The HUD Inspector General's office, in a new report, slams Webster Bank, Waterbury, Conn., for some of its FHA underwriting practices, saying the deficiencies could cost the government insurer upwards of $500,000 on six loans.
The IG reviewed 20 FHA mortgages underwritten by the $17 billion asset New England bank, finding problems with its employment verification practices, down payment gift documentation work, and other items.
Thursday morning the bank issued a statement to National Mortgage News, saying "each of the six loans in question" were originated through its national wholesale group, which it shuttered more than two years ago.
The bank insists that the loans "complied with all HUD guidelines," saying it will defend its position "vigorously." Webster added that the action taken against it will not hurt its ability to originate and sell FHA-insured loans. (It appears many of the loans reviewed by the IG are more than two years old. All are in claim status.)
The government's review was conducted by the IG's office as part of its 'Operation Watchdog' initiative where it is reviewing the underwriting practices of 15 direct endorsement lenders.
In a statement HUD says, "The objective of the review was to determine whether Webster underwrote 20 loans in accordance with U.S. Department of Housing and Urban Development (HUD)/FHA requirements."
The IG's office said it found that "Webster Bank officials did not underwrite 6 of 20 loans reviewed in accordance with HUD/FHA regulations. As a result, the FHA insurance fund suffered actual losses of $456,854 on five loans and faces potential loss of $60,136 on one loan for a total of $516,990."
The IG is recommending that the agency take administrative action against the bank along with civil money penalties.
