Feds target more lenders in FHA mortgage probe

More lenders United States attorneys are increasing their scrutiny of Federal Housing Administration lenders, having recouped $1 billion in losses for the agency from Bank of America, Deutsche Bank, Citigroup, and Flagstar, and issued subpoenas for information from others.

The probes, reported by The Wall Street Journal, indicate that Washington does not want taxpayers to cover FHA losses and could prompt lenders to use more caution when making FHA-insured loans.
Representatives for HUD and the inspector general’s office declined to comment.

Representatives for the banks declined to comment.

MetLife, which disclosed the receipt of two subpoenas in a federal filing last month, earlier this year said that it would exit the mortgage business.

The scrutiny also raises the possibility that lenders will become more cautious when underwriting government-backed loans.

“Lenders are practicing the mortgage equivalent of defensive medicine,” said Brian Chappelle, a former FHA official who runs Potomac Partners, told The Wall Street Journal. “Instead of requiring more tests, lenders are excluding more borrowers to protect themselves from liability that they feel they could not otherwise protect themselves from.”