The U.S. Department of Housing and Urban Development’s inspector general’s office served subpoenas to the corporate offices of Connecticut-based Webster Bank and 14 other mortgage companies across the country demanding documents and data related to failed loans which resulted in claims paid out by the Federal Housing Administration mortgage insurance fund.
Webster Bank recently began its expansion into the Boston area, opening a new branch downtown last month.
The subpoenas are part of an initiative focusing on mortgage companies with significant claim rates against the FHA mortgage insurance program that was announced Tuesday by HUD Inspector General Kenneth M. Donohue and Federal Housing Administration Commissioner David H. Stevens.
"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," Donohue said. "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."
The 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 inspector general’s office 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, we need to hold FHA lenders accountable for the high rates of defaults and claims against FHA," said Stevens. "The inspector general’s initiative will help us determine whether there is fraud and better manage risk in the long run."
The HUD inspector general’s office identified 15 companies from an analysis of loan data focusing on companies with a significant number of claims, a certain loan underwriting volume, a high ratio of defaults and claims compared to the national average, and claims that occurred earlier in the life of the mortgage.
These are key indicators of problems at the origination or underwriting stage, according to HUD.
Some actions available to HUD’s inspector general are audits, investigations, and inspections and evaluations.
The probe will be conducted by the HUD Office of Inspector General (OIG) Audit and Investigation staff jointly. They will assess why these companies have high default rates.
This probe is a new type of approach in which HUD OIG is focused on corporate offices rather than individual branch offices. 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," Donohue 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."
In addition to Webster Bank, 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
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
