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8 Lose FHA Approval

Credit Watch terminations reported

May 13, 2008 (updated Nov. 13, 2008)

By MortgageDaily.com staff

Several lenders lost their approval to originate loans insured by the Federal Housing Administration -- including a branch of a rapidly growing Colorado-based company that has thrived on FHA-related activity. The terminations were prompted by excessive defaults.

Eight mortgagees have had their origination approval agreements terminated by the U.S. Department of Housing and Urban Development under the Credit Watch Termination Initiative, according the Federal Register, Volume 73, No. 93, published today.

HUD said it terminates the agreements when loans originated by the mortgagees have default and claim rates higher than the national rate, and they exceed the local area's default and claim rate by 200 percent. Any FHA loans closed or approved prior to the termination rate can still be submitted for endorsement. Loans in process must be transferred to for completion by another approved mortgagee or branch.

Among the latest mortgagees to lose their FHA approval was a branch of Assurity Financial Services LLC, according to the notice. (read subsequent letter from Assurity Compliance Officer Robert Johnson) The terminated branch is listed as being located in Englewood, Colo, where Assurity is based -- though HUD has been known to list the headquarters address instead of the affected branch.

This marks the second time Assurity has had a branch terminated. In 2006, HUD terminated the FHA approval of one of Assurity's branches because of a high number -- 54 -- of early payment defaults. But a company executive told MortgageDaily.com in December that 52 of those loans were FHA streamlined refinances in which borrowers who were current on their loans refinanced without being re-documented.

From August 2007 to December 2007, Assurity boosted its staff by 300, the executive said at the time. In addition, the company reportedly added hundreds of correspondent brokers. The growth, fueled by FHA activity, had the company projecting volume of more than $1 billion this year -- up from $0.3 billion in 2006.

(read subsequent letter from Assurity Compliance Officer Robert Johnson)

Other mortgagee terminations reported by HUD today included a Jacksonville, Fla., branch of Benchmark Lending Inc.; a Springfield, Mo., branch of Heartland Funding Corp.; and a Ft. Worth, Texas, branch of Owens Premier Mortgage.

Also terminated were two Atlanta, Ga., branches of Orchid Island Treasures LLC and an Indianapolis branch of Citizens Bank, according to the notice.

The terminated mortgagees can apply for a new origination approval agreement after six months if HUD determines that the underlying causes for termination have been remedied.

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