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.
HUD is the nation's housing agency committed to increasing
homeownership, particularly among minorities, creating affordable
housing opportunities for low-income Americans, supporting the
homeless, elderly, people with disabilities and people living with
AIDS. The Department also promotes economic and community
development as well as enforces the nation's fair housing laws. More
information about HUD and its programs is available on the Internet.
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