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.
“This condition occurred because the sources used by lenders to identify ineligible borrowers lacked sufficient current information and FHA did not adequately guide lenders on reviewing child support,” the report continued. “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.
At that point, lenders need to verify the validity and delinquency status of the debt by contacting the creditor agency to which the debt is owed. If the creditor agency confirms that the debt is valid and in delinquent status as defined by the federal Debt Collection Improvement Act, the borrower is ineligible for an FHA-insured mortgage until the borrower resolves the debt with the creditor agency.
The Debt Collection Improvement…