HUD Investigating Lenders with High Default Rates. Subpoenas Served at 15 Shops

by devteam January 13th, 2010 | Share

Subpoenasrnwere served on the corporate offices of 15 mortgages companies Tuesday as partrnof an investigation of the backgrounds of claims filed against the FederalrnHousing Administration (FHA) mortgage insurance program.

Thernsubpoenas demanded data and documents related to what the Office of the Inspectorrnof General (OIG) and the U.S. Department of Housing and Urban Development (HUD)rntermed a high rate of defaults on insured loans and significant numbers ofrnclaims filed against the FHA mortgage fund as a result of those defaults.

Inrnannouncing the probe with FHA Commissioner David H. Stevens, Inspector GeneralrnKenneth Donohue said “The goal of this initiative is to determine why there is such a highrnrate of defaults and claims with these companies and whether there isrnwrongdoing involved. We aren't making any accusations at this time, we have nornevidence of wrongdoing, but we will aggressively pursue indicators of fraud. Wernare members of the President's Financial Fraud Enforcement Task Force andrntoday's activities reflect our commitment to seeking information on red flagsrnthat may arise from data analysis.”

The companies were among a number of direct endorsement companies HUDrnand OIG are scrutinizing because of a significant number of claims, a certainrnlevel of underwriting volume and a higher rate of defaults and claims than thernnatural average. That a high number of defaults occurred early in the life ofrnthe mortgage was described as a key indicator of problems in underwriting andrnorigination. HUD and OIG, Donohue said, want to see why these loans failed.  

In the past, HUD and OIG have pursued suspected problems at the localrnbranch offices of mortgage companies. Directing this probe at the corporate levelrnis a new approach for the offices.

The probe initiated by the subpoenas will be conducted jointly by OIGs andrnHUD Audit and Investigation staffs which will attempt to determine the reasonsrnbehind the default rates. IG Donahue said that this is especially importantrnbecause FHA is currently being called on to write such significant numbers ofrnthe nation's mortgages.

If any of the companies are found to be culpable, HUD can proceed withrnadministrative sanctions including suspensions, limited denial ofrnparticipation, debarment, and civil monetary penalties. In addition, it canrncall on the Department of Justice and state and local law enforcement to pursuerncivil and criminal penalties.

The 15 companies issued subpoenas are:

First Tennessee Bank N.A., Memphis, TN
Alethes LLC, Lakeway, TX
Security Atlantic Mortgage Co., Edison, NJ
Pine State Mortgage Corporation, Atlanta, GA
Birmingham Bancorp Mortgage Corporation, West Bloomfield, MI
Alacrity Financial Services, LLC, Southlake, TX
Assurity Financial Services, LLC, Englewood, CO
D and R Mortgage Corporation, Farmington, MI
Webster Bank, Cheshire, CT
Mac-Clair Mortgage Corporation, Flint, MI
Americare Investment Group, Inc., Arlington, TX
1st Advantage Mortgage, Lombard, IL
American Sterling Bank, Independence, MO
Sterling National Mortgage Company Inc., Great Neck, NY
Dell Franklin Financial LLC, Columbia, MD

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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