WASHINGTON — Ten Federal Housing Administration lenders could be facing hefty penalties from the government following an investigation into their underwriting practices, according to the Department of Housing and Urban Development's inspector general.

HUD IG David Montoya told lawmakers Tuesday that his agency and the Department of Justice have largely completed an investigation into the underwriting practices of some FHA lenders.

Montoya testified before the House Financial Services Committee to discuss waste, fraud and abuse at the agency. As part of his written testimony, the IG updated lawmakers on an investigation begun in early 2012 that focused on the underwriting practices of the 10 biggest FHA-approved lenders, coordinated by DOJ, HUD's office of general counsel and the IG's office.

"To date, the underwriting of thousands of FHA insured loans has been reviewed, as has the overall FHA loan origination and underwriting practices of the selected lenders," said Montoya in the written testimony. He disclosed that results have been shared with "nearly" all of the lenders and that settlement talks are underway, even as reviews continue.

"Given the sheer volume of loans involved and the high error rates identified in the underwriting, settlements and favorable court actions may result in significant recoveries by the government from each of the 10 lenders," he said.

The IG added in the testimony that the same inter-agency team has initiated a second underwriting investigation for a "similar-sized group" of big lenders.

"These reviews are in the early stages, with even more U.S. Attorneys' Offices joining in the effort than in the first large lender initiative," he said.

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