HUD Subpoenas 15 Lenders Due to High Default Rates, More Probes May Follow Says OIG

The US Department of Housing and Urban Development (HUD) Inspector General Kenneth M. Donohue and Federal Housing Administration (FHA) Commissioner David H. Stevens announced an initiative focusing on mortgage companies with significant claim rates against the Federal Housing Administration mortgage insurance program.

Subpoenas were served to the corporate offices of 15 mortgage companies across the country demanding documents and data related to failed loans which resulted in claims paid out by the FHA mortgage insurance fund said a statement from HUD.

Inspector General Donohue said, “The goal of this initiative is to determine why there is such a high rate of defaults and claims with these companies and whether there is wrongdoing involved. We aren’t making any accusations at this time, we have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud. We are members of the President’s Financial Fraud Enforcement Task Force and today’s activities reflect our commitment to seeking information on red flags that may arise from data analysis.”

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This initiative was prompted, in part, by the FHA Commissioner, David Stevens, who was alarmed by the incidence of claims against the FHA insurance fund by a number of poor performing companies and reached out to the HUD OIG for assistance.

“We are taking risk management extremely seriously. In addition to the policy changes we are implementing and additional changes we plan to announce later this month,” said David Stevens, FHA Commissioner. 

The probe will be conducted by the HUD OIG’s Audit and Investigation staff jointly and will assess why these companies have high default rates.  This is a starting point for more detailed reviews if abuses are uncovered, and the HUD OIG anticipates that more probes may follow.

“The FHA market share has skyrocketed,” Inspector General Donohue further said. “Our job is oversight. We work for the American taxpayer. Each loan on this list will be thoroughly examined and we will track down the reasons why it failed. Once we determine the causes, we will look to see whether there is a need for further review or remedial action. We want to send a message to the industry that as the mortgage landscape has shifted we are watching very carefully and that we are poised to take action against bad performers."

The following companies were served OIG subpoenas today:

  • 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

A few of the lenders subpoenaed are active in the reverse mortgage business.  According to HUD data, Alethes LLC and Assurity Financial Services endorsed 69 and 31 HECMs respectively in 2009.

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  • I am shocked and appalled at the disclosure of the names of the companies being investigated. This is so contrary to what HUD has done in the past by not naming names until the investigations have been completed and actions taken. I find this “new dislosure philosophy” despicable!

    The reputation of these companies has now been tarnished and I will be shocked if some of them don't take legal action against HUD.

  • Once again the reversemaniac and I find common ground. HUD's revelation of these entities before wrong doing has been determined is despicable. If someone finds this information on the Internet, they will rarely, if ever, do the work to see if these companies were exonerated. These companies have been blacklisted. What a poor change of policy!!!

  • Why shouldn't these companies be named? The fact that they are being subpoened is a matter of public record.The facts are stated that they have “a significant claim amount”. They are “not being accused of wrongdoing”.

    These claims are being funded by the taxpayer and I believe as a taxpayer I have a right to full disclosure.

    If these were the large banks being named I wonder how many people would be up in arms?

  • I wholeheartedly agree with Mr./ms treverse: Full Disclosure . Maybe this action is the ONLY way to catch wouldbe (I give them the benefit of the doubt.) crooks. If one has nothing to hide, the sunlight is grand!

    • Yes, but will the exoneration be reported with the same amount of grand sunlight? Will the people who see the black mark on those names when they do a search also find in the same searchlist the exoneration?

  • Dear Louise, Probably not, but such is the risk one takes when actions are taken which may reflect unfavorably in time. I doubt very much if any of the named Companies are without reason for review. I would be very surprised if the Government singled anyone out without just cause. You are so concerned about a Company being tarnished unfairly why don't you follow up and report back the results to the readers of RMD. If you are correct, perhaps some of the Company Owners/Executives will relish standing in the Sunlight, smiling, and proclaiming for all to hear : “Innocent, We told you so!”

    • James,

      I remind you there is a world of difference between being declared “not guilty” and being acknowledged as “innocent.” The law never acknowledges the innocent, just the “not guilty.” There will always be the misty cloud over their names as to the extent they were “not guilty” even if they were entirely innocent.

  • The fact that these institutions have double-digit default rates should be enough to lift their lending license. If they have that high a level of defaults they either have no underwriting and quality control in place or they have been criminally negligent. The taxpayers suffer. The industry is given a black-eye because of them. Consumers lose trust. Investors lose confidence. I'm glad to see the regulators finally taking control of the situation. Some of these lenders need jail time. Some need crucifixion.

  • The fact that these institutions have double-digit default rates should be enough to lift their lending license. If they have that high a level of defaults they either have no underwriting and quality control in place or they have been criminally negligent. The taxpayers suffer. The industry is given a black-eye because of them. Consumers lose trust. Investors lose confidence. I’m glad to see the regulators finally taking control of the situation. Some of these lenders need jail time. Some need crucifixion.

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