HUD ANNOUNCES SANCTIONS AGAINST MORE THAN 120 FHA-APPROVED LENDERSResulting in More Than $1.5 Million in Payments to HUD.The U.S. Department of Housing and Urban Development's Mortgagee Review Board today announced actions against more than 120 lenders for violating FHA requirements. Violations range from failure to conduct sufficient quality control, to failure to continue to meet FHA recertification requirements, to falsifying loan documents.
The entire list of Board actions is posted as a Notice in the Federal Register and may be accessed through the HUD website.
Yesterday, President Barack Obama signed the Helping Families Save Their Homes Act that grants FHA more authority to keep bad actors out of the FHA programs and provided additional enforcement tools to police those lenders who employ false or misleading marketing tactics (see attached). Meanwhile, the Administration's FY 2010 budget proposal seeks additional investments in FHA to curb fraud and abuse including enhanced investments in technology, staffing and training to enable FHA to cope with the rising volume of mortgage business, detect fraud, and monitor the practices of lenders and appraisers.
"At this time [?] of uncertainty in the mortgage market, FHA needs to be especially vigilant in making sure that its approved lenders meet the highest standards of conduct," said HUD Secretary Shaun Donovan. "We expect, and more importantly American homebuyers deserve, that when they deal with an FHA-approved lender, they're dealing with a lender they can trust. "The provisions in the Helping Families Save Their Homes Act will expand our enforcement and help keep bad actors out of our program."
Sanctions the Board may impose include issuing letters of reprimand, suspension of FHA lending approval, probation, withdrawal of FHA approval, and payment of civil money penalties. Among the actions announced today, 102 lenders had their FHA approval withdrawn, five lenders agreed to make indemnification payments to FHA totaling more than $500,000, and 24 lenders were accessed fines or administrative costs totaling more than $1.2 million.
HUD's actions resulted from standard compliance reviews of FHA-approved lenders. HUD's four Home Ownership Centers - in Atlanta, Denver, Philadelphia and Santa Ana, California - conduct a majority of the reviews. The most serious violations of FHA requirements are referred to the Mortgagee Review Board. Board actions are reported quarterly in the Federal Register.
The lenders noted below had their FHA approval withdrawn and were assessed substantial civil money penalties:
Gatewood Mortgage Corporation, Houston, TX
Gatewood Mortgage Corporation (Gatewood) is a Direct Endorsement lender. This matter came before the Board as a result of multiple violations including the submission of false information and documentation, and violations of FHA approval and underwriting requirements.
Among other things, the Board found that Gatewood submitted false information with respect to its initial approval application, Yearly Reverification Report and multiple notifications to HUD. Gatewood also used the identity of individuals without their knowledge. Further, Gatewood submitted financial statements to HUD that were falsified and not audited by a licensed certified public accountant. Gatewood also violated HUD eligibility requirements by employing and retaining a debarred individual as an employee. Gatewood improperly permitted third parties to originate FHA insured mortgage loans. Finally, Gatewood failed to provide proper documentation in connection with the source of funds required for closing. Based upon the numerous and serious violations of HUD requirements and the submission of false information to the Department, Gatewood's FHA approval was permanently withdrawn on January 16, 2009, and a Civil Money Penalty of $492,500 was imposed.
Hogar Mortgage and Financial Services, Inc., Montvale, NJ
Hogar Mortgage and Financial Services, Inc., (Hogar) is a Direct Endorsement lender. In this case, the Board determined that Hogar committed serious violations of HUD underwriting requirements. Specifically, it found that Hogar failed to resolve discrepancies and conflicting information when originating loans and/or obtaining mortgage insurance; failed to document the source and/or adequacy of funds for the downpayment, closing costs and/or cash reserves; and failed to maintain and implement a Quality Control Plan in compliance with HUD/FHA requirements. Based upon the seriousness of the violations and the lender's response, Hogar's FHA approval was withdrawn on January 27, 2009, for five years and a civil money penalty was imposed in the amount of $151,500.
HUD's Mortgagee Review Board was established in 1989 and exercises all of the functions of the Secretary with respect to administrative actions against lenders. The Board is the only entity in the Department that has the authority to impose civil money penalties and administrative sanctions against HUD/FHA-approved lenders who knowingly and materially violate HUD/FHA program statutes, regulations and handbook requirements. The Board also acts to enforce the provisions of the Fair Housing Act, the Equal Credit Opportunity Act, and Executive Order 11063, as they apply to the origination and servicing of HUD/FHA-insured single family and multifamily mortgages and loans.
The Helping Families Save Their Homes Act contains numerous provisions that help FHA better ensure that predatory lending entities and individuals are not allowed to participate in the FHA home mortgage insurance program. Specifically, the Act would:
Require HUD approval of all parties participating in the FHA single family mortgage origination process.
Allow HUD to impose a civil money penalty against loan originators who are not HUD-approved and yet participate in FHA mortgage originations.
Make clear that an applicant is ineligible for approval if the entity or any officer, partner, director, principal, or employee of the entity is: a) suspended or debarred by any Federal agency; b) under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant's integrity, competence or fitness to meet the responsibilities of an approved mortgagee; c) subject to unresolved findings contained in a HUD or other governmental audit, investigation, or review; d) engaged in business practices that do not conform to generally accepted practices of prudent mortgagees; e) convicted of a felony related to participation in the real estate or mortgage loan industry; or f) in violation of provisions of the S.A.F.E. Mortgage Licensing Act.
Require that HUD receives notice of the debarment and any change in licensing status of a FHA-approved mortgagee.
Require HUD to expand the existing FHA process of reviewing new applicants for FHA approval for the purpose of identifying those representing a high risk to the Mutual Mortgage Insurance Fund and implement procedures that expand the number of loans reviewed by FHA for lenders approved within the last 12 months, and include a process for random reviews that is based on loan volume by newly approved participants.
Require FHA-approved mortgagees to use their HUD registered company names in all advertizing and to keep copies of all advertisements. FHA has witnessed a significant increase in deceptive advertising practices over the last 18 months. This provision will provide for better oversight of the advertising practices of approved lenders by requiring that the lenders use the same corporate name as is on file with FHA.
Require HUD approval of all parties participating in the FHA single family mortgage origination process.
Allow HUD to impose a civil money penalty against loan originators who are not HUD-approved and yet participate in FHA mortgage originations.
Make clear that an applicant is ineligible for approval if the entity or any officer, partner, director, principal, or employee of the entity is: a) suspended or debarred by any Federal agency; b) under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant's integrity, competence or fitness to meet the responsibilities of an approved mortgagee; c) subject to unresolved findings contained in a HUD or other governmental audit, investigation, or review; d) engaged in business practices that do not conform to generally accepted practices of prudent mortgagees; e) convicted of a felony related to participation in the real estate or mortgage loan industry; or f) in violation of provisions of the S.A.F.E. Mortgage Licensing Act.
Require that HUD receives notice of the debarment and any change in licensing status of a FHA-approved mortgagee.
Require HUD to expand the existing FHA process of reviewing new applicants for FHA approval for the purpose of identifying those representing a high risk to the Mutual Mortgage Insurance Fund and implement procedures that expand the number of loans reviewed by FHA for lenders approved within the last 12 months, and include a process for random reviews that is based on loan volume by newly approved participants.
Require FHA-approved mortgagees to use their HUD registered company names in all advertizing and to keep copies of all advertisements. FHA has witnessed a significant increase in deceptive advertising practices over the last 18 months. This provision will provide for better oversight of the advertising practices of approved lenders by requiring that the lenders use the same corporate name as is on file with FHA.
