QUESTION
We are an FHA lender who recently got a notice from the Mortgagee
Review Board. This is the first time we ever received such a notice and frankly
our attorney has no experience in knowing how to respond. We were referred to you,
since we are preparing a response and you have handled this kind of engagement.
We have a lot of questions and could use some immediate guidance. Here are just
a few of the questions we need to know. What is this Mortgagee Review Board?
What can it do to us? If we get suspended, can we still originate FHA
loans?
ANSWER
Given the complexity of the answers to your questions, I will provide only
cursory responses here, with the suggestion that you seek appropriate risk management
guidance and legal counsel to assist in a matter involving the Mortgagee Review
Board (“MRB” or “Board”). I am going to provide brief answers to your stated questions;
however, I urge you to immediately seek competent compliance support, since the
MRB process is very extensive and time sensitive.
Generally, I recommend what I call “triune triage” to urgent matters such
as this one, consisting of a three-part collaboration with the financial
institution, the risk management firm, and the legal counsel experienced in
matters concerning HUD-FHA. This three-way effort is important because we, as
the risk management firm, have all the people and due diligence tools to handle
deep dive preparation, and counsel has the means and familiarity with the legal
process and procedures for interacting with the MRB. You must get a risk management
firm such as ours, which has the widest range of hands-on, compliance support
services in the country, because there are many features to preparation that will
make demands on your readiness. I caution against trying to go it alone in
matters involving the MRB.
The Board is the sole organization within the Department of Housing and
Urban Development (“HUD” or “Department”) that is authorized to take
administrative action against HUD-FHA Mortgagees and Title I Lenders that
violate HUD-FHA requirements, or the non-discrimination requirements of the
Equal Credit Opportunity Act, The Fair Housing Act, and certain other statutes.
The Board is authorized to impose civil monetary penalties on Mortgagees and
Title I Lenders that violate the Department's requirements, and it also may
approve the initiation of a suspension or debarment actions.
The Board’s Chairman is the Assistant Secretary for Housing-Federal
Housing Commissioner, and consists also of the General Counsel, the President
of the Government National Mortgage Association, the Chief Financial Officer of
HUD, the Assistant Secretary for Administration, the Assistant Secretary for
Fair Housing and Equal Opportunity (in cases involving violations of the
Department's nondiscrimination requirements), as voting members, and the
Inspector General, the Director of Office of Lender Activities and Land Sales
Registration, or their designees, as non-voting advisors.
Your inquiry does not indicate if your firm is a Title I Lender, which
is an entity that processes or services loans for property improvements and the
purchase of manufactured housing; or a Title II Mortgagee, which is an entity
that processes or services loans for single family homes. A lender may be
approved by HUD for both Title I and Title II. But I think some salient details
can be somewhat responsive to your questions.
You ask what the MRB can do. It calls for documentation that may form a
basis for administrative action, particularly when that documentation results
from any report, audit, monitoring review, investigation or other information.
After such review, the Board may determine if administrative sanctions and/or
the imposition of civil money penalties may be warranted, and it would then
seek to impose certain administrative sanctions, including civil money
penalties for substantive and material violations of HUD-FHA requirements.
Depending on the nature and the extent of the violations, the Board may
impose administrative sanctions, such as a reprimand, probation, suspension,
and withdrawal of approval. Each of these carries adverse implications for the Mortgagee
with respect to its relationship with HUD and other regulatory bodies, its
relationship with investors, its financial stability, and its reputation with
consumers and employees, among other things.
With respect to your question about suspension of a Mortgagee – Title I
Lenders also have specific suspension features – while the sanction is in
effect the insurance on mortgages accepted for insurance is not affected,
except for cases involving fraud or proven misrepresentation by the holding Mortgagee.
However, insured mortgages may not be originated or purchased by a Mortgagee
whose approval has been suspended or withdrawn. So, suspension is a harsh
curtailment of the very basis of the Mortgagee’s economic activity. Generally,
the Mortgagee may service HUD-FHA insured mortgages.
Furthermore, a suspended Mortgagee may not submit new applications to
HUD-FHA for insurance and should assign outstanding conditional commitments to
a HUD-FHA approved Mortgagee in good standing. The Department will not endorse
any mortgage unless, prior to the date of suspension or withdrawal, a firm
commitment has been issued or unless a Direct Endorsement underwriter has
approved the mortgagor for the mortgage.
The suspension nevertheless does not relieve the Mortgagee from any
obligation to pay all amounts due HUD. In fact, any action taken by HUD to
impose or rescind suspension or withdrawal of approval does not settle or
resolve any criminal or civil liability of the Mortgagee.
You can reach us by completing the information HERE or emailing us at compliance@lenderscompliancegroup.com, which we monitor 24 hours a day.
Jonathan Foxx
Managing Director
Lenders Compliance Group
