The Federal Housing Administration is getting tougher on paying claims for defaulted loans where it believes lenders have cut corners on the underwriting.
In recent months the government agency has been denying claims and threatening lawsuits in unprecedented volume, lenders and their lawyers said. Though the underwriting failures and flaws it has flagged stem mostly from the bubble years, some mortgage lenders are becoming skittish about making new FHA-backed loans.
The agency increasingly is forcing lenders to bear the risk on new loans with technical defects such as having a borrower's previous address listed incorrectly in a loan file. Some lenders were alarmed that FHA payments of foreclosure-related claims fell 15% last quarter.
"HUD is acting like any insurance agency, if a loan goes bad and there is some deficiency, they are not going to pay the claim," said Darlin McRoyal, an FHA consultant and senior compliance advisor at ComplianceEase, a Burlingame, Calif., compliance and auditing firm.
FHA officials have blamed the decline on delays in the foreclosure process, and said their inventory of loans in foreclosure is at a historic high of nearly 176,000 loans.
The Department of Housing and Urban Development, which oversees FHA, has stronger weapons to punish lenders than the government-sponsored enterprises, which can force them to repurchase bad loans and can also issue fines.
HUD can bring criminal charges against executives responsible for overseeing compliance with FHA rules. If a lender falsely certifies that loans have satisfied FHA's requirements, it can be penalized for up to three times the amount of any FHA insurance claim.
