mortgagee; and failed to properly verify rental income by obtaining the required tax documentation.
ACTION:
Required the mortgagee to pay a civil money penalty in the amount of $23,500 and indemnify HUD/FHA for any losses incurred on three HUD/FHA-insured loans.
Required the mortgagee to pay a civil money penalty in the amount of $23,500 and indemnify HUD/FHA for any losses incurred on three HUD/FHA-insured loans.
VIOLATION:
Failed to comply with HUD/FHA's rules prohibiting property flipping; failed to ensure that the borrowers made the required minimum investment in the property; originated a loan that exceeded the maximum insured mortgage amount; and charged an impermissible tax service fee.
Failed to comply with HUD/FHA's rules prohibiting property flipping; failed to ensure that the borrowers made the required minimum investment in the property; originated a loan that exceeded the maximum insured mortgage amount; and charged an impermissible tax service fee.
ACTION:
Required the mortgagee to buy down the principal balance of a loan in the amount of $2,868; indemnify HUD on this loan for a period of five years; and pay a civil money penalty in the amount of $7,500.
Required the mortgagee to buy down the principal balance of a loan in the amount of $2,868; indemnify HUD on this loan for a period of five years; and pay a civil money penalty in the amount of $7,500.
VIOLATION:
Failed to timely remit mortgage insurance premiums to HUD/FHA, and failed to notify HUD/FHA within 15 calendar days of the termination of mortgage insurance contracts.
Failed to timely remit mortgage insurance premiums to HUD/FHA, and failed to notify HUD/FHA within 15 calendar days of the termination of mortgage insurance contracts.
ACTION:
Required the mortgagee to pay a civil money penalty in the amount of $256,000.
Required the mortgagee to pay a civil money penalty in the amount of $256,000.
VIOLATION:
Failed to maintain and implement a Quality Control Plan in accordance with HUD/FHA's requirements, and paid compensation in the form of commissions to an employee performing underwriting activities.
Failed to maintain and implement a Quality Control Plan in accordance with HUD/FHA's requirements, and paid compensation in the form of commissions to an employee performing underwriting activities.
ACTION:
Required the mortgagee to pay a civil money penalty in the amount of $50,000.
Required the mortgagee to pay a civil money penalty in the amount of $50,000.
VIOLATION:
Mortgagee misrepresented the identity of its president on its January 2, 2009, application for FHA approval; failed to timely notify HUD of a state regulatory sanction imposed upon its president; and failed to submit an acceptable Independent Public Accountant's Computation of Adjusted Net Worth for the end of fiscal year 2009.
Mortgagee misrepresented the identity of its president on its January 2, 2009, application for FHA approval; failed to timely notify HUD of a state regulatory sanction imposed upon its president; and failed to submit an acceptable Independent Public Accountant's Computation of Adjusted Net Worth for the end of fiscal year 2009.
ACTION:
Required the mortgagee to pay a civil money penalty in the amount of $50,000. In addition, the mortgagee was required to submit to HUD restated financial statements for fiscal year ended December 31, 2009, in which the mortgagee reclassified the net book value of all intangible assets.
Required the mortgagee to pay a civil money penalty in the amount of $50,000. In addition, the mortgagee was required to submit to HUD restated financial statements for fiscal year ended December 31, 2009, in which the mortgagee reclassified the net book value of all intangible assets.
Library
Department of Housing and Urban Development
Office of the Assistant Secretary for Housing
Federal Housing Commissioner
Federal Housing Commissioner
Mortgagee Review Board: Administrative Actions
February 24, 2012
* Jonathan Foxx is the President and Managing Director of Lenders Compliance Group.
