FHA Keeps Promise. Continues to Crack Down on Lenders

OnrnJanuary 20, the Federal Housing Administration (FHA) announced that its plan tornshore up the agency's capital reserves included stepped up enforcement of itsrnrules and increased supervision of its lenders. Yesterday it released detailsrnof the first crackdown. Four mortgage lenders were notified that they werernimmediately and permanently removed from obtaining FHA approval for loans.rnThree others were also penalized.   

The four mortgage lenders who were permanently stripped of their FHA approval byrnits Mortgage Review Board (MRB) are Strategic Mortgage Corporation (Strategic),rnProMortgage Inc., Americare Investment Group, doing business as Premier CapitalrnLending, and  Premium Capital Funding, LLC,  doing business as TopDot Mortgage. A fifth firm, The Home Mortgage Inc. (HMI) was suspended until arnrelated court issue is settled.

In announcing the actions,rnFHA Commissioner David Stevens said, “FHA takes its oversight role veryrnseriously and will move swiftly and decisively to protect borrowers fromrnunscrupulous lenders.  Any lender whornrefuses to comply with FHA requirements will simply no longer enjoy thernprivilege of participating in FHA programs.”

The MBR charged that Strategicrnhad failed to comply with employment requirements, charged borrowersrnimpermissible or excessive fees and failed to disclose all fees in Good FaithrnEstimates. The company allegedly also submitted a false certification to HUD inrnconnection with an FHA mortgage.  Inrnaddition to the permanent suspension, MRB is seeking civil penalties in thernamount of $71,000.

The MBR leveled charges ofrnseven infractions against ProMortgage including that it failed to adopt andrnmaintain a Quality Control Plan and to perform Quality Control reviews of loansrnthat defaulted within six months of inception. rnMBA also said the company made false certifications on the HUD VArnAddendum to the Uniform Residential Loan Application, and allowed borrowers tornprovide verification of employment to the lender rather than requiring that thernform come directly from the employer. The Board is seeking monetary penaltiesrnin the amount of $124,000.

MBR said that Americarernbreached the terms of a settlement reached last October under which it had agreedrnto make monthly payments toward paying $124,000 in penalties.  Americare had also been placed on probation forrnsix months as part of that agreement. MBA said that Americare had failed tornmake any payments since that time.

The MRB stripped TopDot of their FHA approval after “numerous and egregious violations” of FHA requirements, including failure to document borrowers’ income, evaluate borrowers’ creditworthiness, and approving loans with grossly excessive debt-to-income ratios without compensating factors to justify approval.

“This lender demonstrated a pattern of utter disregard for how we do businessand its behavior not only put the FHA insurance fund at risk, but placed theirown customers at greater risk of foreclosure,” said FHA Commissioner DavidStevens.“FHA approval is a privilege that we entrust to the most responsiblelenders. If any lender violates that trust, the MRB will take action to protectborrowers, the FHA insurance fund and FHA programs.

Two other lenders, ActionrnMortgage Corporation of Cranston, Rhode Island and Cooper and Shein, LLC doingrnbusiness as Great Oak Lending Partners of Timonium, Maryland were alsornsanctioned.  Both firms were placed onrnprobation for six months and fined; Action in the amount of $7,000 and GreatrnOak $11,000.  Both firms were penalizedrnfor what the MRB called their misleading advertising practices. 

The temporary HMIrnsuspension will apply for a minimum of six months or until a federal courtrnrules in federal bank fraud case involving its CEO. The officer, who is also arnpart owner of the company, has pled guilty for his role in a scheme to obtainrnmoney for 450 fictitious residential mortgage loans. HMI failed to notify HUDrnof the bank fraud indictment as required and has also failed to comply withrnFHA's annual recertification requirements.

The six lenders have 30rndays to appeal the MRB ruling by filing a written request for a hearing beforernan Administrative Law Judge, but filing such an appeal will not delay thernsuspensions and probations or FHA's pursuit of the monetary penalties.

Americare was the only one of the six companies sanctioned on Monday whichrnwas also included in the list of 15 lenders subpoenaed by FHA on January 12. Atrnthat time FHA announced it was seeking data and documents as part of an investigation ofrnwhat it termed a high rate of defaults on insured loans and a significantrnnumber of claims filed against the FHA mortgage fund as a result of thoserndefaults.

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