Dr. Ben Carson, director of the U.S. Department of Housing and Urban Development (HUD), on Monday told attendees at the Mortgage Bankers Association’s (MBA) Annual Convention and Expo in Denver that HUD will be reviewing and addressing concerns raised by mortgage lenders regarding the high level of regulatory risk they face from “immaterial” underwriting errors in Federal Housing Administration (FHA)-backed loans.
“We have heard concerns on the part of some in the lender community about participating fully in our programs because of the undue risks they perceive from a lack of clarity in what we expect and exposure to outsized liability from immaterial errors,” Carson said in prepared remarks delivered during the event’s general opening session. “Lenders have rightly pointed out that absolute perfection in the lending process cannot be achieved and that borrowers bear the costs of compliance through higher mortgage rates. Other sectors of the market have made real progress in addressing these issues, creating more confidence to lend.”
Citing that “without lenders willing to offer FHA-insured loans or serve as Ginnie Mae issuers, the path to affordable credit access is undermined,” Carson said HUD will, in conjunction with the U.S. Department of Justice, conduct a review of lender certifications and the loan defect taxonomy.
“This review will benefit greatly from the extensive feedback received from lenders, and other stakeholders, in our request for input on regulatory reform conducted in response to the president’s executive orders on burdensome regulations,” he told the crowd of mortgage bankers and independent mortgage lenders. “Your feedback and recommendations will be invaluable.”
Although the FHA may eliminate penalties for certain unintentional underwriting errors, Carson emphasized that the agency would not be relaxing its enforcement efforts with regard to abusive practices.
“There should be no lack of clarity about one key point: there will continue to be no room at FHA or Ginnie Mae for bad actors,” he said. “We are not open for business to fraudsters, those without proper controls or those who do not take their obligations in our market seriously. They will be found out and held accountable. We must do this to protect taxpayers and the fiscal integrity of FHA and Ginnie Mae.”
He added that Ginnie Mae, in partnership with the Veteran’s Administration, recently created a task force to ensure that veterans are not exposed to abusive lending practices, such as churning.
The FHA and the DOJ have brought numerous lawsuits against lenders since the financial crisis, resulting in billions of dollars in fines and lost profits. As a result, some of the largest mortgage lenders, including JPMorgan Chase & Co. and Bank of America Corp., have curtailed their participation in the FHA program.
Earlier this month, Carson told members of the House Financial Services Committee that HUD was working with the DOJ to address the “ridiculous” rise in enforcement activity in connection with FHA lending.
“We are already addressing that problem – our staff, along with the DOJ staff,” he said. “And we’re committed to getting that resolved because it’s ridiculous, quite frankly.”
Carson said the DOJ’s use of the False Claims Act to go after FHA lenders increased significantly during the Obama administration.
“And I’m not exactly sure why there had been such an escalation previously, but the long-term effects of that escalation is obviously providing fewer appropriate choices for consumers,” he said. “And that’s exactly the opposite of what we should be doing.”