At the Mortgage Bankers Association’s (MBA) Annual Convention and Expo in Austin, Ben Carson had an announcement that was at least two years in the making.
Carson, the secretary of the U.S. Department of Housing and Urban Development (HUD), announced Monday that HUD and the U.S. Department of Justice (DOJ) have reached a memorandum of understanding (MOU) for guidance on the False Claims Act.
Specifically, the DOJ had been ramping up enforcement of the False Claims Act to obtain large financial settlements from mortgage lenders who issue HUD-administered Federal Housing Administration (FHA) loans. Previously, DOJ had been using the False Claims Act to bring civil fraud claims against lenders, pursuing them for allegedly certifying FHA loans with “known” origination errors.
Considering the range of potential errors — including origination and underwriting deficiencies that can occur in a large lender’s portfolio — use of the False Claims Act represented a major regulatory pitfall for the mortgage industry. Indeed, FHA Commissioner Brian Montgomery estimated Monday morning that the Justice Department’s previous use of the legislation recovered some $7 billion from lenders.
As a result, many large banks have shied away from FHA lending over the past few years. In a high-profile case, Quicken Loans — the nation’s largest mortgage lender — was sued by the Justice Department, a case that was eventually settled for $32.5 million this past June.
With Carson’s announcement, however, DOJ is set to ease enforcement of the False Claims Act, a move that could potentially entice banks to return to the FHA lending sphere.
“To put it simply,” Carson told the crowd at MBA Annual, “we need more people like you [bankers] on the team. And the more people like you there are on the team, the more credit becomes available to Americans looking to realize that American dream.”
Depository institutions, Carson said, have dwindled from nearly half of HUD’s lender base in 2010 to less than 14% today. The memorandum with the Justice Department could be the first step in reversing that slide.
“This MOU provides a framework to apply remedies for FHA lender violations in a way that is consistent and uniform and appropriate, while establishing clear guidance on the scope of its use,” Carson said. Under the agreement, FHA requirements will now be enforced primarily through HUD’s administrative proceedings, with the memorandum outlining how HUD and DOJ will consult each other on the use of the False Claims Act.
The announcement culminated years of negotiation between the agencies. Carson addressed the issue at MBA Annual two years ago, announcing that HUD was working with DOJ regarding False Claims Act enforcement on FHA loans.
Monday’s news was met with immediate praise by the MBA.
“We commend Attorney General William Barr and Secretary Ben Carson for their leadership and commitment to create an environment where lenders of all sizes … can operate with more certainty and less risk,” said Robert D. Broeksmit, MBA’s president and CEO. “Today is a significant step toward providing clarity for those currently participating in the FHA program, as well as encouraging more lenders to offer FHA-insured loans.
“In addition to the MOU, MBA is also pleased to learn that FHA is revising the loan-review process and simplifying the certifications that lenders make in connection with the FHA program. These combined actions will go a long way toward ensuring that low-to-moderate income households and first-time buyers have access to affordable mortgage credit in order to achieve their dream of homeownership.”