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Banks Get a Reprieve From Trump Team on Mortgage Sanctions

HUD Seeks to Ease Bank Fears About Fines for Mortgage Mistakes

(Bloomberg) -- The Trump administration unveiled an overhaul Monday that is meant to ease banks’ worries about getting penalized for mortgage-lending errors, a concern that has haunted lenders since they were hit with billions of dollars in sanctions in the years after the 2008 financial crisis.

The announcement from the U.S. Department of Housing and Urban Development and the Justice Department seeks to provide clarity on what steps banks must take to avoid fines. The changes also make clear that HUD, not the Justice Department, will enforce most cases involving underwriting mistakes going forward.

Read More: FHA Loans Plunge as Banks Haggle With Regulators On Underwriting

The memorandum of understanding between HUD and the Justice Department involves loans made through the Federal Housing Administration, a HUD unit that supports lending to lower-income borrowers. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and other bankers have complained that sanctions have scared lenders away from FHA loans, prompting them to abandon such mortgages.

HUD Secretary Ben Carson, speaking Monday at a mortgage bankers conference in Austin, Texas, said the agreement applies to use of the False Claims Act, a Civil War-era law that the government relied on after the 2008 meltdown to impose massive penalties on banks.

The memorandum also lays out what level of underwriting violations will trigger possible sanctions, including a threshold that such infractions represent “a material violation” of HUD rules. Most cases will be handled administratively by HUD, the agencies said in a statement.

“Depository institutions, which represented nearly half of FHA’s lender base in 2010, represent just 15% today,” Carson said in his Austin speech. “We know that at least part of the reason for the decade-long decline in depository participation is because of the uncertainly about how federal agencies apply the False Claims Act.”

The announcement could be significant for banks if it does encourage lenders to issue more FHA loans. The move is consistent with the business-friendly environment that has swept through Washington under President Donald Trump, who has pledged to cut rules that he believes are holding back the economy.

The Mortgage Bankers Association, an industry trade group, praised the announcement.

“Today is a significant step toward providing clarity for those currently participating in the FHA program, as well as encouraging more lenders to offer FHA-insured loans,” MBA President Robert Broeksmit said in a statement.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

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