Ben Carson Vows to Pull Back on Mortgage Penalties at HUDBy
Carson says HUD is working with Justice Department on Fines
Big banks say lawsuit fears have prompted lending pullback
Ben Carson doesn’t want big banks to worry so much about being penalized from mortgage lending errors.
Carson, head of the U.S. Department of Housing and Urban Development, said Monday that the agency wants lenders to get more comfortable about financing lower-income borrowers without risk of being sued by the federal government.
“Innocent errors should not create chaos and fear and make people less likely to get involved in the first place,” Carson said in a speech at a Mortgage Bankers Association conference in Denver.
The Department of Justice and the Federal Housing Administration, a mortgage agency within HUD, have extracted billions of dollars in penalties for errors on FHA loans since the financial crisis. That’s led some of the largest banks, including JPMorgan Chase & Co. and Bank of America Corp., to pull back on lending through the program, leaving lower-income borrowers with higher costs and fewer financing options, according to HUD and mortgage experts.
The HUD secretary’s comments come as President Donald Trump and his administration attempt to curb rules and regulations they see as constraining businesses. The U.S. Treasury Department is releasing a series of reports with recommended regulatory changes, many of which would require new laws.
Carson said the FHA and Justice Department are working to clarify the rules so banks won’t have to fear retaliation. The changes would let lenders avoid penalties for immaterial errors rather than for intentional fraud, he said.
Many banks are likely to cheer Carson’s comments. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has urged the FHA not to use the False Claims Act, a Civil War-era law that brings triple the amount of the government’s damages, unless there’s intentional fraud.
“FCA settlements wiped out a decade of FHA profitability,” Dimon wrote in a letter to shareholders earlier this year. In 2014, the bank paid $614 million in penalties and admitted to allegations that it made loans that didn’t qualify for FHA insurance.
The FHA sells insurance that lets borrowers get loans with a down payment of as low as 3.5 percent and a credit score as low as 580, on a scale of 300 to 850.
Carson’s effort isn’t a new one. The FHA under President Barack Obama tried to make changes at HUD more than a year ago, but lenders said they didn’t go far enough. Obama also met resistance from attorneys with the Justice Department, who said they were already using discretion in limiting cases to lenders whose problems were significant.
Fear isn’t the only thing holding back FHA lending. Servicing the loans can also be more expensive, partly because defaults are higher than in other federal programs.