As settlement talks continue between the states and the megabanks over the robosigning scandal, some of the nation's largest servicers fear they may have a new item to add to their worry list: civil liability tied to the monthly processing of Federal Housing Administration loans.
Most of the major banks have large FHA/GNMA portfolios and must answer to an agency with very specific servicing rules.
If they don't settle with AGs, these servicers expect the Department of Justice and/or the Department of Housing and Urban Development to pursue them for violations of FHA servicing and loss mitigation rules, according to industry officials close to the situation.
"The FHA requirements are the hammer that can be used to levy large fines,” said one source, requesting anonymity. “The AGs can only sue the banks.”
HUD recently provided state attorneys general with the results of their audits of FHA servicers, according to a report in American Banker, a National Mortgage News affiliate. The audits were conducted last winter after federal regulators were alerted to robosigning and other foreclosure-related document problems.
It appears that HUD is trying to force a settlement, one official said. "FHA has done all the work for the AGs -- and they're using that as leverage to a get a deal with the banks.”
But another official, who also did not want to be identified, said he has seen some of the FHA audits and was not impressed.
One audit claims the servicer deviated from FHA loss mitigation requirements -- but there are no allegations that the borrowers were harmed, said this official.
Failure to help FHA delinquent borrowers through loan modifications or other workout options can lead to fines and even treble damages under FHA loss mitigation rules.
