Warehouse Lenders Bolting Because of FHA IG Probe

A probe by the HUD Inspector General of 15 FHA lenders is causing warehouse providers to have second thoughts on extending credit to some of these firms, according to attorneys, consultants, and mortgage executives close to the situation. These officials, who spoke on the condition they not be identified, said entire warehouse lines have been pulled or are in jeopardy. "When a government agency humiliates companies in public, there can be consequences with their relationships with third parties," one attorney said. In early January, Housing and Urban Department IG Kenneth Donohue subpoenaed documents from 15 FHA direct-endorsement lenders, citing their high default and claim rates. Recently, the IG counsel issued a letter to 10 of the companies, clarifying the nature of the probe and its review of loan documents. "Be advised the selection of 20 loans from these lenders was not based upon any evidence of wrongdoing — a point we made in the press release," the OIG counsel says in the letter. He adds, "Further, HUD IG's review of these lenders does not presently affect their ability to participate fully in the department's FHA insurance program." It appears the letter could be used to reassure warehouse lenders that the targeted companies were not accused of wrongdoing. The letter was requested by K&L Gates attorney Phillip Schulman who declined to comment on the matter.