Legal Alert

Mortgage Banking Update - December 27, 2018

December 27, 2018

FHA Loan Limits Increase for 2019

The U.S. Department of Housing and Urban Development (HUD) recently announced in Mortgagee Letter 2018-11 a nearly 7% increase in the Federal Housing Administration (FHA) forward mortgage loan limits for 2019. As previously reported, the Federal Housing Finance Agency recently announced a nearly 7% increase in the conforming mortgage loan limits for 2019.

The FHA national low-cost area mortgage loan limit for a one-unit property increases from $294,515 to $314,827. The limit is based on 65% of the national conforming loan limit, which is $484,350 for 2019. The FHA national high-cost area mortgage loan limit for a one-unit property increases from $679,650 to $726,525. For Alaska and Hawaii, the mortgage loan limit for a one-unit property increases from $1,019,475 to $1,089,787.

The higher loan amounts are effective for case numbers assigned on or after January 1, 2019. Mortgagee Letter 2018-11 includes links to HUD webpages that set forth the applicable loan limits for each MSA and county. Maximum loan amounts for each area are set at or between the low-cost area and high-cost area limits based on the median home prices for the area.

- Richard J. Andreano, Jr.

HUD OIG Update

The Office of the Inspector General (OIG) for the Department of Housing and Urban Development (HUD) recently issued its Semiannual Report to Congress for the period from April through September 2018. Among other things, the report outlines recent investigations by OIG into borrowers, lenders, and housing counseling agencies.

OIG reviewed HUD’s preforeclosure sale claim process for single-family loans. It determined that HUD paid more than $413 million in unnecessary interest and other costs for preforeclosure claims because lenders did not complete servicing actions for defaulted loans within established timeframes. OIG recommended a change to HUD’s governing regulations to require curtailment of preforeclosure interest and other costs caused by servicing delays.

The report also details several criminal prosecutions. In Newark, New Jersey, 13 individuals were sentenced after pleading guilty to conspiracy, wire fraud, and tax fraud. The defendants conspired to obtain mortgage loans by recruiting straw buyers to purchase single-family properties and to submit fraudulent loan applications. The scheme involved a total of 24 loans, including 17 FHA loans, and resulted in several defaults that exposed lenders and the FHA to more than $2 million in potential losses.

In Dallas, a vice president of a HUD-approved housing counseling agency was sentenced to five years incarceration and ordered to pay more than $600,000 in restitution. The defendant had previously pled guilty to mail fraud for defrauding homeowners under the guise of providing them with mortgage assistance. The defendant falsified paperwork, stole homeowners’ mortgage payments, and extracted large payments from homeowners as part of a falsely claimed unsuccessful effort to save their homes from foreclosure.

The report also provides an update on FHA’s Mortgagee Review Board (MRB). The report details various improvements made by MRB since OIG’s most recent evaluation. OIG reports that MRB has increased the consistency of penalties given to lenders for similar violations, met the requirement to publish each administrative action it brings against lenders in the Federal Register, and resolved a longstanding backlog of cases.

- Constantinos G. Panagopoulos and Matthew D. Lamb

NY DFS Superintendent Vullo Announces Departure Plans

Maria Vullo, the current Superintendent of the New York Department of Financial Services, has announced that she will leave DFS on February 1, 2019.

Ms. Vullo, who has served as Superintendent since 2016, has been an aggressive regulator. In September 2018, she made a public announcement stating that the DFS intended to pursue what appeared to be a disparate impact theory arising out of indirect auto finance transactions. Also in September, Ms. Vullo filed a second lawsuit in a New York federal district court to stop the federal Office of the Comptroller of the Currency from issuing special purpose national bank charters to Fintech companies.

- Barbara S. Mishkin

This Week’s Podcast: A Conversation With Pennsylvania Secretary of Banking and Securities Robin Wiessmann

In this week’s episode, Pennsylvania Secretary of Banking and Securities Robin Wiessmann discusses lessons learned from the 2009 financial crisis and concerns arising from today’s market conditions and regulatory environment; shares her views on the OCC’s Fintech charter, provides an update on steps states are taking to relieve regulatory burdens on Fintech companies; and explains her agency’s approach to virtual currency.

To listen and subscribe to the podcast, click here.

- Barbara S. Mishkin

Kraninger to Retain CFPB as Agency Name

CFPB Director Kathy Kraninger has sent an email to CFPB employees informing them of her decision to halt “all ongoing efforts to make changes to existing products and materials related to the name correction initiative.” That initiative was initiated by former Acting Director Mick Mulvaney. Under his leadership, the Bureau began using “Bureau of Consumer Financial Protection” as its name, together with the acronym “BCFP,” instead of, respectively, “Consumer Financial Protection Bureau” and “CFPB.”

Ms. Kraninger identified the name change as an “early priority” because of implementation decisions that must be made. In initiating the name change and commissioning a seal reflecting the change, Mr. Mulvaney had pointed to the Dodd-Frank Act’s use of “Bureau of Consumer Financial Protection” to refer to the agency. Ms. Kraninger stated that the new seal and “the statutory name we were given in Dodd-Frank” would be used for “statutorily required reports, legal filings, and other items specific to the Office of the Director.” However, for all other materials, the Bureau will continue to use the name “Consumer Financial Protection Bureau” and “the existing CFPB logo.”

Ms. Kraninger indicated that she made her decision “after being fully briefed on the costs, operational challenges and the effect on stakeholders.” Her decision closely follows Senator Elizabeth Warren’s sending of a letter to the Inspector General for the Fed and CFPB asking for an investigation into Mr. Mulvaney’s decision to change the Bureau’s name. In her letter, Sen. Warren cited reports and an internal Bureau analysis indicating that the name change would cost the CFPB between $9 million and $19 million and would cost entities subject to CFPB supervision approximately $300 million to update internal databases, regulatory filings, and disclosure forms with the new name.

We applaud Director Kraninger for quickly addressing this issue and addressing it in a practical manner.

- Barbara S. Mishkin

CFPB Issues Annual Fair Lending Report

The CFPB has issued a new annual report covering its fair lending activities during 2017. Since Mick Mulvaney did not become Acting Director until the end of November 2017, the fair lending activities described in the report largely took place under former Director Richard Cordray’s leadership.

The Bureau’s last annual fair lending report under former Director Cordray (which covered its fair lending activities in 2016) identified the Bureau’s 2017 fair lending priorities. Consistent with those priorities, the new report indicates that, in 2017, the Bureau focused on redlining, mortgage and student loan servicing, and small business lending. The new report, however, provides no insights into the Bureau’s 2019 fair lending priorities.

Indeed, even if the report had identified 2019 priorities, it is unclear how meaningful that would have been given that the CFPB will be led by Kathy Kraninger, its new Director, in 2019. Ms. Kraninger is likely to play a significant role in setting the Bureau’s fair lending agenda going forward. During her initial press conference as Director earlier this month, Ms. Kraninger deflected questions she was asked about fair lending matters, including the Bureau’s use of the disparate impact theory to prove violations of ECOA, by saying that she has not reached any conclusions about the Bureau’s future fair lending policy and awaits staff briefings.

In the report’s section on supervisory activities, the Bureau reviews information previously provided in its Spring 2017 and Summer 2017 editions of Supervisory Highlights. In the section on enforcement, the Bureau reviews its two public 2017 fair lending enforcement actions and its implementation of several consent orders. It also reports that it referred two matters with ECOA violations to the Justice Department in 2017 and the DOJ declined to open its own investigation, deferring to the Bureau’s handling of both matters. The Bureau states that at the end of 2017, it had a number of pending redlining investigations as well as a number of pending investigations in other areas.

In the section on rulemaking, the Bureau discusses various HMDA/Regulation C developments and its final rule amending Regulation B to facilitate Regulation C compliance. In discussing its progress in developing rules on the collection of small business lending data to implement Section 1071 of Dodd-Frank, the Bureau references its May 2017 RFI seeking information on the small business lending market. (Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business.) In the Bureau’s Spring 2018 rulemaking agenda, the Section 1071 rulemaking was included in the list of current rulemakings, with an estimated March 2019 date for pre-rule activities. Its Fall 2018 agenda, however, reclassifies the Section 1071 rulemaking as a long-term action item.

The report also contains sections that discuss the Bureau’s coordination with other federal agencies on fair lending issues and outreach to industry and consumers (such as through speaking engagements, roundtables, blog posts, and supervisory highlights). Another section is intended to satisfy certain ECOA and HMDA reporting requirements, including providing a summary of other agencies’ ECOA enforcement efforts and reporting on the utility of certain HMDA reporting requirements.

- John L. Culhane, Jr.

Did You Know?

Ombudsman Meeting at the 2019 NMLS Annual Conference & Training

An open meeting with the NMLS Ombudsman will be held Wednesday, February 20, 2019, from 9 a.m. to 12 p.m. ET, in conjunction with the 2019 NMLS Annual Conference & Training in Orlando, Florida. Suggested agenda items regarding NMLS, state licensing, and/or federal registration will be accepted until Wednesday, January 30, 2019.

Individuals who submit discussion items must attend the meeting to present their issue. Agenda items can be submitted by emailing

- John D. Socknat

Copyright © 2018 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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