Industry NewsMortgage

Lax underwriting alleged on FHA loans

Reviews target 15 lenders responsible for $794M in claims

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Federal housing officials have completed reviews of 13 of 15 FHA direct-endorsement lenders subpoenaed in January because of high claim rates on their loans, finding proper underwriting procedures were not followed on nearly half of the loans reviewed.Lenders targeted by "Operation Watchdog" endorsed 183,278 loans valued at $31.3 billion from January 2005 to December 2009, submitting $794.3 million in Federal Housing Administration insurance claims on 6,560 loans from November 2007 through December 2009.The goal of the reviews is to determine whether those lenders underwrote loans in accordance with standards issued by the Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA), which insured the loans. If not, the question is whether the underwriting practices reflect systemic problems.Among the 244 loans reviewed to date, auditors from HUD's Office of the Inspector General have concluded lenders failed to follow proper underwriting procedu...