A senior analyst for FBR Capital Markets is suggesting that FHA claims could be the next "shoe to drop" on banks and mortgage markets, if the FHA denies claims or issues fines related to insurance claims related to bad mortgages.
Speaking primarily about forward FHA-insured mortgages, Paul Miller suggested that fines tied to claims could amount to #13.5 billion in losses for denied servicer claims and $11.5 billion in losses for lenders if their claims are not accepted.
A move to deny claims or issue fines on would be fairly unprecedented as the FHA payment of claims on endorsed mortgages is considered virtually automatic. However, with the current environment surrounding inadequate or improper processes, along with the current state of FHA's financial position, Miller indicated that the agency may be motivate to take a closer look at claims before settling them.
Miller noted that since there is not widespread evidence of claims being denied at this time, the concern is more of a headline risk for the larger banks and servicers, rather than an immediate capital concern.
However, the specter of another potential cloud hanging over the mortgage finance industry, especially relating to the security of government insured loans can lead to yet another weight holding back momentum on the housing finance markets.