Thursday, March 3, 2011

OIG: Yep, FHA trusted lenders too much.

Barn door open, check. Horse stolen, check. Locking the door? Well, doing an audit anyhow. (I guess it's the credit crunch that locked the door.)

To wit:

The HUD Office of Inspector General, in what it's now pleased to call "Operation Watchdog," rechecked samples of loans made in 2005-2009 by 15 problematic direct endorsement lenders, picked for their high rates of defaults and of claims against the FHA insurance system. "Direct endorsement" means HUD entirely trusted these lenders to pick which of their own loans should receive FHA insurance. And, guess what, almost half of the sampled loans had underwriting defects. Defects that HUD did not bother to look for at approval time. For example, in a sample size of 284 spot-checked loans,
"Lenders did not properly calculate or verify borrowers’ income, determine income stability, or verify employment history for 57 loans. HUD does not allow income to be used in calculating a borrower’s income ratios if it cannot be verified, is not stable, or will not continue. Lenders are required to analyze whether income is reasonably expected to continue through at least the first 3 years of the mortgage loan."
Anybody surprised? Anybody?

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