On January 20, the Federal Housing Administration (FHA) announced that its plan to shore up the agency's capital reserves included stepped up enforcement of its rules and increased supervision of its lenders. Yesterday it released details of the first crackdown. Four mortgage lenders were notified that they were immediately and permanently removed from obtaining FHA approval for loans. Three others were also penalized.   

The four mortgage lenders who were permanently stripped of their FHA approval by its Mortgage Review Board (MRB) are Strategic Mortgage Corporation (Strategic), ProMortgage Inc., Americare Investment Group, doing business as Premier Capital Lending, and  Premium Capital Funding, LLC,  doing business as TopDot Mortgage. A fifth firm, The Home Mortgage Inc. (HMI) was suspended until a related court issue is settled.

In announcing the actions, FHA Commissioner David Stevens said, "FHA takes its oversight role very seriously and will move swiftly and decisively to protect borrowers from unscrupulous lenders.  Any lender who refuses to comply with FHA requirements will simply no longer enjoy the privilege of participating in FHA programs."

The MBR charged that Strategic had failed to comply with employment requirements, charged borrowers impermissible or excessive fees and failed to disclose all fees in Good Faith Estimates. The company allegedly also submitted a false certification to HUD in connection with an FHA mortgage.  In addition to the permanent suspension, MRB is seeking civil penalties in the amount of $71,000.

The MBR leveled charges of seven infractions against ProMortgage including that it failed to adopt and maintain a Quality Control Plan and to perform Quality Control reviews of loans that defaulted within six months of inception.  MBA also said the company made false certifications on the HUD VA Addendum to the Uniform Residential Loan Application, and allowed borrowers to provide verification of employment to the lender rather than requiring that the form come directly from the employer. The Board is seeking monetary penalties in the amount of $124,000.

MBR said that Americare breached the terms of a settlement reached last October under which it had agreed to make monthly payments toward paying $124,000 in penalties.  Americare had also been placed on probation for six months as part of that agreement. MBA said that Americare had failed to make any payments since that time.

The MRB stripped TopDot of their FHA approval after "numerous and egregious violations" of FHA requirements, including failure to document borrowers’ income, evaluate borrowers’ creditworthiness, and approving loans with grossly excessive debt-to-income ratios without compensating factors to justify approval.

“This lender demonstrated a pattern of utter disregard for how we do business and its behavior not only put the FHA insurance fund at risk, but placed their own customers at greater risk of foreclosure,” said FHA Commissioner David Stevens.“FHA approval is a privilege that we entrust to the most responsible lenders. If any lender violates that trust, the MRB will take action to protect borrowers, the FHA insurance fund and FHA programs.

Two other lenders, Action Mortgage Corporation of Cranston, Rhode Island and Cooper and Shein, LLC doing business as Great Oak Lending Partners of Timonium, Maryland were also sanctioned.  Both firms were placed on probation for six months and fined; Action in the amount of $7,000 and Great Oak $11,000.  Both firms were penalized for what the MRB called their misleading advertising practices. 

The temporary HMI suspension will apply for a minimum of six months or until a federal court rules in federal bank fraud case involving its CEO. The officer, who is also a part owner of the company, has pled guilty for his role in a scheme to obtain money for 450 fictitious residential mortgage loans. HMI failed to notify HUD of the bank fraud indictment as required and has also failed to comply with FHA's annual recertification requirements.

The six lenders have 30 days to appeal the MRB ruling by filing a written request for a hearing before an Administrative Law Judge, but filing such an appeal will not delay the suspensions and probations or FHA's pursuit of the monetary penalties.

Americare was the only one of the six companies sanctioned on Monday which was also included in the list of 15 lenders subpoenaed by FHA on January 12. At that time FHA announced it was seeking data and documents as part of an investigation of what it termed a high rate of defaults on insured loans and a significant number of claims filed against the FHA mortgage fund as a result of those defaults.