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HUD to Expand 'Credit Watch'

The Department of Housing and Urban Development wants to expand its Credit Watch program for automatically terminating bad lenders to include wholesalers who are involved in making Federal Housing Administration-insured loans.

Under the Credit Watch program, HUD tracks loan performance and will terminate a lender's main office or branch office if a default/claim rate is 250% higher than its peers in the same geographic area.

But now HUD wants to apply Credit Watch sanctions to wholesalers and other direct endorsement lenders who underwrite and approve FHA loans from remote offices.

The proposed rule would "establish that the default and claim thresholds underlying the Credit Watch/Termination Initiative apply to both underwriting and originating mortgagees," HUD says in its semi-annual regulatory agenda. In 2000, a General Accounting Office report faulted HUD for excluding wholesalers from its Credit Watch program.

The semi-annual agenda, which appeared in the Federal Register, lists a half-dozen rule changes HUD wants to issue in the next six months to make lenders more accountable for loan performance and compliance with FHA rules.

One proposal would establish a registry for loan officers to make sure they are working for only one FHA-approved lender.

This registry would allow the FHA to track a loan officer's performance and eventually allow HUD to apply Credit Watch to loan officers, according to Bud Carter, a former FHA staffer who is a consultant with Potomac Partners in Washington.

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