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.”

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.