By Jon Prior
The Department of Housing and Urban Development pushed for more authority to charge lenders for writing nonperforming mortgages that did not meet Federal Housing Administration guidelines.
Under the new proposal, HUD would force FHA lenders to pay the government for "serious and material" violations of origination guidelines. HUD will charge a lender for compensation if it failed to verify and analyze the creditworthiness, income, and employment of a borrower who defaulted on an FHA-backed loan.
Lenders also will be charged if they didn't verify the source of assets the borrower used to make the downpayment or closing costs. HUD will determine if the lender addressed property deficiencies identified by the appraiser and ensure FHA-appraisal requirements were met.
Any violation found will result in penalties to the lender.
For those cases not involving fraud or misrepresentation from the borrower, HUD requires a penalty to be set within five years of the FHA endorsement. But with the new proposal HUD will set a "reasonable time period" for those cases where fraud was detected.
"It's important that our expectations are crystal clear," said FHA commissioner David Stevens. "We need to clarify which circumstances we'll require indemnification and the level of loan performance we expect lenders to maintain."
The new proposal would also allow HUD to grant FHA approval to one-state lenders under different standards. Under current guidelines, HUD gives unconditional, direct endorsement to lenders who can self-insure their own mortgages and hold a default and claim rate at or below 150% of the national average for insured mortgages for the previous two years.
The new proposal compares single-state lenders to the average default rate for insured mortgages in the state it operates in.