Saturday, October 17, 2009

HUD Inspector General's Report on FHA Lender Approval Process

by Calculated Risk on 10/17/2009 06:35:00 PM

Just a follow-up to the previous post - here is the HUD Inspector General's report on the FHA single-family lender approval process (ht MrM)

FHA Lender Approvals Click on graph for larger image in new window.

This graph from the Inspector General's report shows the number of approved FHA lenders by year. In 2008 there were 3,297 lender applications approved by the FHA, more than triple the number in 2007.

And 2009 is on pace for a similar number of approvals as 2008 (another 3,000+ lenders).

From the report:

Congressional concerns brought about in part by media coverage has raised concerns that former subprime lenders and brokers are obtaining approval to participate in the FHA program and that they will be responsible for FHA insurance of loans to people unlikely to make their payments.

Our audit objective was to determine whether the application process for Title II provided effective controls to ensure approval of only those lenders that complied with FHA requirements ...
And from the results:
Finding 1: FHA's Lender Approval Process Did Not Ensure That Only Eligible Applicants Were Approved

FHA's lender application process was not adequate to ensure that all of its lender approval requirements were met. This condition occurred because FHA control procedures had been enhanced and automated to handle the recent large increase in the number of lenders applying for the FHA program.