The Department of Housing and Urban Development is being criticized for its lax oversight of down payment assistance on government-insured loans.
During fiscal-year 2016, there were $12.9 billion in newly originated loans insured by the Federal Housing Administration with potentially questionable DPA.
In all, HUD reportedly
failed to adequately oversee more than $16.1 billion in FHA loans that might have involved such borrower-financed down payments.
Those findings were outlined in a report from HUD’s Office of Inspector General.
Lenders allowed borrowers to finance their own down payments on FHA-insured loans by paying a higher interest rate on their mortgages
with programs administered through housing finance agencies — putting the FHA Mortgage Insurance Fund program at unnecessary risk.
“While governmental entities are not prohibited sources of downpayment assistance, the assistance provided through these programs did not comply with HUD requirements,” the report stated. “FHA borrowers were required to obtain a premium interest rate and, therefore, repaid the assistance through higher mortgage payments and fees. Despite the prohibition against similar seller-funded programs, HUD’s requirements appeared to have enabled the growth of these questioned programs.”
HUD additionally didn’t adequately track the loans or review the funding structure of the programs, according to the OIG.
“Despite concerns raised by OIG, HUD failed to protect FHA borrowers against the higher mortgage payments and higher fees imposed on them, which increased the risks to the FHA Insurance Fund in the event of default,” the report said.
The OIG recommends that HUD reconsider its position on borrower-financed DPA, develop and implement policies and procedures to review loans with DPA, and
develop requirements for lenders to review DPA programs.
In addition, the inspector general said HUD should
require mortgagees to obtain a borrower certification that details borrower participation, ensure lenders enter all DPA data into FHA Connection and implement data fields requiring mortgagees to enter specific DPA information.
