A bad day for one FHA Lender

You know you are having a bad day when the justice department wants you banned from FHA lending and all government mortgage products for that matter. Lend America clearly has some slick marketing but questions have been raises about some of the loans funded. Apparently, they've been under investigation for about a year and this isn't the first time Lend America's executive has been under fire, previously he was convicted for mail fraud and paid a substantial and once again for false advertising...Makes me wonder, how do these people stay in business. Lend American was ranked 22nd in FHA volume recently and has funded over 11,000 loans in the last year. Staggering numbers and now we have to wait and see how many of those loans should never have been funded.

It's not FHA's DeFault

Apparently, the FHA is doing a poor job of screening lenders that enter the program, an internal audit has found and recently announced.

Last month, the Department of Housing and Urban Development's inspector general completed an audit. It concluded that the Federal Housing Administration had deficiencies in its controls to make sure lenders meet the agency's tough standards.

About 20-30 percent of new loans today are backed by the FHA depending on what window in time you look at, up from as low as 2 percent during the subprime loan boom. The FHA does not make loans directly, but insures loans from outside lenders which are generated by Bank, Mortgage Bankers, Brokers and Credit Unions in some cases

"The agency approved nearly 3,300 lender applications in fiscal 2008, more than triple the year before. But the number of workers evaluating applications remained the same. In a review of 22 approved applications, the audit found that only one contained all the necessary documents."

As ddelinquency has continued to increase, the agency's ability to manage its participating lenders is a big concern because there are growing fears that the agency will need a taxpayer bailout. Last month the FHA said its financial reserves had sunk below mandatory levels for the first time in its 75-year history. Additional defaults could hinder the ability to cover losses without an influx of government cheese may be needed.

In its official response to the report, HUD official Joy Hadley wrote that the agency "remains committed to ensuring that only responsible, financially sound lenders with integrity become approved as FHA program participants," It important to note FHA provides almost half of all mortgage made to black and hispanic borrowers.

Last month the FHA said it will raise the financial requirements for lenders and request annual audits, and officials have been cracking down on lenders suspected of fraud. These adjustments however, are relatively insignificant. The real need to enforce the same rules for all originators of these loans.