FHA-insured home loans have carved a large chunk of the market during this prolonged housing meltdown. Conventional mortgage lenders have withdrawn in large numbers into the shadows to get TLC from the government just to be able to survive. Many have plain vanished from the scene, generally swallowed by a little stronger bank.
FHA has become the favorite of first-time home buyers for its more lenient underwriting guidelines and lower down payment requirements. Its programs, however, are open to all applicants and many refinances have been done through it. Since FHA started gobbling up market share a couple of years ago, to some degree it stepped into the subprime vacuum left by conventional mortgage providers, real estate values have continued to lose ground in most areas of the country and that has caused scores of its insured home loans to go sour. Borrowers often found themselves upside down in a matter of months after closing if they only put down the minimum of 3.5% allowed by FHA and quickly became vulnerable to drawing a distressed status label.
Now HUD - US Department of Housing and Urban Development - has begun a review of mortgage lenders, actually already served them subpoenas for documents and information, who have a "significant" amount of claims against the FHA mortgage insurance program. HUD suspects there is more to the high default rates than just declining prices. It's looking closely at each mortgage lenders' underwriting practices to determine whether further action is needed. The list of the 15 home loan lenders receiving the subpoenas can be found here.
Climbing foreclosure numbers at FHA have forced HUD's hand. With these subpoenas it's looking into possible fraud as one of the reasons to FHA's problems. It is also determined to manage risk better from here on out. Its actions will obviously create a tighter mortgage approval regime, thus to some degree dampen demand, delaying any meaningful housing rebound. Yet, it's better to have a solvent FHA issuing mortgage insurance at a slower pace than none at all.
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Provided by:
Esko Kiuru
Mortgage and real estate market commentator
www.BluefoxToday.com - syndicated mortgage and real estate blog
eskokiuru@gmail.com
My cell: 702-499-1006
I've personally never heard of most of those lenders. HUD needs to do more enforcement, to keep everyone honest. With that said, I wouldn't want to have to deal with all the red tape involved in being a mortgage broker, or mortgage banker. Especially now that the lenders are cutting our fees.
Jeff, more enforcement is good in my opinion. One of those banks was in Connecticut, Webster Bank which is one of the major banks here in the state. But I was surprised to not see any of the banks in the states that have taken the biggest hit in this housing mess on the list.
WOW! I am glad you included that list. We are seeing the HUD homes come on the market from '08 defaults cuz you know the FHA loan wasn't sexy until about '07. What I have seen on my end is amazing. Wonder what they will do to the tax credit takers when those start defaulting!
Alix,
HUD has got tough and rightfully so.
George,
Enforcement is paramount to keep the mortgage market from imploding again.
Renee,
Hopefully the list will wake up other mortgage lenders to play it straight.