FHA Proves Lender Defualts

Federal Housing Administration lenders with high default rates received an unwelcome surprise Jan. 12 when the U.S. Department of Housing and Urban Development subpoenaed 15 mortgage companies as part of the agency’s efforts to seek out possible fraud, according to Bloomberg News.

Although HUD officials maintain that they haven’t found evidence of any wrongdoing on the part of FHA lenders, they are interesting in taking a closer look at the worst performers in the FHA portfolio.

“We aren’t making any accusations at this time, we have no evidence of wrongdoing, but we will aggressively pursue any indicators of fraud,” HUD Inspector General Kenneth Donohue told Bloomberg. “The fact that there are 15 institutions on this list today does not in any way suggest that there aren’t other institutions that we will not look at later.”

The increased lender scrutiny by HUD is part of an effort by the agency to stem losses on loans insured by the FHA. The FHA has been under a microscope in recent months as lawmakers have feared that the FHA may go broke and require a bailout. As reported in the December issue of Appraiser News Online, HUD assured Congress at a Dec. 2 hearing with the House Financial Services Committee that it was adopting new measures to reduce risk to the FHA portfolio by improving its lender enforcement and accountability, increasing capital and re-establishing quality control reviews.

“(HUD) will step up efforts to ensure lenders assume responsibility for any losses associated with loans not underwritten to FHA standards,” Donovan told the committee at the time.

Among the banks subpoenaed by HUD include: First Tennessee Bank N.A. of Memphis; 1st Advantage Mortgage of Lombard, Ill.; Alacrity Financial Services LLC of Southlake, Texas; Alethes LLC in Lakeway, Texas; American Sterling Bank of Independence, Mo.; Americare Investment Group of Arlington, Texas; Assurity Financial Services LLC of Englewood, Colo.; Birmingham Bancorp Mortgage Corp. of West Bloomfield, Mich.; D and R Mortgage Corp. of Farmington, Mich.; Dell Franklin Financial LLC of Columbia, Md.; Mac-Clair Mortgage Corporation of Flint, Mich.; Pine State Mortgage Corp. of Atlanta; Security Atlantic Mortgage Co. of Edison, N.J.; Sterling National Mortgage Co. of Great Neck, N.Y.; and Webster Bank of Cheshire, Conn.

According to Bloomberg, a HUD spokesman said the agency didn’t include on its list any mortgage companies that are already under investigation or subject to an open audit.