U.S. Department of Housing and Urban Development (HUD) Secretary Dr. Ben Carson and U.S. Attorney General William Barr signed an inter-agency memorandum of understanding (MOU) on Monday, setting “prudential guidance” on the appropriate use of the False Claims Act (FCA) for violations by Federal Housing Administration (FHA) lenders.
The MOU between HUD and the Department of Justice (DOJ) outlines HUD’s expectations that FHA requirements will be enforced through HUD’s administrative proceedings, while also specifically outlining how HUD and DOJ will consult with each other regarding FCA applications in connection with defects on mortgage loans insured by FHA.
“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,” said Secretary Carson in a press release announcing the MOU. “In taking these steps, we are fulfilling an important element our Housing Finance Reform Plan and making clear to all responsible lenders that FHA’s mortgage program is a program they should participate in. At the same time, HUD will not tolerate irresponsible or fraudulent lenders who defraud borrowers and taxpayers.”
The MOU also outlines specific procedures for the ways in which HUD and DOJ will work together in relevant FCA cases, according to Attorney General Barr.
“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,” said Attorney General Barr in the press release. “DOJ and HUD will work together to determine when HUD’s administrative remedies are sufficient, or other recourse is appropriate, to address harm to the borrower, the taxpayer, or the government. Importantly, this MOU is the product of the excellent working relationship that has developed between our two agencies in our shared pursuit of greater clarity and fairness.”
The Housing Finance Reform Plan was revealed last month by the White House, outlining a series of key provisions designed to strengthen the housing market in the United States. In addition to recommending an end to the federal conservatorship of the Federal National Mortgage Association (FNMA, or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (FHLMC, or “Freddie Mac”), the plan also included specific reforms designed to strengthen the Home Equity Conversion Mortgage (HECM) program for long-term sustainability.
This MOU is also designed to make FHA lending more appealing to lending institutions, since previously uncertain and unanticipated FCA liability for well-capitalized lenders like banks and credit unions led to regulatory complications which saw many lenders withdraw from FHA lending, according to HUD.
“Over the past decade, the number of banks or depository institutions participating in our single-family mortgage insurance program has dramatically declined,” FHA Commissioner Brian Montgomery explained when loan-level certification rules were first proposed in May. “Depository institutions now represent about 13 percent of FHA’s origination volume. In 2010, the number of bank lenders was closer to 44 percent.”
Read the full agreement signed by Secretary Carson and Attorney General Barr.