FHA Issues Sanctions Against 120 Lenders

June 23, 2009

If you're considering an FHA home loan, it's a good idea to check out the FHA's list of 120 financial institutions recently sanctioned for violating FHA rules. While the majority of FHA-approved lenders are reputable companies, the recent sanctions reveal some bad apples trying to take advantage of both the consumer and the FHA. The FHA issued sanctions for a variety of problems--everything from bad quality control to falsifying documents used to issue FHA home loans.

FHA mortgages are designed with specific rules to allow both the banks and borrowers alike to reap benefits from FHA-insured loans. When those rules are broken or ignored, sometimes it takes the FHA time to catch up with the violators. That's because the FHA has standard periods of review for its lenders--if the financial institution passed their review for one year, but began violating FHA standards, evidence could surface only through complaints or by catching an unscrupulous lender red-handed. Otherwise, violations may go undetected until the next review.

When that review does happen, FHA officials don't waste any time punishing those who flaunt the rules. The recent sanctions issued against those 120 lenders include a wide range of punishments--from fines in some cases, to revoking FHA approval where appropriate. That's what happened in the case of the Houston, Texas-based Gatewood Mortgage Corporation; among other violations FHA reviewers found falsified documents and violation of FHA approval guidelines. There were plenty of other violations (detailed in a Department of Housing and Urban Development press release), the end result being that Gatewood Mortgage Corporation lost its FHA approved lender status.

The FHA official website stresses that in all of the 120 cases, sanctions were issued as the result of routine reviews. In spite of some news sources description of these cases as a "crackdown", in every case the 120 lenders who received sanctions were punished because of the scheduled review process rather than a special task force operation.

What's the good news in all this? Besides the fact that FHA loans are safer as a result of these sanctions, a bill called the Helping Families Save Their Homes Act further protects those interested in FHA home loans by:

• Requiring HUD approval for all parties participating in FHA single family mortgages.
• Giving HUD the authority to issue civil penalties against loan originators who are not HUD-approved but still try to issue or participate in FHA mortgages.
• Require FHA-approved lenders to use company names registered with HUD for advertising to prevent deceptive or misleading advertising campaigns.
• More aggressive requirements for reporting the status of licensed status for loan officers. Suspended, disbarred or indicted loan officers are not permitted to participate in the FHA loan process.