Housing and Urban Development (HUD) Secretary Ben Carson and U.S. Attorney General William Barr have issued a joint Memorandum of Understanding (MOU) that sets prudential guidance to ease the use of the False Claims Act (FCA) for violations by Federal Housing Administration (FHA) lenders.
“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,” Carson said in a news release. “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.”
National Association of Realtors (NAR) President John Smaby called the announcement welcome news.
“NAR believes this change will help more consumers access low down payment loans and ensure a wide range of financial institutions will offer Federal Housing Administration-backed loans in the future, which is particularly important as new FHA condominium loan policies have created additional opportunities for potential homebuyers across the country,” Smaby said in a statement.
Barr said the MOU will allow for a robust and collaborative process for deciding when to pursue False Claims Act cases.
“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,” Barr added.
According to the MOU:
- FHA requirements will be enforced primarily through HUD’s administrative proceedings, but the MOU specifically addresses how HUD and DOJ, including the U.S. Attorneys’ Offices, will consult with each other regarding use of the FCA in connection with defects on mortgage loans insured by FHA.
- HUD will utilize the Mortgagee Review Board (MRB), which was created by statute and empowered to take certain actions for non-compliance by FHA lenders, to review and refer FCA claims.
- The MOU prescribes the standards for when HUD, through the MRB, may refer a matter to DOJ for pursuit of FCA claims, and also sets forth how DOJ and HUD will cooperate during the investigative, litigation, and settlement phases of FCA matters when DOJ receives a referral from a third party, such as in qui tam cases.
- The MOU also recognizes that application of the FCA requires, among other elements of proof, a material violation of HUD requirements, and DOJ attorneys will solicit HUD’s views to determine whether the elements of the FCA can be established.
The agencies said the interagency understanding is intended to address concerns that uncertain and unanticipated FCA liability for regulatory defects led to many well-capitalized lenders, including many banks and credit unions statutorily required to help meet the credit needs of the communities in which they do business, to largely withdraw from FHA lending.
For decades, FHA has been the hallmark product for the nation’s first time homebuyers, which currently make up more than 80 percent of FHA’s loans. This important segment of the market currently constitutes over 80 percent of FHAs loans. Additionally, a third of FHA loans are made to minority borrowers.
The MOU is part of a comprehensive plan to bring greater clarity to regulatory expectations within the FHA program, and fulfills a key component of the HUD Housing Finance Reform Plan.