HUD demands more muscle

August 12, 2002

Martinez says organization will tighten its hold on monitoring process of FHA-approved lenders

Inman News Features

Housing and Urban Development Secretary Mel Martinez said that HUD will strengthen its oversight of Federal Housing Administration-approved mortgage lenders by allowing fewer defaults and claims on loans before levying sanctions against lenders.

The changes, which will be phased-in over nine months under the provisions of the Department's Credit Watch Termination Initiative, will impact over 21,000 home offices and branches of FHA-approved lenders nationwide.

Credit Watch was established to identify poorly performing mortgage lenders, advise marginal performers that they must improve to maintain as an approved lender, and terminate a lender's ability, at the branch level, from originating FHA-insured mortgages if it fails to improve.

"FHA-insured mortgages are a key component of the Bush Administration's housing policy, which has helped push homeownership rates to record levels, particularly for first-time, low and moderate income homebuyers," said HUD Secretary Mel Martinez during a speech to the American Legislative Exchange Council annual meeting in Orlando, Fla. "We will not allow lenders with high default and claim rates on their FHA-insured loans to jeopardize a family's ability to achieve and maintain the American dream of homeownership."

Under the provisions of Credit Watch, HUD has the authority to bar lenders from issuing FHA-insured mortgages if their default and claims rates on loans made within the last 24 months in a geographical area are 200 percent of the average rate for that area, and if their rate exceeds the national default and claim rate.

Since Credit Watch was implemented in May 1999, HUD has focused its efforts on lenders with the worst default and claim rates, those whose rates exceeded 300 percent of the average rate. That will change on Oct. 1 when HUD will begin focusing on lenders whose rates are 275 percent of the local average. Those lenders will be subject to removal under the new guidelines in late December.

On Jan. 1, HUD will focus on lenders with rates of 250 percent; 225 percent April 1; and 200 percent on July 1.

Since launching Credit Watch, the Department has terminated lending approval for 120 branches and placed an additional 219 branches on warning status.

Copyright: Inman News Service

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