Massive HUD Crackdown Kills Off 102 FHA Lenders

By admin • June 16th, 2009

I was fairly excited to see HUD’s press release on Thursday that they had taken action against more than 120 lenders who had violated HUD guidelines. 102 FHA approved lenders were cut off from participation in the FHA program for various reasons. This excitement was only slightly tempered by my knowledge that some of the “cut off” lenders were already out of business anyway for other reasons.

 

The most exciting part of the news was that provisions of the “Helping Families Save Their Homes Act” give HUD/FHA more money, manpower and enforcement ability to help put a stop to fraud and general lack of compliance with the regulations.

According to the press release, the Act…

…grants FHA more authority to keep bad actors out of the FHA programs and provided additional enforcement tools to police those lenders who employ false or misleading marketing tactics (see attached). Meanwhile, the Administration’s FY 2010 budget proposal seeks additional investments in FHA to curb fraud and abuse including enhanced investments in technology, staffing and training to enable FHA to cope with the rising volume of mortgage business, detect fraud, and monitor the practices of lenders and appraisers.

“At this time of uncertainty in the mortgage market, FHA needs to be especially vigilant in making sure that its approved lenders meet the highest standards of conduct,” said HUD Secretary Shaun Donovan. “We expect, and more importantly American homebuyers deserve, that when they deal with an FHA-approved lender, they’re dealing with a lender they can trust. “The provisions in the Helping Families Save Their Homes Act will expand our enforcement and help keep bad actors out of our program.”

I have long held that fraud and lack of compliance with the FHA rules were a much, much, much greater contributor to FHA’s default problems than seller paid down payment assistance. Seller paid down payment assistance just happened to get matched with fraud very often because the program made it easier for the criminals to get around having to produce a down payment for their straw buyers. The seller paid down payment assistance was tracked and documented while much of the fraud never was. I personally saw too many of those buyers using seller paid down payment assistance who would move heaven and earth to keep making their house payment on time, even if the value of the home dropped. They simply wanted to be homeowners and were in it for the long haul. If they were late on their payments it would be because they lost their job or had a medical problem which kept them out of work. Not because they had a measly 3% less equity than someone with a conventional loan.

FHA would be in much better shape and would have helped many more people over the past couple of years had some of the money slated for stupid programs like FHASecure and Hope for Homeowners had been put into compliance enforcement.

The honest mortgage originators often didn’t have a chance competing against lenders who would get borrowers approved in spite of the rules. Not because that other loan officer did a better job packaging the loan, but because they weren’t operating by the same guidelines! So I’m glad to see the chance that the field may get leveled.

It appears that this massive action on HUD’s part was an attempt to get out ahead of a news report in the Washington Post which says that a review just completed by the Office of the Inspector General that indicates that FHA’s “Mortgagee Review Board” has been ineffective in policing the large and quickly growing number of FHA approved lenders. All I can say is that I hope they didn’t spend too much money putting together that report. Ginger, my Chocolate Labrador Retriever, could have figured it out without taxing her intellect very much.

At any rate, let’s hope for the best. A lot is going on in the world of FHA lending right now. The jury is still out on how things will work out.
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