Beware the Mortgagee Review Board: The Federal Housing Administration Has a Powerful Enforcement Arm That Sanctions Lenders That Don't Follow FHA's Rules. Smart Lenders Will Take All Necessary Precautions to Avoid MRB Sanctions

Article excerpt

The Mortgagee Review Board (MRB) was established by statute in 1989 as an enforcement body to oversee the performance of Federal Housing Administration (FHA) lenders. Its mission is to protect FHA and its mortgage insurance funds from fraud and program abuse, and to deter noncompliance and mortgage lending irregularities. * The MRB imposes administrative sanctions on FHA-approved lenders that violate applicable statutes, regulations and handbook requirements relating to the origination and servicing of Department of Housing and Development (HUD)-insured and FHA-insured single-family and multifamily loans. These sanctions include reprimand, probation, suspension, withdrawal of approval, cease-and-desist orders and civil money penalties. * In 2009 and 2010, the MRB increased the number and size of the sanctions it imposed. There is heightened focus on lender originations in the wake of the real estate collapse and the increasing number of loan defaults that are triggering claims against the FHA mortgage insurance funds. The Mortgagee Review Board evidently is responding to a May 2009 report to Congress by the HUD Office of Inspector General (OIG) recommending that the MRB should undertake a much larger caseload and impose stiffer sanctions. * An MRB enforcement action is a very serious matter for a lender. MRB actions can and do put lenders out of business, cost big dollars (six- or seven-figure penalties and requirements that a lender absorb the losses on deficient loans) and greatly tarnish a lender's reputation and ability to expand into other HUD programs and non-HUD programs.

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Moreover, MRB procedures impose short deadlines for a lender to respond to a notice of violation, and time is critical because intensive review of many documents and witness interviews are frequently required to establish potential defenses. Thus, a lender that receives a notice of violation from the MRB--or thinks that one may be forthcoming--must act promptly and wisely to mount an effective defense.

What is the makeup of the MRB?

The MRB is chaired by David Stevens, the assistant secretary for housing-federal housing commissioner. The other voting members are the president of Ginnie Mae (Ted Tozer); HUD's general counsel (Helen Kanovsky); the chief human capital officer (Janie Payne); the chief financial officer (Doug Criscitello); the director of the Departmental Enforcement Center (DEC) (Craig Clemmensen); and the assistant secretary for fair housing and equal opportunity (John Trasvina), who votes only on cases involving fair housing and equal opportunity issues.

HUD's inspector general and director of the Office of Lender Activities and Program Compliance are non-voting advisers to the MRB.

What does the MRB do?

The MRB does not review or audit FHA lender performance. Instead, it rules on referrals from other HUD offices, such as the Office of Housing, Homeownership Centers (HOC), Ginnie Mae, the Office of General Counsel, and the OIG. Serious findings, such as widespread abuse of HUD's program requirements, are referred to the MRB for consideration.

Historically, HOC referrals have constituted about 90 percent of the MRB's workload; the remaining 10 percent come from the OIG based on its audits and investigations. Approximately 10 percent of lender reviews conducted by the HOCs are referred to the MRB.

These figures, though, may be changing with the increased emphasis on MRB enforcement actions. Referrals to the MRB may be triggered by findings during routine reviews of lender operations, by a lender's default/delinquency ratios (relative to other lenders serving the same geographic area), and by consumer complaints. No MRB enforcement authority will be taken over by the new Consumer Financial Protection Bureau.

What sorts of violations are handled by the MRB?

What sorts of problems end up in front of the MRB? …