Mortgage Law Blog, LLC

The Department of Housing and Urban Development has issued Mortgagee Letter 2008-28, entitled Prohibition on Mortgagee Funded Home Equity Conversion Mortgage (HECM) Counseling.

The Housing and Economic Recovery Act of 2008 requires that the HECM mortgage must be executed by a borrower who received adequate counseling from an independent third party that is not directly or indirectly associated or compensated by a party involved in (i) originating or servicing the mortgage, (ii) funding the loan, or (iii) the sale of annuities, investments, long-term care insurance or any other type of financial or insurance product.

The Mortgagee Letter states:

Lenders can no longer pay HUD-approved counseling agencies, directly or indirectly, for counseling services through either a lump-sum payment or on a case-by-case basis.  An example of prohibited indirect funding is Lenders funneling payment for HECM counseling through a nonprofit, foundation, association or any other entity or organization that is a branch of,  affiliated with or associated with a lending institution.

Lenders may continue to pay for other types of housing counseling not associated with the HECM program, including pre-purchase and foreclosure prevention counseling, under certain conditions, as addressed in 24 CFR Part 214, regulations for HUD’s Housing Counseling Program. 

This Mortgagee Letter rescinds paragraph 2 of the section entitled Payment of Counseling Fee in Mortgagee Letter 08-12.

For a full copy of the Mortgagee Letter, please click here.

Tags: Consumer Protection, Downpayment Assistance, HECM, HUD & FHA, Legislation, Mortgage Banking - General, Regulations by the Editor
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The U.S. District Court for the Eastern District of California on February 29 issued an order setting aside the Department of Housing and Urban Development’s downpayment assistance rule that would have become effective March 31, 2008. 

A copy of the ruling can be obtained from the federal court’s Pacer document mangement system, or by contacting the editor of this blog at garrislawyer@hotmail.com. 

On October 1, 2007, HUD issued a final rule effectively banning privately-funded downpayment assistance in the FHA program.  Nehemiah Corporation of America hired the law firm of Weiner Brodsky Sidman Kider PC in Washington, DC, and sought judicial review of the rule, as well as declaratory and injunctive relief. 

The lawsuit named HUD and the HUD Secretary, Alphonso Jackson, as defendants.  The lawsuit asserted that the defendants acted arbitrarily and capriciously in issuing the rule, in violation of the Administrative Procedures Act.

February 29, 2008, the court signed an order agreeing with Nehemiah on many of its arguments regarding the impropriety of the rulemaking process.  Specifically, the court held that in issuing the rule, HUD failed to (i) provide a reasoned analysis for its departure from prior policy of supporting down payment assistance programs, and (ii) adequately respond to comments received during the rulemaking process. 

The court also showed concern about certain comments by the Secretary during the process.  To avoid any “chill” in connection with any future rulemaking, the court disqualified the Secretary from participating in such proceedings. 

Based on these findings, the court set aside the final rule, remanding the matter to HUD for further action consistent with the court’s decision. 

Tags: Downpayment Assistance, HUD & FHA, Litigation, Regulations by the Editor
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