A BW story on former subprime lenders making FHA-backed loans prompts Missouri Senator Kit Bond to call for greater anti-fraud efforts
Senator Christopher Bond (R-Mo.), responding to a BusinessWeek magazine cover story, formally demanded that the Housing & Urban Development Dept. (HUD) step up efforts to combat mortgage fraud in its newly expanded guaranteed mortgage program.
In letters to HUD Secretary Steven Preston and HUD Inspector General Kenneth Donohue, Bond cited the explosive growth in the government-backed lending program since the collapse of the subprime mortgage market. "I am very concerned that it is exposing the agency to more fraud, which I raised on the Senate floor earlier this summer," Bond wrote in a letter dated Dec. 1. He is the ranking Republican on the Senate appropriations subcommittee that oversees funding of HUD.
Bond added: "It was, therefore, extremely troubling for me to read the Nov. 19 cover story by BusinessWeek magazine." The story reported that former subprime lenders, some of which have checkered regulatory histories, are now making mortgages backed by the Federal Housing Administration, an arm of HUD.
In the letters, Bond cited concerns raised by BusinessWeek, such as the FHA's frequent failure to investigate deeply the track records of lenders seeking to make FHA-guaranteed mortgages. "Most of FHA's long-standing weaknesses and problems are due to the agency's antiquated information technology systems and staffing resource shortages," Bond wrote. "It is critical that you take aggressive steps in ensuring that the FHA is not doing business with criminals or incompetent businesses so that we are not facing a second version of the subprime crisis."
Senator Seeks HUD Response to BusinessWeek Story
The concerns come at a time in which demand for FHA loans is soaring. Congress recently gave the agency authorization to provide (BusinessWeek, 9/11/08) an additional $300 billion in guarantees as part of the larger financial bailout effort.
Bond echoed the BusinessWeek article in raising questions about the FHA's ability to handle the increase in loan volume: "Unfortunately, FHA continues to suffer from long-standing management and oversight weaknesses," he wrote. "We must protect the long-term solvency and viability of the FHA to protect the American people from another taxpayer bailout."
Bond requested that Preston "review immediately the article's findings and provide a written response to me by no later than Dec. 8."
Lemar Wooley, a spokesman for HUD, declined to comment on the Bond letters.
In a separate letter to BusinessWeek, HUD defended the FHA program as carefully run and well secured against lender abuse. "This article did a great disservice to a storied federal program, FHA's employees, and to your readers," wrote Brian D. Montgomery, Assistant HUD Secretary for Housing. "The comparison of a safe, affordable FHA-insured mortgage to a subprime loan reveals a deep lack of understanding about the fundamental differences between these two worlds. And they are worlds apart."