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Watchdog: FHA incorrectly insured $1.9 billion in mortgages in 2016

A new report from a federal watchdog finds that the Federal Housing Administration incorrectly insured approximately $1.9 billion worth of mortgages in 2016. The new report, which was published recently by the Department of Housing and Urban Development Office of Inspector General, found that in 2016, the FHA insured an estimated 9,507 borrowers who were actually ineligible for FHA insurance because the borrowers had either delinquent federal debt or who were subject to federal administrative offset for delinquent child support. “Of loans closed in 2016, FHA insured more than 9,500 loans worth $1.9 billion, which were not eligible for insurance because they were made to borrowers with delinquent Federal debt or who were subject to Federal administrative offset for delinquent child support,” HUD-OIG noted in its report. “As a result, the FHA insurance fund faced a higher risk of loss, and the government in general did not realize the benefits of the Debt Collection Improvement Act.” The issue is this: The FHA’s guidance prohibits lenders from continuing to process a mortgage application for an FHA-insured mortgage for borrowers with delinquent federal non-tax debt, held by agencies like the Department of Education, the Department of Justice, the Small Business Administration, or the Army and Air Force Exchange Service. Additionally, federal regulation allows an offset of federal payments to satisfy delinquent non-tax debt owed to the government and to collect past-due child support obligations. Now, it should be noted that the number of ineligible mortgages was a small percentage of the total number of loans the FHA insured in 2016. Rather, the watchdog reviewed a small sample and extrapolated the results of that exam out over the entire population. We used these results to project the total number and value of ineligible loans insured by FHA. “We recommend that FHA put $1.9 billion to better use by developing a method for using the Do Not Pay portal to identify delinquent child support and delinquent Federal debt to prevent future FHA loans to ineligible borrowers,” HUD-OIG noted. “We also recommend that FHA revise the single-family handbook to comply with the regulation that prevents loans to borrowers with delinquent child support subject to Federal offset and schedule the timely renewal of data-sharing agreements to prevent data loss in the Credit Alert Interactive Voice Response System or discontinue use of CAIVRS if the information duplicates the information available in the Do Not Pay portal,” HUD-OIG added.