Loan Modification

HUD Brings Back The Swat Team

By Peter G. Miller

It’s called Mortgagee Letter 2009-12, still another note from HUD explaining how FHA loans are to be originated and administered. Usually these letter are astonishingly dull, but this one is a gem. Why? Because HUD is bringing back its SWAT team.

Now you might think, huh? HUD has a SWAT team? Well, actually it used to and now it does again.

Just Checking….

To put this as nicely as possible, HUD obviously thinks that some lenders have not quite lived up to the usual standards of FHA underwriting. That’s a problem because loans that don’t meet FHA standards to the letter are likely to be the very loans which cause FHA losses. So, to combat this problem, HUD says that it “continues to introduce proactive measures to appropriately manage its risk. Recently, FHA reactivated its Special Work Assessment Teams (SWAT) to conduct single-focus on-site reviews of lenders whose originations are exhibiting signs of distress.”

Translation? HUD is going to start once-again to audit FHA lenders to make sure they’re delivering loans that meet government standards.

No Guns

Nope, no bullet-proof vests or big guns are involved. Instead, you can think of friendly visits from the HUD SWAT term by another term: Financial audits.

HUD says that it “must hold mortgagees (lenders) accountable for their lending practices in order to protect the public trust and the FHA Insurance Fund. The Department expects each mortgagee to exercise the same level of care in originating, underwriting and servicing an FHA-insured mortgage as it would for a loan in which the mortgagee would be entirely dependent on the property as security to protect its investment. When a mortgagee fails to comply with HUD?s policies and procedures, HUD will take the appropriate action. For example, lenders that materially violate FHA program statutes, regulations and handbook requirements may be referred to the Mortgagee Review Board for appropriate sanctions, which may include termination of mortgagee approval.” 

In other words, screw with us and we’ll drop you from the system. No FHA loans for you — and thus no lender fees and profits.

Checklist

What does HUD want to check? The big items include making sure that the lender:

___ Has a comprehensive quality control plan.

___ Reviews all loans with early payment defaults to try and stave off foreclosure.

___ Does not engage in false or misrepresentative advertising. (This should be a fertile field of inquiry….

___ Fully documents the stability and amount of each borrower income (That is, does not puff up borrower wages and assets.)

___ And, does not “charge excessive and unallowable fees to the borrower”.

What are reasonable and allowable fees? At what point do they become excessive and unallowable? You mean that FHA insured-loans cannot be used to gouge the public?

This should be interesting….

Full post as published by FHA Mortgage Guide on April 13, 2009 (boomark / email).