Report: FHA Granted Loans to Ineligible Borrowers

DAILY REAL ESTATE NEWS | MONDAY, APRIL 02, 2018

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The Federal Housing Administration insured about $1.9 billion worth of mortgages in 2016 that it never should have, according to a new report from a federal watchdog. The Department of Housing and Urban Development’s Office of the Inspector General found that in 2016, the FHA insured about 9,507 borrowers who were barred from receiving FHA loans under federal requirements, either because they had delinquent federal debt or were subject to federal action because of delinquent child support payments. 

“This condition occurred because the sources used by lenders to identify ineligible borrowers lacked sufficient current information, and FHA did not adequately guide lenders on reviewing child support,” the report notes. “As a result, the FHA insurance fund faced a higher risk of loss.” FHA guidance requires lenders to verify the delinquency status of borrowers’ debt and the validity of any delinquencies.

HUD’s watchdog group is recommending an overhaul to FHA procedure, including developing a better method for identifying debt delinquencies in order to prevent insuring FHA loans to ineligible borrowers in the future. In response, the FHA said in a letter that it agrees with the recommendations and intends to work with the Department of the Treasury to implement such actions. In 2016, the FHA insured more than 1 million loans totaling $212 billion. 

Source: “Watchdog: FHA Incorrectly Insured $1.9 Billion in Mortgages in 2016,” HousingWire (March 30, 2018) and Office of Inspector General/U.S. Department of Housing and Urban Development

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