oversight

Mortgagee Review Board Administrative Actions

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-07-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                      MEMORANDUM
                                             July 3, 2018


To:      Dana Wade
         General Deputy Assistant Secretary for Housing, H


From:    Brian T. Pattison
         Assistant Inspector General for Evaluation, Office of Inspector General, G

Subject: Final Evaluation Report: Mortgagee Review Board Administrative Actions, 2017-OE-
         0005

Please see the attached final report on our evaluation of the U.S. Department of Housing and
Urban Development’s Mortgagee Review Board administrative actions. It contains two findings
and no recommendations. This report will be posted to our website within 3 days.

Thank you for providing a response to our evaluation. In it, you said that the Mortgagee Review
Board is continuing to take steps to improve its process.

I appreciate the assistance you and your staff provided throughout the evaluation. Please contact
Director Paul Bergstrand at (202) 402-2728 if you have any questions.

Attachment

cc
Nancy Murray, Director, MRB Division, HUL
Joy Hadley, Director, Office of Lender Activities and Program Compliance, HUL
Diane A. Stewart, Management Analyst, Office of Housing, HROA
Teresa Roland, Management Analyst, Office of Housing, HWA




                                        Office of Inspector General
                                            Office of Evaluation
                                       th
                                  451 7 Street SW, Washington, DC 20410
                                  Phone (202) 708-0430, Fax (202) 401-2505
                                              www.hudoig.gov
    U.S. Department of Housing and Urban Development

                 Office of Inspector General
                       Office of Evaluation




Mortgagee Review Board Administrative
              Actions




                     Program Evaluations Division

Washington, DC       Report Number: 2017-OE-0005    July 3, 2018
                                                                       Executive Summary
                                      Mortgagee Review Board Administrative Actions


Report Number: 2017-OE-0005                                                                        July 3, 2018

Why We Did This                  Results of Evaluation
Evaluation
                                 The MRB rules on cases against FHA-approved lenders in which there is
We evaluated the Mortgagee       evidence of serious violations relating to loan origination, servicing activity,
Review Board’s (MRB) use         and failure to comply with FHA operational guidelines. When the MRB
of administrative actions and    learns that a lender may not be in compliance with FHA requirements, it may
its compliance with Federal      take administrative actions to resolve problems with lenders. It does not
law. The MRB’s use of            consider “loss to the government” in these actions. Administrative actions
administrative actions aims to   may include notices of violation, civil monetary penalties, withdrawals and
ensure the integrity of the      suspensions, and settlement agreements.
Federal Housing
Administration’s (FHA)           Conclusion
outstanding insured portfolio
of almost $1.2 trillion. The     The MRB regularly takes administrative actions on FHA-approved single-
size of FHA’s portfolio and      family lenders but does not hear many larger multifamily cases. For fiscal
the MRB’s vital role in          years 2014, 2015, and 2016, the MRB issued 436 administrative actions and
ensuring the integrity of        56 civil monetary penalties, withdrawals of FHA approval, suspensions,
FHA’s insurance program          probations, reprimands, administrative payments, and settlements. The value
suggest a need to understand     of the MRB decisions totaled approximately $1.96 billion.
the MRB’s enforcement
operations. We issued a prior    The MRB has also taken steps to improve since our last evaluation.
evaluation report in May         Specifically, it has increased the consistency of penalties given to lenders for
2009. In that evaluation, we     similar violations, it has met the requirement to publish each administrative
raised concerns with the speed   action in the Federal Register, and it has resolved a longstanding backlog of
of the MRB process, the          cases.
number of cases on which the
MRB ruled, and the
magnitude of the penalties the
MRB levied.
Table of Contents
Introduction ..................................................................................................................... 1 
   Objective ...................................................................................................................... 1 
   Background .................................................................................................................. 1 
   Scope and Methodology .............................................................................................. 4 
Findings........................................................................................................................... 6 
   The MRB Takes Administrative Actions Against Lenders in Accordance With Its
   Statutory Authority ....................................................................................................... 6 
   The MRB Has Taken Steps To Improve ...................................................................... 7 
Conclusion ...................................................................................................................... 8 
Appendixes ..................................................................................................................... 9 
   Appendix A – Agency Comments and OIG Response ................................................. 9 
   Appendix B – Acknowledgements .............................................................................. 12 
   Appendix C – Acronyms............................................................................................. 13 
                                                                                    Report number: 2017-OE-0005


Introduction
Objective
We evaluated the Mortgagee Review Board’s (MRB) use of administrative actions and its
compliance with Federal law. Specifically, the MRB’s administrative actions include notices of
violation (NOV), civil monetary penalties (CMP), suspensions and withdrawals, and settlement
agreements. The size of the Federal Housing Administration’s (FHA) portfolio and the MRB’s
vital role in ensuring the integrity of FHA’s insurance program suggest a need to understand the
MRB’s enforcement operations.

Background
Issues Observed in a Prior Evaluation of the MRB’s Enforcement Actions1

In 2009, the U.S. Department of Housing and Urban Development’s Office of Inspector General
(HUD OIG) studied the MRB’s enforcement actions as part of HUD’s oversight of FHA single-
family mortgage lenders. According to a congressional request, HUD OIG responded to 10
questions and assessed the MRB’s effectiveness in deterring abuse in FHA mortgage lending for
the MRB rulings in fiscal year (FY) 2008. The report made five observations on the MRB’s
ineffectiveness as an enforcement body. Specifically,

    1. few lenders were referred to the MRB and mostly for violations that did not warrant
       removal of FHA lending authority,
    2. CMPs were frequently mitigated to administrative fines,
    3. the MRB process was slow to deter or stop noncompliant lending practices,
    4. the MRB’s rulings were not published in the Federal Register or otherwise disseminated
       on HUD’s website in FY 2008, and
    5. the workload increased in FY 2008.

At the time, HUD OIG concluded that the MRB had a lengthy referral process, ruled on few
cases, and imposed penalties that did not have a substantive financial consequence to lenders.

MRB Authorized To Take Administrative Actions

When the MRB learns that a lender may not be in compliance with FHA requirements, it may
take administrative actions, such as imposing CMPs or entering into settlement agreements to
resolve problems with lenders.2 Such actions help ensure the integrity of FHA’s outstanding
insured portfolio of almost $1.2 trillion. Section 1708 of the National Housing Act established



1
 Evaluation of Mortgagee Review Board Enforcement Actions (HUD OIG IED-09-003)
2
 Alternatively put, this refers to resolving outstanding grounds for action against lenders. A lender is an
organization or person that lends money.


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                                                                                Report number: 2017-OE-0005

the MRB.3 The authorizing statute provides the MRB with authority to perform administrative
actions, such as

        issuing letters of reprimand,
        placing a mortgagee on probation for not more than 6 months,4
        ordering the suspension of a mortgagee for not less than 6 months or more than 1 year,
        ordering a withdrawal of the mortgagee for not less than 1 year, and
        entering into settlement agreements to resolve outstanding grounds for action.

A lender’s failure to comply with the provisions of a settlement agreement can result in its
suspension or withdrawal as an FHA-approved lender. These provisions may include

        termination of any violation;
        correction or mitigation of the effects of any violation;
        repayment of any sums of money wrongfully or incorrectly paid to the mortgagee by a
         borrower, a seller, or FHA;
        actions to collect sums of money wrongfully or incorrectly paid by the mortgagee to a
         third party;
        indemnification of FHA for mortgage insurance claims on mortgages originated in
         violation of FHA requirements;
        modification of the length of the penalty imposed; or
        implementation of other corrective measures acceptable to the HUD Secretary.

HUD Authorized To Impose CMPs and Adjust Them for Inflation

Section 1735 of the HUD Reform Act of 1989 authorizes HUD to impose CMPs on mortgagees,
lenders, and other FHA participants across HUD that knowingly and materially violate the
statute.5 Although the statute does not specify that the MRB should be responsible for CMPs, it
states that the Secretary may delegate the authority to impose CMPs to the MRB. The 2010
charter states that the MRB may impose CMPs.

Section 2461 of the Federal Civil Penalties Inflation Adjustment Act of 1990 provides a
mechanism for HUD to adjust CMPs for inflation. In 2015, Congress passed the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Adjustment Act).6 The
Adjustment Act requires agencies, including HUD, to use rulemaking to establish a catchup
adjustment. The catchup adjustment is based on inflation, as measured by the Consumer Price
Index, between 2015 and the year in which the relevant agency’s CMP authority was enacted.
Based on the Adjustment Act, HUD has implemented both the catchup adjustment and the
annual adjustment. With revised adjustments, CMPs are limited to $9,623 per violation, and the
annual per entity limit is approximately $1.92 million.


3
  24 CFR (Code of Federal Regulations) 25.2
4
  A mortgagee is a person who holds mortgaged property as security for repayment of a loan.
5
  24 CFR 25.2
6
  Public Law 114-74

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The MRB’s role is enforcement, not recovery. The MRB cannot recover a “loss to the
government” because it is not in the MRB’s statute. If the MRB were to consider loss to the
government, a court might find it was doing so in an arbitrary and capricious manner. The
Program Fraud and Civil Remedies Act and the False Claims Act are designed to consider the
potential loss to the government. However, the Acts do not apply to the MRB.

The MRB Staff, the Board members, and the MRB Process

As previously discussed, the MRB may take administrative actions against lenders. The Board
members, senior officials identified by statute, vote to take these actions. They include the
Assistant Secretary for Housing-Federal Housing Commissioner, the General Counsel, the
President of the Government National Mortgage Association, the Assistant Secretary for
Administration, the Assistant Secretary for Fair Housing and Equal Opportunity, and the Chief
Financial Officer.7 Advisors to the Board members include HUD’s Inspector General, the
Director of the Office of Lender Activities and Program Compliance, the Chief Risk Officer, the
Office of General Counsel’s (OGC) Office of Program Enforcement, and OGC’s Office of
Insured Housing.

Before board meetings, the MRB staff should hold an internal options meeting to determine (1)
whether the lender’s response to the NOV mitigated the allegations, (2) the seriousness of the
violations, and (3) whether HUD made errors in the allegations. The members of the internal
options meeting include the MRB staff, OGC attorneys, the Office of Program Enforcement,
Program Counsel, the Quality Assurance Division from the Homeownership Centers,
headquarters Quality Assurance Division staff, and Lender Recertification staff. The MRB staff
should identify actions taken in the past for similar violations by other lenders to maintain
consistency and should recommend a dollar amount for a penalty that accounts for the CMP cap.

The MRB staff and attorneys from the Office of Program Enforcement invite the lender to a
lenders meeting. During the lenders meeting, the MRB staff discusses the case with the lender,
explains to the lender why it has not mitigated the violations, and provides the lender the
opportunity to settle for the amount determined during the internal options meeting.

After the meeting with the lender, the MRB staff prepares a meeting book for the Board
members. This meeting book is the culmination of premeeting work performed by the MRB
staff to enable it to present the case to the Board members. The meeting book contains the NOV;
the lender’s response, if any, to the NOV; and an OGC-prepared memorandum that summarizes
the allegations against each lender at issue and the analysis of the pertinent facts and law. The
memorandum includes OGC’s and the Secretary’s recommendations to the Board members on
the appropriate action to remedy the violations.



7
 The Assistant Secretary for Housing-Federal Housing Commissioner serves as the chairperson of the MRB and
also appoints a person to serve as the secretary to the MRB. The Assistant Secretary for Administration was the
Chief Human Capital Officer in the last administration. The Assistant Secretary for Fair Housing and Equal
Opportunity is a Board member in cases involving violations of nondiscrimination requirements.


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The MRB generally meets bimonthly to hear cases against FHA-approved single-family lenders
and occasional multifamily cases in which there is evidence of serious violations relating to loan
origination, servicing activity, or failure to comply with FHA operational guidelines.8 The MRB
staff presents its cases on the agenda to the voting members of the MRB for its consideration of
possible actions to be taken against lenders. For each lender case identified in the agenda, the
secretary to the Board presents (1) the facts as presented in the NOV, (2) the lender’s response to
the NOV, (3) the FHA requirements that have been violated, (4) whether the lender has mitigated
the violation, and (5) any other important factors for consideration. The Board members are
responsible for hearing the case and deciding what action it will take for the violations presented.

The Board members’ administrative actions are required by regulation to be reported in the
Federal Register.9 The MRB publishes a description of and the cause for administrative actions
taken. Administrative actions taken may include CMPs, withdrawals of FHA approval,
suspensions, probations, reprimands, settlements, and administrative payments. In the Federal
Register, the MRB also publishes a listing of lenders that failed to meet requirements for annual
recertification of HUD-FHA approval

        in a timely manner,
        at all, and
        in a timely manner but came into compliance later.

Scope and Methodology
We completed this evaluation under the authority of the Inspector General Act of 1978 as
amended and in accordance with the “Quality Standards for Inspection and Evaluation,” issued
by the Council of the Inspectors General on Integrity and Efficiency (January 2012).

Scope

We reviewed the 23 MRB meeting books and Federal Register notices for FY 2014-2016, which
listed enforcement actions the MRB took. From November 2017 to January 2018, we
interviewed personnel involved in the MRB process, including the Director of the MRB, two
MRB specialists, and a program analyst for the Office of the Single Family Deputy Assistant
Secretary.

Methodology

To address our objective, we reviewed the following applicable laws and Federal regulations,
HUD and MRB-specific policies and procedures addressing the MRB process, and previous
reports external to the MRB:

        National Housing Act, 12 U.S.C. (United States Code) 1708 (Section 1708)
8
  For less serious violations, the MRB enters into settlement agreements with lenders to bring them into compliance.
For serious violations, the MRB may withdraw the lender’s FHA approval so the lender cannot participate in FHA
programs.
9
  12 CFR Part 1708

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      HUD Reform Act of 1989, 12 U.S.C. 1735f-14 (Section 1735)
      Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. 2461 (Section 2461)
      Adjustment Act
      Federal Register 2014; Vol. 80, No. 65; Monday, April 6, 2015
      Federal Register 2015; Vol.81, No. 91; Wednesday, May 11, 2016
      Federal Register 2016; Vol. 82, No. 63; Tuesday, April 4, 2017
      MRB meeting books, dated December 2013, February 2014, April 2014, June 2014,
       August 2014, October 2014, February 2015 (special meeting book), March 2015, May
       2015, July 2015, October 2015, December 2015, March 2016, April 2016 (books 1 and
       2), June 2016, August 2016 (books 1-3), September 2016 (special meeting book),
       October 2016 (books 1 and 2), and January 2016 (special meeting book)
      HUD OIG Evaluation of MRB Enforcement Actions, IED-09-003, May 2009

Limitations

We experienced no limitations in the conduct of this evaluation.




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                                                                     Report number: 2017-OE-0005


Findings
The MRB takes administrative actions on noncompliant lenders in accordance with its statutory
authority, and it has taken steps to improve its processes. When the MRB learns that a lender
may not be in compliance with FHA requirements, it may take administrative actions to resolve
problems with lenders. Such actions aim to ensure the integrity of FHA’s outstanding insured
portfolio of almost $1.2 trillion.

The MRB Takes Administrative Actions Against Lenders in
Accordance With Its Statutory Authority
When the MRB learns that a lender may not be in compliance with FHA requirements, it takes
administrative actions, including NOVs, CMPs, withdrawals and suspensions, and settlement
agreements. Section 1708 of the National Housing Act provides the MRB with authority to
perform these administrative actions. If a lender does not comply with the provisions of a
settlement agreement, it can result in the lender’s suspension or withdrawal as an FHA-approved
lender. We studied the administrative actions the MRB took from FY 2014 to 2016. Using the
Federal Register, we determined that during this period, the MRB

      issued 436 administrative actions and
      issued 56 CMPs, withdrawals of FHA approval, suspensions, probations, reprimands,
       administrative payments, and settlements.

For FY 2014, FY 2015, and FY 2016, the MRB issued 17, 14, and 25 CMPs, respectively.
The amount of the MRB decisions totaled approximately $1.96 billion. During this period, the
Federal Register recorded 132 lenders that failed to meet requirements for annual recertification
of HUD-FHA approval in a timely manner. It also recorded 248 lenders that failed to meet
requirements for annual recertification of HUD-FHA approval during the same period.

According to the Director of the MRB, the Board members rarely disagree with a settlement or
ask for a different CMP. The MRB may discuss instances in which the lender has presented
mitigating circumstances to influence an increase or decrease in the CMP proposed by the MRB
staff.

The MRB regularly takes administrative actions on FHA-approved single-family lenders but
does not hear many larger multifamily cases. Our review found that the case against Prudential
was the only multifamily case that the MRB addressed during FY 2014-2016. According to the
Director of the MRB, the MRB seldom receives multifamily referrals, and the Director could
recall only two multifamily cases – U.S. Bank and Prudential. Multifamily cases do not account
for many referrals because they follow a different process. HUD program officials approve
multifamily loans, and it is difficult to sanction a lender for something HUD has approved.




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                                                                            Report number: 2017-OE-0005

The MRB Has Taken Steps To Improve
During interviews, the Director of the MRB told us that the MRB previously had not consistently
applied penalties to lenders. Based on our review of the meeting books, we noted that the MRB
has improved in this area. The MRB meeting books for FY 2016 showed that the MRB is
consistently enforcing its mandates and applying penalties to lenders. They indicated that 19
lenders with the same violation received the same penalty.

The MRB has taken steps to meet its statutory mandate by dedicating the MRB staff to
addressing the observations identified in the prior HUD OIG evaluation. The prior HUD OIG
evaluation observed that the MRB did not publish rulings in the Federal Register or on HUD’s
website. We observed that the MRB has improved in this area as it has consistently published
each administrative action taken by the Board members against a mortgagee from FY 2014 to
2016 in the Federal Register.

The prior HUD OIG evaluation observed an increase in the MRB’s workload in FY 2008. The
current Director of the MRB told us that when she joined the MRB in 2010, there was a backlog
of cases. During interviews, the Director said that the MRB began addressing its backlog of
cases in FY 2013. She said that the MRB had completely resolved this backlog by the end of
2016.

The prior HUD OIG evaluation observed that the MRB process was slow. Similarly, the U.S.
Government Accountability Office criticized the timeliness of the MRB process.10 As discussed
earlier, there are several steps to the MRB process. The MRB works with lenders to ensure that
the process is easy to follow and to reach settlement agreements. Because this process requires
continuous communications with the MRB staff, the Board members, OGC, and lenders, the
process can be extended and time consuming. However, we could not find criteria to dictate
more expedient processing.




10
  Single-Family Housing: Progress Made, but Opportunities Exist to Improve HUD’s Oversight of FHA Lenders
(GAO-05-13)

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                                                                     Report number: 2017-OE-0005


Conclusion
The MRB rules on cases against FHA-approved lenders in which there is evidence of serious
violations relating to loan origination, servicing activity, and failure to comply with FHA
operational guidelines. When the MRB learns that a lender may not be in compliance with FHA
requirements, it may take administrative actions to resolve problems with lenders. It does not
consider “loss to the government” in these actions. Administrative actions may include NOVs,
CMPs, withdrawals and suspensions, and settlement agreements. The MRB regularly takes
administrative actions on FHA-approved single-family lenders but does not hear many larger
multifamily cases.

In a 2009 evaluation, we observed issues with the MRB’s process and its use of administrative
actions. Since that time, we have found that the MRB takes administrative actions against
lenders in accordance with its statutory authority. For FY 2014, 2015, and 2016, the MRB
issued 436 administrative actions and 56 civil monetary penalties, withdrawals of FHA approval,
suspensions, probations, reprimands, administrative payments, and settlements. The amount of
the MRB decisions totaled approximately $1.96 billion.

MRB has also taken steps to improve since our last evaluation. Specifically, it has increased the
consistency of penalties given to lenders for similar violations, it has met the requirement to
publish each administrative action in the Federal Register, and it has resolved a longstanding
backlog of cases.




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                                               Report number: 2017-OE-0005


Appendixes
Appendix A – Agency Comments and OIG Response

Response from the Mortgagee Review Board
Reference
to OIG
Response




Comment 1




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     Report number: 2017-OE-0005




10
                                                                  Report number: 2017-OE-0005



OIG’s Response to the Mortgagee Review Board’s Comments

Comment 1    Thank you for providing formal comments to the MRB evaluation. Based on your
             response, it appears that your office is continuing to take steps to improve the MRB
             process.




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                                                                     Report number: 2017-OE-0005

Appendix B – Acknowledgements
This report was prepared under the direction of Brian T. Pattison, Assistant Inspector General for
Evaluation, and Paul H. Bergstrand, Director of Program Evaluations. The Office of Evaluation
staff members who contributed are recognized below.

Major Contributors

Rashee Nelson, Senior Evaluator (team leader)
Angelina Johnston, Senior Evaluator

Other Contributors

Lindsay K. Clarke Brubaker, Supervisory Evaluator
Brendan Bacon, Senior Evaluator
Robert Fisher, Senior Forensic Auditor
Christa Kidd, Senior Evaluator




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                                                                 Report number: 2017-OE-0005

Appendix C – Acronyms
   ACRONYM                                       DEFINITION
     CMP      civil monetary penalty
     FHA      Federal Housing Administration
     FY       fiscal year
     HUD      U.S. Department of Housing and Urban Development
     MRB      Mortgagee Review Board
     NOV      notice of violation
     OGC      Office of General Counsel
     OIG      Office of Inspector General




                                            13
 The Office of Inspector General is an independent and objective oversight
  agency within the U.S. Department of Housing and Urban Development.
 We conduct and supervise audits, evaluations, and investigations relating
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   Report fraud, waste, and mismanagement in HUD programs and operations by
          Completing this online form: https://www.hudoig.gov/report-fraud
          Emailing the OIG hotline: hotline@hudoig.gov
          Faxing the OIG hotline:      (202) 708-4829


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                     Office of Inspector General Hotline (GFI)
                          451 7th Street SW, Room 8254
                              Washington, DC 20410

                     Whistleblowers are protected by law.
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                                        Website
                              https://www.hudoig.gov/




              Program Evaluations Division




 Report number: 2017-OE-0005