'Zero Payment Defaults' Are on the Rise at FHA

The FHA is experiencing "a large number of zero payment defaults" in which borrowers fail to make even one payment on their new government-insured mortgages, a Department of Housing and Urban Development official said at the Mortgage Bankers Association's annual National Fraud Issues Conference in Las Vegas. The trend, which Lisa Gore, the assistant special agent in charge of the criminal investigation division in HUD's inspector general's office, called "a huge red flag" that some type of fraud has been committed, is similar to the one experienced in the 1999-2001 housing market turndown. Ms. Gore's remarks confirm a front page Washington Post report earlier this month that many FHA borrower's are defaulting as quickly as they close. The newspaper's analysis of FHA data found that more than 9,200 loans insured by the agency in the past two years have gone delinquent with either one payment or no payments being made. The analysis found that the pace of what the Post called "instant defaults" has tripled in the last year, and more than two dozen loans are defaulting in this manner every week, the newspaper reported. Ms. Gore said the IG's office has stepped up the number of investigations into the "large number" of these and other cases of possible fraud. One investigation involves "more than 100 loans," she told MortgageWire.