Mortgage lenders morale got a huge boost July 22 when the House voted to increase FHAs maximum mortgage limits, but despite that good news, mortgage bankers could be facing a new regulatory burden thanks to a little-known provision in the housing reauthorization bill that will extend HUDs fair lending compliance authority. Tucked away in the Housing and Community Development Act, H.R. 3838, is a provision that would allow HUD to impose civil money penalties on nonsupervised lending institutions, for HMDA reporting violations. The bills nonsupervised terminology is shorthand for mortgage bankers, many of whom are presently immune to the HMDA fines that regulated lending institutions face.
The HUD mortgagee review board, one of the departments enforcement arms, has been responsible for reviewing cases of alleged violations of HMDA reporting requirements in 1993 it collected $209,000 in civil money penalties from 100 violators. HUDs penalization power, however, is limited since it can enforce only those settlements against FHA lenders.
Most of HUDs civil money penalties over the last two years have been in the $500 to $1,000 range. Settlements have also included agreements to indemnify for the government for any losses and letters of reprimand. But while those penalties may not seem to have much bite, HUD wields a much bigger stick in its authority to levy a hefty $1 million penalty, as well.
The specter of new fines has some industry analysts concerned, but some concede it will be tough to fight. No one welcomes penalties, said one mortgage banking lobbyist, but its difficult to argue against penalties for clear infractions or failures to provide HMDA data. And its our understanding that the Senate legislation is identical, so it seems imminent.
Some industry experts have focused on how the system will be implemented once its approved. Our concern is in penalizing mortgage bankers who have only recently been brought into the system for past failures, said Sharon Canavan, a legislative counsel with the Mortgage Bankers Association. We hope [the provision] would apply to penalties that occur after the provision is enacted. Canavan said the MBA planned on pushing for the grandfather clause in the Senate, hoping for an amendment before the bill is voted on later in August.
Aside from the HMDA penalty provision, the bill provided an abundance of good news for most mortgage bankers, including an increase to the FHAs maximum insurable mortgage limit to 85% of the conventional loan limit, or $172,675, up from the current limit of $151,725. The bill also would increase the FHA floor amountor the lowest amount insurable to 50% of the conventional floor, or $101,000, up from the current base of $67,500. Both percentages are to be indexed annually to reflect increases.
The FHA provisions have been vehemently opposed by thrifts and mortgage insurers, and some lawmakers also voiced their opposition to the bills FHA proposals before the House vote, including Rep. Michael Castle, R-Del., and Rep. Joseph Knollenberg, R-Mich. Castle and Knollenberg both supported the bill, but questioned the health of the Mutual Mortgage Insurance Fund, which HUD claimed was sound, and FHAs ability to manage its programs.
Other approved provisions included an amendment by Rep. William Orton, D-Utah, which would streamline the calculation of the down payment required for FHA insurance by replacing the often complex, two-part loan-to-value and down payment calculations with a single LTV calculation for maximum loan limits (see below).
The bill also authorized HUD to refinance HUD-held mortgages in high cost areas through risk sharing arrangements with state or local agencies and would also extend the authorization of multifamily risk-sharing demonstrations with Fannie Mae and Freddie Mac and other financial institutions for fiscal years 1995 and 1996.
The risk sharing provisions drew critical attention from some House members, however, particularly Rep. Thomas Barrett, D-Wis., who offered an amendment that was approved that would limit the aggregate insurance coverage on loans originated under the risk sharing proposal to 35% of the unpaid principal balance and other fees and interests that HUD deems appropriate.