April 12, 2011
On many occasions, we’ve discussed the FHA’s aggressive pro-consumer policies. When a borrower decides to apply for an FHA insured loan, there is plenty of legal protection against discriminatory lending practices. But the FHA doesn’t just look after the borrower’s interests–it also polices the industry where appropriate to insure a level playing field for all involved.
The FHA has standards for fair lending, there are laws designed to promote equal access to credit for qualified borrowers, and there are also requirements to protect the FHA’s investment against lenders who are tempted not to exercise due diligence in making sure those borrowers are indeed qualified.
A good example of this is the recently announced settlement between the FHA mortgagee review board and First American Mortgage Trust. According to an FHA press release, the review board alleged that “First American Mortgage Trust (FAMT) of Brookline, Massachusetts refinanced mortgage loans for borrowers with serious credit delinquencies without properly analyzing the households’ ability to manage credit.”
In the settlement, First American Mortgage Trust agreed to pay $72,500, and according to the press release, “reimburse FHA for past insurance claims, and to indemnify FHA’s insurance fund for any claims to be paid on five mortgages should they default with the next 60 months.”
According to the acting FHA commissioner, “FHA-approved lenders are obliged to apply our underwriting standards, not only to protect our insurance fund, but to make certain families can sustain their mortgages,” said Acting FHA Commissioner Bob Ryan, who added, “Due diligence is at the root of mortgage lending protecting lenders, the FHA, and certainly homeowners from the prospect of foreclosure.”
In late 2010, the U.S. Department of Housing and Urban Development proposed new regulations designed to “strengthen its authority to force certain lenders to indemnify or reimburse the Federal Housing Administration (FHA) for insurance claims paid on mortgages that are found not to meet the agency’s guidelines.” The new rules, if ratified, would require all new and existing lenders “with the ability to insure mortgages on HUD’s behalf to meet stricter performance standards to gain and maintain their approval status.”
Any time an FHA loan applicant notices an irregularity or feels that his or her rights have been violated in the application process, he or she is strongly encouraged to report the matter to FHA. In many cases these complaints are the first line of defense against an individual or company that has violated FHA policies.
In cases like the ones mentioned here–where the lender does not exercise due diligence–they borrower may never know, but if it becomes clear that some part of the process isn’t in keeping with federal law or HUD requirements, the borrower has every right to report the irregularities to the FHA and get advice on what to do next.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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