WASHINGTON — Concerned that "bad actors" may be originating or brokering loans for the Federal Housing Administration, the agency is sending "SWAT teams" unannounced to check up on problem lenders, Housing and Urban Development Secretary Shaun Donovan said last week.
Moreover, HUD's inspector general, Kenneth M. Donohue, said it has "seen lenders acquiring FHA approval despite past abuses."
In testimony Thursday before the Senate subcommittee on transportation, housing and urban development, and related agencies, Donohue said the "integrity and reliability" of recently approved FHA lenders "is, in our view, unproven."
Donovan, the HUD secretary, told the Senate panel that the number of FHA-approved brokers stands at 36,000, compared to 16,000 in mid-2007.
The number of FHA-approved lenders has grown 525% since 2006, to 3,300.
He was not being hyperbolic in using the term "SWAT team." In a letter sent to lenders the same day, Brian Montgomery, the assistant secretary for housing and federal housing commissioner, wrote that FHA had recently "reactivated its Special Work Assessment Teams … to conduct single-focus, on-site reviews of lenders whose originations are exhibiting signs of distress."
"Lenders that materially violate" the FHA's rules can be referred to a review board for sanctions, including revocation of their FHA licenses, Montgomery warned.
Senators on the subcommittee expressed concern that FHA delinquency rates are rising rapidly and problem lenders that used to fund subprime mortgages are now originating FHA products.
Donovan acknowledged that early payment defaults on FHA loans "have increased substantially" but said the growth in problem loans is slower than the overall growth in FHA fundings. He blamed rising early payment defaults on the economy and job losses.
FHA has begun to hire people to deal with lender approvals and company monitoring, he said.
The secretary indicated that HUD's 2010 budget proposal will include money for more hirings. The White House is expected to present the budget to Congress in late April or early May.
Donohue, the inspector general, noted that applicants to issue securities for the Government National Mortgage Association are subject to criminal penalties if found to have made false statements.
"There is no such assertion for lender applicants for FHA," he said.