HUD FINAL RULE INTERPRETING “DISPARATE IMPACT” PRACTICES ON CONSUMERS
On Feb. 8, the U.S. Department of Housing and Urban Development issued its final rule authorizing disparate impact test claims under the Fair Housing Act. The rule provides support for private or governmental plaintiffs challenging housing or mortgage lending practices that have a “disparate impact” on protected classes of individuals, even if the practice is facially neutral and non-discriminatory and there is no evidence that the practice was motivated by a discriminatory intent. The rule also will permit practices to be challenged based on claims that the practice improperly creates, increases, reinforces, or perpetuates segregated housing patterns.
SUMMARY OF THE MAJOR PROVISIONS
This rule formally establishes the three-part burden-shifting test for determining when a practice with a discriminatory effect violates the Fair Housing Act. Under this test, the charging party or plaintiff first bears the burden of proving its prima facie case that a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected characteristic. If the charging party or plaintiff proves a prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests. If the respondent or defendant satisfies this burden, then the charging party or plaintiff may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.
This rule also adds and revises illustrations of practices that violate the Act through intentional discrimination or through a discriminatory effect under the standards outlined in § 100.500. (24cdfrpart100)
More laws, more regulations, more rules, more confusion.
CSBS INITIATES STANDARDIZED TESTING FOR MLOS
As of April 1, 20 states or state agencies will begin offering a new Uniform State Test for the licensing of state-regulated mortgage loan originators. Four additional states will adopt the test on July 1. The new test, which is comprised of 125 questions, replaces the current national test and, for the states implementing the UST, removes the requirement of an additional state-specific test component for that state as of the implementation date. The UST is intended to help streamline the state license process for MLOs that would like to obtain licenses in multiple states. Any individual wishing to become licensed as an MLO, or who has not already passed the current national test, may take this new test, whether or not the state in which they are wishing to become licensed has adopted the test.
In addition, currently licensed MLOs will be able to take a new “standalone” UST (comprised of 25 questions) to meet testing requirements for states that are now adopting the test and for those that will adopt the test in the future. The “standalone” UST will only be available for about one year following the April 1 rollout, and the Mortgage Bankers Association is encouraging all current state-licensed MLOs to take this “standalone” UST during the time that it is available. More states plan on adopting the UST in the future, but first must amend existing regulations and/or statues so that the UST will satisfy specific testing requirements for those states. (Compliments of Weiner, Brodsky)
Unfortunately, Arizona, California and Nevada are not among the states adopting the test. (Editor’s Note: New York regulators have said they are also not adopting the UST.) So you still have to take both.
STANDARD PACIFIC MORTGAGE AUDITED BY HUD-OIG AND FOUND TO ALLOW THE RECORDING OF PROHIBITED RESTRICTIVE COVENANTS
HUD-Office of the Inspector General conducted a limited review of Federal Housing Administration loans underwritten by Standard Pacific Mortgage Inc. The lender was selected based on the results of an auditability survey, which determined that Standard Pacific Mortgage allowed prohibited restrictive covenants to be filed against FHA-insured properties. The objective of the review was to determine the extent to which Standard Pacific Mortgage failed to prevent the recording of prohibited restrictive covenants or potential liens in connection with FHA-insured loans closed between Jan. 1, 2008, and Dec. 31, 2011.
Standard Pacific Mortgage did not follow HUD requirements regarding free assumability and liens when it underwrote loans that had executed and recorded agreements between Standard Pacific Homes and the FHA borrower, containing prohibited restrictive covenants and liens in connection with FHA-insured properties. This noncompliance occurred because Standard Pacific Mortgage did not exercise due diligence and was unaware that the restrictive covenants recorded between Standard Pacific Homes and the borrowers violated HUD-FHA requirements. As a result, it was found 90 FHA-insured loans (28 claim loans and 62 active loans) with a corresponding prohibited restrictive covenant and lien recorded with the applicable county recording office, and Standard Pacific Mortgage placed the FHA fund at unnecessary risk for potential losses.
HUD-OIG recommended that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue civil remedies, civil money penalties, or other administrative action against Standard Pacific Mortgage, its principals, or both for incorrectly certifying to the integrity of the data or that due diligence was exercised during the origination of FHA-insured mortgages. It was also recommended that HUD’s Deputy Assistant Secretary for Single Family Housing require Standard Pacific Mortgage to (1) reimburse the FHA fund for the $1,535,189 in actual losses resulting from the amount of claims and associated expenses paid on 15 loans that contained prohibited restrictive covenants and liens; (2) support the eligibility of $1,390,235 in claims paid or execute an indemnification agreement requiring any unsupported amounts to be repaid for claims paid on 13 loans for which HUD has paid claims but has not sold the properties; (3) analyze all FHA loans originated, including the five active loans identified in this memorandum, or underwritten beginning Jan. 1, 2008, and nullify all active restrictive covenants or execute indemnification agreements that prohibit it from submitting claims on those loans identified. The five active loans with prohibited restrictive covenants carries a potential loss of $544,967 that could be put to better use; and (4) follow 24 CFR 203.32 and 203.41 by excluding restrictive language and prohibited liens for all new FHA-insured loan originations and ensure that policies and procedures reflect FHA requirements. (Audit Memorandum Number: 2013-LA-1801)