The increase in the number and severity of enforcement actions taken by HUD associated with FHA single-family loans appears to be the result of instability in the markets following the economic downturn and the increase in the FHA's market share.
In an article on Mortgage News Daily, Brian Montgomery, former FHA Commissioner and current Vice Chairman of The Collingwood Group addressed the appearance of increased HUD enforcement actions.
Montgomery points out that HUD has a number of enforcement tools and multiple offices that monitor lending practices and handle enforcement. Included in these offices are:
• HUD's Office of Inspector General for Audit (OIGA)
• The FHA Quality Assurance Division (QAD)
• Each of FHA's four Homeownership Centers (HOCs).
• Other offices support this effort including the Departmental Enforcement Center (DEC) and HUD General Counsel.
According to him, most of the compliance reviews come from the QAD and are settled by the lender/servicer directly with the QAD. The remaining get referred to the Mortgage Review Board, which can lead to actions including: reprimands, suspension, civil money penalties, and withdrawal of FHA approval. Actions can not only be taken against companies, but can also be issued against individual participants.
The primary reason Montgomery sees for the increase in enforcement actions is related to the increase in the FHA's market share. Is has gone up from 2% a few years ago, to now over 30% in the previous years. This has also led to an increase in the number of lenders approved to participate in FHA loans.
He also suggests that HUD's OIG for Audi has made visible increases in their actions, most notably from published report entitled, "Operation Watchdog," which detailed their review of 15 FHA direct endorsement lenders. The economic meltdown, specifically in the housing market has push the government to demonstrate increased diligence in oversight, which Montgomery indicates has led to more publicity surrounding oversight and enforcement actions to soothe public outcry.
However, Montgomery does not believe that anything has changed in terms of HUD's philosophy on compliance. Perceived increases in enforcement could likely be attributed to the increase onus placed on approved lenders to monitor and control their own compliance and those of entities they sponsor. He suggests that in a time of a tightened market, some lenders may have stretched their own quality control for the sake of maintaining production.
Even in light of heightened oversight by HUD, Montgomery believes that the fundamental programs offered by FHA remain sound and he encourages lenders to continue offering them, provided that they have sufficient monitoring over their lending policies and activities.