Loan Modification

360 FHA Lenders Disciplined

By Peter G. Miller

The government has begun to enforce FHA regulations in a way not seen during the past decade, if seen at all. Some 360 lenders are now toast as a result of tougher HUD enforcement.

“Under the Obama Administration,” says FHA Commissioner David H. Stevens, the “FHA has significantly increased its lender enforcement activities to protect the MMI Fund, consumers, and address a number of bad actors that were previously not held accountable.

“Since July 1, 2009, the Mortgagee Review Board (MRB) has investigated 365 cases, resulting in withdrawal of approval for 354 lenders and suspension of an additional 6 lenders. The number of cases that have been investigated by the MRB since July 2009 are greater than those investigated in the years 2002-2008 combined. We take our responsibility to oversee lenders with the utmost seriousness. I would also like to emphasize that FHA?s intent is to protect the Fund through a commitment to lender enforcement, but FHA in no way intends to punish responsible lenders. We are working closely with lenders to identify best practices and share them among the lending community, proactively identify problem situations and identify means to improve performance, to the benefit of lenders, consumers, and the FHA.”

There’s nothing subtle in Stevens’ remarks. First, lenders who submit less-then-pristine FHA mortgage applications are now more likely to lose their right to underwrite FHA loans then at any time in the past. This is significant because FHA loans now represent about 30 percent of all purchase money mortgages and 20 percent of all refinancing. If you’re a lender and do not offer FHA mortgages then a large part of the market is off-limits, meaning that you’re likely to lose both revenue and mortgage loan officers.

Second, HUD is stunningly accurate in identifying wayward lenders — 365 lender investigations resulted in 354 lenders who were tossed out of the program and six more who were suspended. That means just five lenders were investigated and measured up.

Third, the no-regulation, less-regulation, no-oversight crowd is out. As Stevens explains without naming names, “the number of cases that have been investigated by the MRB since July 2009 are greater than those investigated in the years 2002-2008 combined.” Translation: There’s a huge difference between the Bush Administration and the Obama Administration.

For Borrowers

The new enforcement actions through HUD will plainly impact FHA mortgage borrowers in several ways.

To start, there are now fewer FHA lenders than there would otherwise have been. More than 350 lenders have been bounced from the program and it would be surprising if the number of exiled lenders did not increase during the coming year.

For borrowers this means that lenders are likely to be very sticky about loan applications. That’s not a hardship and not unfair, it just means that all borrowers who want FHA loans will now have to meet the same, very clear, standards. So keep you paperwork in order, you’ll need it when next you meet with an FHA lender.

Full post as published by FHA Mortgage Guide on May 25, 2010 (boomark / email).