The Obama administration wants to give Federal Housing Administration lenders more breathing room so they can feel confident about lending to a wide range of borrowers without being sued by the government, according to a story in Wednesday’s Washington Post.
“Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default,” the Washington Post story says.
Large FHA lenders have been wary of possible litigation since a U.S. attorney in New York reached an
After striking a $158 million settlement with CitiMortgage, AG Preet Bharara reached a $133 million settlement with Flagstar Bank and a $202 million settlement with Deutsche Bank over FHA lending issues.
Last June, the Department of Justice subpoenaed the top 15 FHA lenders for loan documents. Since then, DOJ has not communicated with the banks about the status of the investigations.
As result, lenders are continuing to be cautious and wary of lending to FHA borrowers with sub-680 credit scores.
“No one expects or wants the government to stop penalizing lenders that knowingly commit fraud or serious violation of FHA program or underwriting requirements,” according to Brian Chappelle, a mortgage consultant with Potomac Partners.
However, large lenders are not going to drop their credit overlays until they have assurances that they won’t be penalized for “technical fouls,” Chappelle told NMN.
“It appears the government is aware of the problem and there are reasons for encouragement,” he added.
