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.
 
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     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.
 
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     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.
 
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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