Friday, Dec. 05, 2008

Some FHA loans suspect

Feds checking into lender wrongdoing

Home buyers are snapping up bargain-priced homes throughout the Northern San Joaquin Valley, and many of them are using FHA-insured mortgages to pay for them.

But it's suspected that some of those Federal Housing Administration-backed loans are brokered illegally, and government inspectors are investigating reports of wrongdoing.

There are increasing allegations nationwide of unauthorized mortgage brokers and lenders getting involved with FHA loans, including some in Stanislaus County, according to Larry Bush, spokesman for the U.S. Department of Housing and Urban Development. FHA is part of HUD.

Such loans can cost homeowners money because unauthorized brokers or lenders likely are collecting extra fees that borrowers shouldn't have to pay, Bush warned.

"They can't get a legitimate cut (of the loan processing fees). So they're getting money off the table," Bush said. "Borrowers who use them probably are paying more than they should have to pay."

About 50 Stanislaus County mortgage and lending companies are authorized to broker FHA-guaranteed loans. Bush said no one else can get involved, "not even to fill out the form."

Those who do may be violating Real Estate Settlement Procedures Act regulations and committing fraud, according to Bush.

Bush urged the public to report anyone who could be breaking FHA rules by e-mailing him at Larry_Bush@hud.gov. He said all reports will be forwarded to HUD's Office of the Inspector General, which can pursue legal remedies.

"We are taking action," assured Nancy West, FHA's marketing and outreach specialist. "We do everything we can to try to protect consumers."

West said FHA won't work with just any mortgage broker or lender, and it requires a lengthy approval process before certifying those who can arrange FHA-guaranteed loans.

"We require they provide us a quality assurance plan," West said. They also must operate out of a commercial office, "not just the trunk of their car."

Companies, for example, must prove that they are financially solvent and have a minimum net worth of $250,000. They also must abide by various consumer protection requirements, such as posting fair housing regulations and avoiding misleading advertising.

A $1,000 application fee also must be paid.

Those that pass scrutiny are placed on the FHA- approved lenders list, which is posted at www.FHA.gov and in Spanish at www.Espanol.HUD.gov. People can call FHA at 800-225-5342.

If a home buyer isn't sure whether a mortgage broker or lender is authorized, "they can ask to see their lender's approval letter from the FHA," West said.

FHA-backed mortgages became popular this year -- especially for first-time buyers -- because loan limits were increased dramatically.

In Stanislaus County, loans of as much as $423,750 were guaranteed by FHA in 2008.

In 2009, however, that loan limit is scheduled to decline to $276,000. That still would be high enough to finance most Stanislaus homes, however, because the median sales price now is about $161,500.

Unlike conventional mortgages, qualifying for FHA-backed loans typically is easier for home buyers. That's because only 3 percent down payments are required and borrowers don't need to have perfect credit histories.

These loans also have competitive interest rates because the federal government insures their repayment.