Real Estate News

Bush Administration Announces Additional Protections For Homebuyers To Curb Predatory Lending

Martinez Demands Increased Accountability from FHA Lenders through Credit Watch

WASHINGTON - Housing and Urban Development Secretary Mel Martinez today said HUD will strengthen its oversight of Federal Housing Administration-approved mortgage lenders by allowing fewer defaults and claims on loans before levying sanctions against lenders.

The changes, which will be phased-in over nine months under the provisions of the Department's Credit Watch Termination Initiative, will impact over 21,000 home offices and branches of FHA-approved lenders nationwide.

Credit Watch was established to identify poorly performing mortgage lenders, advise marginal performers that they must improve to maintain as an approved lender, and terminate a lender's ability, at the branch level, from originating FHA-insured mortgages if it fails to improve.

"FHA-insured mortgages are a key component of the Bush Administration's housing policy, which has helped push homeownership rates to record levels, particularly for first-time, low and moderate income homebuyers," said HUD Secretary Mel Martinez during a speech to the American Legislative Exchange Council annual meeting in Orlando, FL. "We will not allow lenders with high default and claim rates on their FHA-insured loans to jeopardize a family's ability to achieve and maintain the American dream of homeownership."

Under the provisions of Credit Watch, HUD has the authority to bar lenders from issuing FHA-insured mortgages if their default and claims rates on loans made within the last 24 months in a geographical area are 200 percent of the average rate for that area, and if their rate exceeds the national default and claim rate.

Since Credit Watch was implemented in May 1999, HUD has focused its efforts on lenders with the worst default and claim rates, those whose rates exceeded 300 percent of the average rate. That will change on October 1, 2002, however, when HUD will begin focusing on lenders whose rates are 275 percent of the local average. Those lenders will be subject to removal under the new guidelines in late December 2002. On January 1, 2003, HUD will focus on lenders with rates of 250 percent; 225 percent April 1; and, finally, 200 percent on July 1, 2003.

Since launching Credit Watch, the Department has terminated lending approval for 120 branches and placed an additional 219 branches on warning status.

Other recent actions by the Bush Administration to protect homeowners from predatory lending and promote homeownership include:

• Early this month HUD announced plans to expand protection of homeowners by proposing performance standards for appraisers of FHA-single family homes under its Appraiser Watch Initiative. Under Appraiser Watch, some 25,000 appraisers will be held accountable for faulty appraisals, which too often lead to default and foreclosure. FHA will monitor appraisers' default and claim rates and will levy sanctions  - including removal from its list of approved appraisers - against those whose rates are excessive.
• A proposal, currently available for public comment for 90 days, to reform the regulatory requirements of the Real Estate Settlement Procedures Act (RESPA) that would make the process of buying and refinancing a home significantly simpler, potentially less expensive and would protect consumers from unscrupulous lending practices.
• The recently announced "Homebuyer Bill of Rights," which requires greater disclosure of costs associated with buying a home, allows consumers more choices in choosing providers of closing services, limits excessive settlement fees and encourages innovation and competition in the marketplace.
• Martinez also announced five major settlement agreements with mortgage lenders and service providers with payments of nearly $2.3 million. HUD will spend $1.5 million to investigate RESPA violations, a six-fold increase over current funding, and is more than doubling its investigative staff to further bolster its RESPA enforcement activities. HUD is also increasing its efforts to educate homebuyers in ways to avoid predatory lending practices in the first place.
• A goal to increase the number of minority homeowners by 5.5 million by the year 2010. To reach this goal the Bush Administration has proposed: the American Dream Downpayment Fund, aimed at helping 40,000 families each year with down payment cost, the most common barrier to minority homeownership; and, a tax credit for builders of single-family homes. The Administration has also proposed a $15 million increase in the fiscal year 2003 HUD budget for housing counseling, which would increase funding for consumer education on many topics, including predatory lending.
• Developing a rule to stop "flipping" - quickly reselling properties at inflated values - of FHA insured loans. The proposal would make properties that have been sold within a defined period of time ineligible for FHA insurance, effectively prohibiting resale of the property. 

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	Did You Know?
	Three theories exist regarding who has legal title to a mortgaged property Under the title theory title to the security interest rests with the mortgagee. Most states, however, follow the lien theory under which the legal title remains with the mortgagor unless there is foreclosure. Finally, the intermediate theory applies the lien theory until there is a default on the mortgage whereupon the title theory applies.