www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 August 12, 1991 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 91-37 TO: ALL APPROVED MORTGAGEES SUBJECT: Civil Money Penalties Against Mortgagees -- Implementation of the HUD Reform Act The purpose of this Mortgagee Letter is to provide information to all approved mortgagees on the new regulations implementing Section 107 of the HUD Reform Act of 1989 concerning civil money penalties. A copy of the regulations is enclosed. These regulations became effective on June 21, 1991. Background The HUD Reform Act of 1989 was signed into law on December 15, 1989. Section 107 of the Reform Act authorizes the Department to impose civil money penalties on mortgagees that violate the Department's requirements. The Final Rule implementing Section 107 was published in the Federal Register on May 22, 1991 and will appear in the Code of Federal Regulations at 24 CFR Part 30. The regulations provide that the Department may impose a civil money penalty whenever an approved mortgagee knowingly and materially violates relevant program statutes, regulations or handbook requirements. The Reform Act and the implementing regulations provide for increased program enforcement efforts on the part of the Department. A civil money penalty may be imposed in addition to other administrative sanctions or any other civil or criminal penalty. Examples of violations for which civil money penalties may be imposed A civil money penalty may be imposed by the Department against a mortgagee for knowing and material program violations that include: o Transfer of an insured mortgage to a mortgagee not approved by the Department. o Using escrow funds for any purpose other than that for which they were received. _____________________________________________________________________ 2 o Falsely certifying to the Department or submitting to the Department a false certification by another person. o Failure to comply with mortgage servicing requirements. o Submitting false information to the Department in connection with any insured mortgage transaction. o Hiring or employing an individual such as an officer, director, principal or employee whose duties involve programs administered by the Department, while that individual is under suspension, debarment or a Limited Denial of Participation (LDP) by the Department. o Failing to comply with any agreement, certification or condition set forth, or applicable to, the application of a mortgagee for approval by the Department. o Failure by a nonsupervised mortgagee to segregate escrow funds received from mortgagors and to deposit such funds in a special account with a federally insured depository institution. o Hiring or retaining an agent whose duties involve programs administered by the Department while such agent is under suspension, debarment or a Limited Denial of Participation (LDP) by the Department. o Failure to remit, or timely remit mortgage insurance premiums, late charges or interest penalties. o Failure to timely submit documents that are complete and accurate in connection with a conveyance of property or a claim for insurance benefits. _____________________________________________________________________ 3 o Failure to comply with the provisions of the Real Estate Settlement Procedures Act (RESPA). Amount of Penalty The maximum amounts of penalties, as determined by the Department, may not exceed $5,000 for each violation by a mortgagee, except that the maximum penalty for all violations by any mortgagee during any one-year period will not exceed $1 million. Each violation constitutes a separate violation with respect to each mortgage, subject to the maximum penalty of $1 million. Although the Final Rule became effective on June 21, 1991, the Department may impose civil money penalties for violations occurring anytime after the date of enactment of the HUD Reform Act, which was December 15, 1989. Factors in determining amount of penalty In determining the amount of a penalty, the Department will consider the gravity of the offense, any history of prior offenses (including those before enactment of the Reform Act), ability to pay the penalty, injury to the public, benefits received, deterrence of future violations, and the degree of the violator's culpability. Housing Civil Penalties Panel (HCPP) and Mortgagee Review Board There is established within the Federal Housing Administration the Housing Civil Penalties Panel (HCPP). The HCPP is responsible for reviewing recommendations for, and proposing the imposition of civil money penalties against mortgagees. The HCPP is composed of the following members, or their designees: Assistant Secretary for Housing-Federal Housing Commissioner, Chairman; Deputy Assistant Secretary for Operations; Deputy Assistant Secretary for Multifamily Housing Programs; and the Deputy Assistant Secretary for Single Family Housing. The HCPP also includes the Assistant Secretary for Fair Housing and Equal Opportunity, or designee (in cases involving violations of the Department's nondiscrimination requirements). A designee of the General Counsel serves in a non-voting advisory capacity to the HCPP. The Department's Mortgagee Review Board is also authorized to impose civil money penalties against mortgagees. This authority is in addition to the Board's other functions as described in 24 CFR Part 25. The HCPP and the Mortgagee Review Board will consider all facts and responses by mortgagees in determining whether to propose a civil money penalty. _____________________________________________________________________ 4 Notice of intent to seek a civil money penalty When the Department intends to seek a civil money penalty, it will issue a written notice to the mortgagee. This notice will inform the mortgagee that the Department is considering the imposition of a civil money penalty, state the specific violations that have been alleged, state the amount of the civil money penalty that will be recommended, and provide an opportunity for the mortgagee to submit a written response within 30 days of receipt of the notice. The failure to respond to this notice will result in the matter being considered by the HCPP or the Mortgagee Review Board without any further notice. Settlements A mortgagee may at any time enter into a Settlement Agreement with the Department before or after a matter is referred to the HCPP or Mortgagee Review Board for consideration of civil money penalties. Opportunity for a Hearing A civil money penalty is effective after a mortgagee has been given an opportunity for a hearing before an Administrative Law Judge. If a hearing is not requested, the Administrative Law Judge will issue a default judgment. Unless a mortgagee shows that extraordinary circumstances prevented the hearing request, the imposition of the civil money penalty becomes a final and unappealable determination by the HCPP or the Mortgagee Review Board. Mortgagees are important partners in the Department's programs. I ask you to increase your diligence in conducting your lending and loan servicing activities and take steps to tighten your monitoring and quality control responsibilities. If you have any questions concerning this Mortgagee Letter, please contact William Heyman, Director, Office of Lender Activities and Land Sales Registration at (202) 708-1824. Sincerely, Arthur J. Hill Assistant Secretary for Housing-Federal Housing Commissioner Enclosure