FHA Defaults Hit 9% Amid New Crackdown
WASHINGTON-The default rate on Federal Housing Administration-backed loans hit 9% at the end of November, a 38% increase in 12 months, according to new figures released by the Department of Housing and Urban Development.
The continued bad news on FHA delinquencies comes in the wake of the agency's office of inspector general issuing subpoenas to 15 residential lenders with high early default and claim rates. (The default rate, a record, represents loans that are 90 days or more past due. In the comparable period the rate was 6.5%.)
None of the 15 firms are high-volume lenders and do not rank among the top 40 issuers and servicers of GNMA securities. The largest among them is First Tennessee Bank of Memphis, a depository that, over the past two years, has been scaling back its role in residential finance.
The lenders subpoenaed originated just 1,000 FHA loans in the past two years. Their default and claim rates, which are posted on FHA's Neighborhood Watch website, exceed their peers by 200%.
Even though these companies have been issued subpoenas for loan documents and other information, they can continue funding FHA-backed products. (Among other things, the OIG also wants to know how loan decisions are made so the individuals can be held responsible.)
"We are not making any accusations at this time," said HUD IG Ken Donohue. "We have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud." In particular, FHA wants to know why the lenders have such a high default and claim rates on mortgages that are only 30 months old.
In a statement the Mortgage Bankers Association said it is "important" that the companies named "be afforded due process and be allowed to answer the subpoenas and provide the requested documents and data before a rush to judgment is made."
In a few weeks HUD will issue major changes to protect the cash-depleted FHA single-family program, including increasing mortgage insurance premiums and asking borrowers to bring more cash to the closing table.
The agency is considering reducing to 3% from 6% the amount a seller can pay toward closing costs and eliminating the ability of borrowers to finance the upfront mortgage insurance premium through the loan amount. HUD also is expected to ask Congress for the authority to raise the 55 basis point annual mortgage insurance premium.
Besides First Tennessee, other FHA lenders that were issued subpoenas include Webster Bank of Connecticut, Pine State Mortgage Corp., Atlanta, Security Atlantic Mortgage, Edison, N.J., and 11 others.
Three are located in Michigan, one of the most economically devastated states in the nation.