In an interesting announcement last week, HUD and FHFA issued a joint MOU (memorandum of understanding) that enhances efforts to synchronize fair lending policy, enforcement and investigatory activities. This is a rare instance where HUD and the regulator of the GSEs have publicly agreed to attempt to synchronize efforts on such a major policy effort.
What makes this a statement that should matter to industry is that the MOU states: “HUD and FHFA may meet and share information concerning current and contemplated investigations, examinations, or compliance reviews.” The sharing of even contemplated investigations is a move that should raise some eyebrows.
Even if not under investigation, would the act of sharing the “contemplated” investigation by HUD or the FHFA with the other regulator prompt additional examination activity that may have not been contemplated at the time, or perhaps not even warranted?
The MOU further states that, “the meetings will provide an opportunity for the agencies to support each other’s fair lending activities and consider the possibility of coordinated actions where there are common issues or parties.”
The collective language in the MOU suggests that the two key regulators would share contemplated regulations and coordinate actions together. It is rare that these two regulators have coordinated their activities together and a first in terms of fair lending.
To be clear, both regulators have fair lending responsibilities, with HUD having a more pronounced regulatory structure focused on this subject matter. The MOU in fact states that each agency will advise the other when it opens a fair lending “investigation, examination, or review” and adds that FHFA will allow HUD to make comments to any write up or response to any efforts pursuing a fair lending complaint or investigation.
This is a challenging issue for industry. Without question, the mortgage industry has a long history of discrimination, redlining, and more and the need for fair lending oversight and enforcement is critical. While the Community Reinvestment Act (CRA) has helped push depository institutions to lend in communities where they might not have otherwise, many states are raising concerns that the dominance of nonbank lenders is muting the impact. There are calls by some for applying a CRA-like standard on nonbanks in order to ensure a greater focus on census tracts or communities where the lack of advancing credit is limiting homeownership opportunities to the underserved.
The GSEs themselves have generally maintained two processes to focus on affordable and fair lending. The first has been through sets of goals that focus on underserved and low/moderate income borrowers. While these goals have been met with scrutiny as to effectiveness, the GSEs and the FHFA have obligations to insure compliance with the “Fair Housing Act, ECOA, and the fair lending provisions of the safety and soundness act,” as stated in the MOU.
Clearly, HUD has led the way with a more pronounced focus on fair lending with the implementation of the Affirmatively Furthering Fair Housing rule, which was reinstated in June of this year after being overturned during the Trump administration. In the June announcement, the White House statement said, “AFFH….is not only a mandate to refrain from discrimination but a mandate to take actions that undo historic patterns of segregation and other types of discrimination and that afford access to long-denied opportunities.”
The mandate states that it is not enough to simply have polices in place that intend to block any discrimination, but polices must also insure that the effect does not create an adverse fair housing outcome. The AFFH policy calls for the following:
- Determine who lacks access to opportunity and address any inequity among protected class group
- Promote integration and reduce segregation
- Transform racially or ethnically concentrated areas of poverty into areas of opportunity
With this new announcement, HUD and the FHFA will be sharing information about both suspected and actual violators of fair housing policies, complaints from external sources — whether consumers or organizations — and best practices.
As an industry, we should applaud the efforts of federal regulators to align processes where possible. The Mortgage Bankers Association has taken the lead in this effort by calling for alignment around servicing standards, loss mitigation waterfalls and more. But without question, this MOU elevates the obligation for mortgage lenders, servicers and all entities involved in the origination process to increase their focus on fair lending efforts and ensure that they are over-achieving in this area.
The fact that a mere complaint, whether verified or not, can be the cause for opening an investigation by both agencies should establish a heightened regimen of oversight inside all mortgage lenders operations.
David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, president and COO of the Long and Foster Realty Companies, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association. He currently sits on a public board, serves as an advisor to other company boards and advises on industry and policy matters.
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