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Bad Loans Dumped Into FHA

National City, Huntington cited in HUD audit

May 3, 2006

By PATRICK CROWLEY


photo of Patrick Crowley
Two of Ohio's largest lenders have been accused by the federal government of improperly steering nearly $300 million in delinquent mortgages into a government-backed insurance program.

Audits performed by the Department of Housing and Urban Development indicate National City Mortgage of Cleveland -- one of the nation's largest FHA lenders -- and Columbus-based Huntington National Bank allegedly dumped the mortgages on the government when borrowers fell behind on payments.

According to copies of the HUD audits, National City is accused of improperly submitting 2,071 loans totaling $263 million in late mortgages for payment; Huntington allegedly submitted 20 loans that totaled $2.2 million.

The problem loans totaled about 3 percent of the loans examined, the government said.

The companies, which have denied any improper or illegal acts, could pay fines and reimbursements to the government, according to the audits.

Huntington spokeswoman Jeri Grier-Ball called the audit's findings "premature."

"We don't think there are any issues here," she told MortgageDaily.com.

The HUD inspector general has recommended that the companies assume liability for the mortgages in case they go into default. National City would have to take back 529 loans totaling $63.5 million; Huntington would have to take 14 loans worth $1.4 million.

Asked if she believes Huntington will be fined Grier-Ball said she did not know but that the company "has not heard back" from the government about the potential of any fines or reimbursements.

National City spokeswoman Kelly Wagner Amen told MortgageDaily.com that the lender "never knowingly violated the requirements or endangered the reputation of our company or employees."

The audits include several recommendations for the companies to take action to prevent further problems. In written responses to the government, the companies pledged to improve employee training and take other preventive steps.

"We are taking significant steps to ensure our employees are properly trained and closely monitoring our operations," National City's Amen said.

The government said both companies were flagged for audits because of high rates of submitting late loans to the insurance program.

Both companies said an incredibly high volume of loans may have lead to some of the alleged problems.

In its written response to the government, Huntington said "while certain inaccuracies occurred in a handful of FHA loans ... any oversights were the product of human error and occurred as a result of high refinance volume and inexperienced staff."

Amen said the loans being questioned represent less than one-half of one percent of National City's loan submissions and less than 1 percent of the late submissions contain incorrect certifications.

Like many lenders, National City was handling a record volume of loans during the time period covered by the audit, she said.


Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]


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