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)
Which is less expensive? Having us audit you or being potentially liable for over $4 million. You should have an internal experienced HUD QC person or have us audit you for compliance.
CALIFORNIA MAN IS THE 27TH PERSON WHO AGREES TO PLEAD GUILTY TO RIGGING BIDS AT PUBLIC FORECLOSURE SALES OF REAL PROPERTY
On Feb. 5, felony charges were filed against Gilbert Chung, a Northern California real estate investor who has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California.
He is the 27th individual to plead guilty or agree to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
According to court documents, Chung conspired with others not to bid against one another but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in San Francisco and San Mateo Counties. Chung was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs, and to divert to co-conspirators money that would have otherwise gone to mortgage holders and others.
The department said Chung conspired with others to rig bids and commit mail fraud at public real estate foreclosure auctions in San Francisco and San Mateo Counties beginning as early as January 2010 and continuing until about December 2010.
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco and San Mateo County public foreclosure auctions at non-competitive prices.
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Field Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400. (usatty2513)
If you have any questions about “bid rigging” at foreclosure sales you may reach me at 888-6678-8529
RIVERSIDE COUNTY IN CALIFORNIA TO INCREASE REAL ESTATE FRAUD PROSECUTIONS’ DRAMATICALLY
You should ask how? The answer is by raising the fee for all documents you file with the county recorder.
On Feb. 5, Riverside County supervisors approved doubling the fee charged for filing a variety of real estate documents to raise revenue for anti- fraud investigations and prosecutions. The board hiked the Real Estate Prosecution Trust Fund fee from $3 to $6 per document. The change takes effect on March 5.
The fees are imposed whenever an individual or business records a deed of trust, notice of default, notice of trustee sale, affidavit, lien, lease or quitclaim deed, as well as other documents filed with the Office of the Assessor-Clerk-Recorder.
Revenue generated from the fees is placed into an account from which the District Attorney's Office withdraws funds as needed but which are restricted for investigations and prosecutions of mortgage and foreclosure-related scams, according to county officials.
A staff of eight people makes up the D.A.'s Real Estate Fraud Unit, which often has to plow through tens of thousands of pages of documents to uncover fraud and abuse.
If anyone has filed questionable documents with the recorder or been involved in creative mortgage loans in the past several years you might want to ask us a few questions since it is attorney client privilege and we cannot be forced to disclose what you tell us by anyone. That is as long as it does not involve a future crime.
COLORADO MAN SENTENCED FOR SHREDDING DOCUMENTS RELATED TO MORTGAGE FRAUD INVESTIGATION
On Feb. 1, Justin H. Knight was sentenced by U.S. District Court Judge Robert E. Blackburn to serve five years’ probation, with the first 12 months in home detention for shredding documents in an attempt to obstruct an investigation into a mortgage fraud scheme.
Knight pled guilty to destruction of records on Feb. 10, 2012. In connection with a larger mortgage fraud scheme, Peter V. Capra, Demetrious G. Gianopoulos and Brian Waring were charged in three separate indictments.
Gianopoulos pled guilty to one count of money laundering on May 10, 2011, and was sentenced to serve five years’ probation. Warning pled guilty to one count of conspiracy to commit mail fraud, wire fraud, and money laundering and is expected to be sentenced later this year. Capra was indicted on April 25, 2012, which was then followed by a superseding indictment on May 23, 2012, for obstruction of justice, mail fraud, wire fraud, and money laundering. The Capra case is currently scheduled for trial on Sept. 23, in front of Judge R. Brooke Jackson. Capra was president of Golden Design Group Inc., a home builder.
On April 10, 2007, a grand jury subpoena was served on GDG, for whom Knight worked for at the time. After a meeting with Capra, Knight and another GDG employee began shredding documents allegedly based on instructions from Capra. The shredding was accomplished using a new, high-volume shredder purchased by Capra for this task. Documents that were shredded included sales contracts between GDG and various other people involved in the mortgage fraud scheme.
If convicted, Capra faces not more than 10 years in federal prison and up to a $250,000 fine for obstruction of justice. He faces not more 20 years in federal prison and up to a $250,000 fine, or two times the gain or loss from the offense, for each of the 14 counts of wire fraud and for each of the two counts of mail fraud. Capra faces not more than 10 years in federal prison and up to a $250,000 fine, or the value of the property involved in the transaction, or both, for each of the 10 counts of money laundering. (usattyco2413)
Old rule that is tried and true. When someone says if you were my friend you would do it, the answer is that if you were my friend you would not ask.
VIRGINIA CHANGES LOAN ORIGINATOR RULES AND REGULATIONS
The Virginia Bureau of Financial Institutions has amended regulations applicable to mortgage lenders, effective Jan. 28. Among the changes is a requirement that lenders may only use mortgage loan originators who are licensed, sponsored by such lender in the Nationwide Mortgage Licensing System, and are employees or exclusive agents of such lender. Loan processors and underwriters do not need to be licensed, provided they do not take loan applications or counsel consumers regarding loan terms. Loan processing and underwriting functions may be outsourced pursuant to conditions set forth in the amended regulations
Chapter 160 of Title 10 of the Virginia Administrative Code is amended as follows:
· Any person who is engaged solely in the business of a loan processor or underwriter is now expressly carved out from the definition of a “mortgage broker.” As a result, the regulations make clear that these individuals are not subject to licensure. Loan processors or underwriters may receive, collect, distribute, and analyze information common for loan processing or underwriting and may communicate with consumers to obtain such information, so long as they do not take loan applications or otherwise communicate with consumers about a prospective loan before the consumer has submitted a loan application. They also may not counsel consumers about loan terms.
· A licensee may outsource its loan processing or underwriting activities to a third party loan processor or underwriter, pursuant to a written agreement with the third party that obligates the third party to comply with applicable law and submit to examinations of its business by the Virginia regulator. The third party may not subcontract the services it performs for a licensee to any person other than its employees.
· The term “refinancing” is now defined in the regulations to mean an exchange of old debt for new debt, including through negotiating a different interest rate or term, and expressly including any loan modification. As such, loan modifications are subject to Virginia’s advertising restriction that requires lenders offering loan refinancing to disclose to consumers when the total finance charges may be higher over the life of the refinanced loan.
· Licensees are expressly prohibited from making any false, deceptive, or misleading statement to consumers.
· Licensees are obligated to file a report to the state regulator within 15 days of becoming aware that the licensee or any of its employees, officers, directors, principals, or exclusive agents is convicted of a misdemeanor involving fraud, misrepresentation, or deceit. Previously this requirement only applied to felonies and did not encompass an exclusive agent of the licensee.
· Licensees must only use mortgage loan originators who are licensed and sponsored by the licensee in NMLS. Such individuals must be an employee or an exclusive agent of the licensee and must be covered by the licensee's surety bond. (Compliments Weiner, Brodsky)
0ver 3,000 pages from CFPB as of Jan. 10 and do not forget the states amending and their regulations. Makes you realize how valuable a knowledgeable lawyer is to protect your license and livelihood.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.