Sens. Elizabeth Warren (D-Mass) and Sherrod Brown (D-Ohio), along with Rep. Maxine Waters (D-Calif.), are urging the Department of Housing and Urban Development (HUD) and the Office of Management and Budget to reconsider a proposal to make it easier for lenders who have engaged in criminal behavior to keep accessing taxpayer-backed mortgage insurance.
Brown is the Senate Banking Committee’s senior Democrat, and Waters is the House Financial Services Committee’s senior Democrat.
The proposal would end the requirement lenders approved by the Federal Housing Administration (FHA) have to certify that they are not and have not recently been subject to certain charges or penalties on each loan.
Congress passed a law in 2009 in response to the financial crisis which gave HUD additional tools to regulate lenders that issue FHA loans. The recent HUD proposal, the lawmakers said, would undermine this law by not holding lenders as accountable during origination.
The letter, dated July 14, requested that HUD provide a thorough explanation for its proposal to lower the lending standards and give the public an opportunity to comment on whether the changes are appropriate.
“We are concerned that the proposed changes, the most significant of which were not described in the notice, would make it easier for lenders who have engaged in illegal behavior to obtain FHA insurance – insurance that is ultimately provided by American taxpayers,” the lawmakers wrote. “These changes are significant and result in a change of policy rather than a simplification of an outdated form. Accordingly, we respectfully request that HUD withdraw the PRA notice; issue a new notice under the Administrative Procedure Act (APA) that provides a rationale for its proposed changes; and give the public 60 days to submit comments.”
The timing of the changes, the lawmakers say in the letter, also is suspicious. Under the proposed changes, banks that recently have announced they have reportedly begun preparing to agree to plead guilty to criminal antitrust violations for rigging foreign exchange rates would remain eligible for FHA insurance. Currently, the certification requirements would have barred these banks – including JPMorgan Chase and Citigroup – from obtaining insurance once they plead guilty to the charges.
“Thus, HUD’s proposed changes appear to effectively waive a contractual obligation for obtaining FHA insurance for a mortgage and allow HUD to turn a blind eye to these and other criminal violations – putting homebuyers and taxpayers at additional risk,” the letter reads. “HUD may have good reasons for proposing these changes at this time, but its Federal Register notice fails to even describe the changes to the certification on illegal conduct – let alone offer a rationale for them. Instead, HUD’s notice, as reviewed and approved by the Office of Management and Budget, only seeks public comment under the PRA on the burden certain other changes to the certification form might impose on lenders.”
In requesting that HUD elaborate on its Federal Register notice, the lawmakers ask HUD to touch on several key issues. “For example, the department should describe why the stipulations in statements (G)(2)-(G)(4) ARE NO LONGER NEEDED. The department should also describe why it is appropriate for loan-level certifications to deviate from the certifications made by federal contractors under Federal Acquisition Regulation at 48 CFR 52.209-5. Finally, the department should describe the impact of these loan-level certification form changes will have on the four global banks that recently pled guilty to criminal antitrust violations in connection to their rigging of foreign currency prices, and on any other lenders that plead guilty to future crimes.”