Examining FHFA and HUD’s Memorandum of Understanding RE: Fair Lending

Expert Perspectives: ACES Executive VP of Compliance, Amanda Phillips

Published September 29, 2021

Amanda Phillips is the Executive Vice President of Compliance at ACES Quality Management.

For those that may have missed it, can you explain the recently announced memorandum of understanding between the FHFA and HUD?

AP: On August 12, 2021, the Federal Housing Finance Agency (FHFA) and the U.S. Department of Housing and Urban Development (HUD) (the Agencies) announced in a press release they had entered into a memorandum of understanding (MOU) regarding fair housing and fair lending coordination. In the first of its kind MOU, the Agencies agree to information sharing and coordination related to enforcement and supervision, specifically related to the Fair Housing Act, of the entities that the FHFA oversees, which include Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The MOU states that “when appropriate, HUD and FHFA may meet and share information concerning current and contemplated fair lending investigations, examinations or compliance reviews, ongoing monitoring of the Enterprises, and other fair lending activity, including but not limited to opportunities for HUD and FHFA to administer their respective programs and activities relating to housing and urban development in a manner to further the purposes of the Fair Housing Act.” It goes on to state “the Agencies may consult on any fair lending matter related to the Enterprises, … (and) may, each at their own discretion, consult on any matter regarding potential violations of fair lending law and potential investigations, examinations, or reviews of an Enterprise's activity.” However, the cooperation “is not limited to the Enterprises” and “the Agencies will notify each other of relevant fair lending complaints or fair lending investigations.”

What effect will this MOU have on lenders and servicers?

AP: In addition to sharing information regarding current and contemplated investigations or exams, the MOU outlines, specifically, sharing of consumer complaints that may constitute violations of the Fair Housing Act, including, upon request by the receiving Agency, copies of the complaints. Although coordination of examinations is not required by the MOU, lenders and servicers should note that “[w]hen appropriate, HUD and FHFA may coordinate and share information on their respective fair lending examination and review activities of the Enterprises related to underwriting and appraisal guidelines.”

In announcing the MOU, FHFA’s Acting Director stated, “Today's MOU allows FHFA and HUD to share information and resources to improve fair lending oversight over the mortgage finance system.”

Fair lending is a topic that is top of mind in the industry and aligns with the Biden Administration’s central goal of racial equity. This MOU between the Agencies is another step toward the execution of those goals. As such, lenders and servicers should expect future regulatory audits to include a focus on fair lending practices and be prepared to demonstrate their commitment to abiding by both the letter and the spirit of fair lending laws. Furthermore, lenders and servicers alike should examine their compliance management systems (CMS) through the lens of fair lending. This includes a thorough evaluation of all relevant policies and procedures, as well as a self-assessment of the adequacy of those policies and remediation, if necessary. The importance of this last piece cannot be overstated, as regulators have demonstrated time and again their willingness to grant lenders and servicers a bit of grace when they self-identify and self-correct compliance errors/violations.

How can ACES help lenders and servicers ensure they are meeting regulatory/investor expectations regarding fair lending?

AP: In addition, our Audit Packs for both Mortgage Origination and Mortgage Servicing are specifically designed to ensure lenders and servicers are reviewing loan files against the most current compliance requirements. Our in-house Compliance Team also diligently tracks all regulatory changes and temporary directive issues, which users can access both through ACES Quality Management & Control or via our Compliance NewsHub to ensure they’re up-to-date on the most current information available.

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