The Department of Housing and Urban Development has announced the signing of a Memorandum of Understanding (MOU) between the agency and the Department of Justice designed to provide guidance on pursuing disciplinary actions in cases brought against participating FHA lenders who may be in violation under the False Claims Act (FCA).
“This agreement clearly outlines our FHA mortgage program requirements, so they do not impede or discourage lenders from offering affordable FHA-insured loans to credit-worthy borrowers,” according to one HUD official quoted in the agency’s press release.
The United States Attorney General is also quoted in the press release adding, “”This MOU sets forth a robust and collaborative process for deciding when to pursue False Claims Act cases to remedy material and knowing FHA violations,”
The agreement means HUD and the Department of Justice will act together to determine what type of action is best suited for a specific case; the guiding principles include addressing “harm to the borrower” and related issues.
Why is this Memorandum of Understanding necessary?
According to HUD, it was designed “to address concerns that uncertain and unanticipated FCA liability for regulatory defects led to many well-capitalized lenders, including many banks and credit unions statutorily required to help meet the credit needs of the communities in which they do business, to largely withdraw from FHA lending.”
The result of that shift, according to HUD, includes major changes in the FHA loan program’s lender base over the past ten years. FHA loans are popular among first-time homebuyers which make up roughly 80% of all FHA home borrowers.
As for the new agreement, FHA requirements are enforced primarily through HUD-directed administrative proceedings, “but the MOU specifically addresses how HUD and DOJ, including the U.S. Attorneys’ Offices, will consult with each other regarding use of the FCA in connection with defects on mortgage loans insured by FHA”.
HUD states it will use, among other resources, the Mortgagee Review Board (MRB), which is legally authorized to take “certain actions for non-compliance by FHA lenders” as well as to review and refer claims.
The press release adds an important caveat. The HUD/DOJ memorandum of understanding “also recognizes that application of the FCA requires, among other elements of proof, a material violation of HUD requirements, and DOJ attorneys will solicit HUD’s views to determine whether the elements of the FCA can be established”.
This agreement between the two federal agencies is part of an ongoing effort to “bring greater clarity to regulatory expectations within the FHA program” according to the press release.
For borrowers, all of this is fairly transparent, but the end result may be beneficial to all house-hunters seeking an FHA mortgage; making the FHA loan program safer for consumers is an important part of the FHA mission.