The world’s largest mortgage insurer can only check for mortgage defects on a “small” number of mortgages due to technological shortcomings and that’s leading to a potential rise in appraisal-related issues.
The Federal Housing Administration has already identified issues in appraisals on reverse mortgages and is taking steps to address those issues, but FHA Commissioner Brian Montgomery told the crowd at the Mortgage Bankers Association 2018 Annual Conference in Washington, D.C., on Monday that the FHA is seeing some things in forward appraisals that give him “pause.”
The FHA is the “largest mortgage insurer in the world,” Montgomery said, but the agency can’t review all of the mortgages it insures because some of its “key” systems are more than 25 years old.
In recent months, the FHA has been looking at “appraisal bias” in its HECM portfolio, recently stating that a review found appraisal issues in 37% of reverse mortgages.
But, according to Montgomery, it’s not just the reverse mortgage portfolio that is being affected by appraisal bias.
“We are seeing things in the forward book that give us pause,” Montgomery said of FHA forward appraisals. Montgomery also said that FHA is “close” to some policy decisions that could affect appraisals and other parts of FHA lending, but did not provide a specific timeline on when those decisions would be announced or what they would be.
Montgomery also discussed the FHA’s role in the administration’s pullback from False Claims Act enforcement, which saw a prodigious rise in the Obama administration.
In recent years, many of the nation’s largest banks moved away from FHA lending, with the Department of Justice accusing a number of lenders of violating the False Claims Act by knowingly originating and underwriting mortgages that did not meet FHA standards.
Under the Obama administration, lenders of various sizes, including some of the nation’s largest, agreed to pay out billions of dollars in settlements under the guise of the False Claims Act.
Those efforts changed the complexion of FHA lending, with depositories like JPMorgan Chase moving away and nonbanks like Quicken Loans filling the gaps.
But the Trump administration has signaled a different way of doing things.
Montgomery said Monday that the FHA has been directed by the Department of Housing and Urban Development Secretary Ben Carson to work with DOJ on the False Claims Act, and the FHA is doing that.
Montgomery said that the FHA is talking with the DOJ, adding that he believes FHA needs to an “active participant” in the enforcement process, cautioning that “there will be no room for bad actors” in FHA lending.