U.S. probing 15 FHA lenders on failed loans
Wednesday, January 13, 2010
Federal housing officials launched a probe Tuesday targeting 15 lenders approved to do business with the Federal Housing Administration that have unusually high default rates among their FHA-backed loans.
Agents and auditors served subpoenas to the lenders demanding documents related to the failed loans to determine whether there was any wrongdoing, said Kenneth Donohue, inspector general of the Department of Housing and Urban Development, which includes the FHA.
Each firm raised suspicion because its default rate was at least twice the average of peers in their area. Together, they originated about 100,000 FHA-backed loans in the two-year period ended Nov. 30 and the FHA paid claims on roughly 12,000 of them, according to a federal database. The agency does not make loans; it insures the lenders against default.
The largest contributor to the volume of bad loans was the Memphis-based bank First Tennessee, which sold its mortgage division to MetLife in 2008 and has since focused its mortgage lending in Tennessee. The bank said in a statement Tuesday that just a few bad loans in the smaller pool of loans originated since then could have hurt its performance.
The only Washington area lender served with a subpoena was Dell Franklin Financial of Millersville in Anne Arundel County. Richard Reese, the company's president, said he is confident that fraud is not at the root of the troubled loans at his firm.
"Many loans we do are in underserved areas that were hit by the poor economy," Reese said. "We have done nothing wrong."
The inspector general's probe is the latest push by the federal government to weed out fraudulent lenders who may be using the same abusive tactics that contributed to the collapse of the subprime market in order to chase after the growing volume of borrowers who are taking out low-down-payment FHA loans.
The agency has recently taken actions that have forced two high-profile lenders -- Taylor, Bean & Whitaker and Lend America -- to shut their doors.
On Tuesday, Donohue and FHA Commissioner David H. Stevens said they are not making accusations against the firms they are scrutinizing. The subpoenas are a "targeted effort to look inside the operations and loan files of a select group of outliers" to figure out what happened, Stevens said.