Feds probe high default rates at 15 FHA lenders
U.S. officials said today they have subpoenaed documents from 15 lenders whose Federal Housing Administration-backed loans have high default rates, including a failed Missouri bank once owned by an Orange County financial firm.
Many of the FHA-backed loans issued by the lenders went bad almost immediately, said Kenneth M. Donohue, inspector general for the Department of Housing and Urban Development, which includes the FHA. At a news conference, he called the action a review and not yet an investigation.
"We aren't making any accusations at this time; we have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud," Donohue said in a news release.
The lenders were based in 11 states, but none were in California. One of them was American Sterling Bank of Sugar Creek, Mo., which had been a subsidiary of Foothill Ranch-based America Sterling Corp. before it failed on April 17.
Metcalf Bank of Lee's Summit, Mo., took over all $172 million of American Sterling’s deposits and nearly all of its $181 million in assets under an agreement stipulating that losses on $100 million in American Sterling loans were to be shared with the Federal Deposit Insurance Corp.
Officials at American Sterling, Metcalf and the FDIC didn’t immediately respond to requests for comment.
The FHA, which insures mortgages that have low down payments, has become more important to the housing markets since subprime lending collapsed and all home loans became harder to get. It is funded through fees paid by homeowners with FHA-backed loans – a flow of money that has been threatened by rising foreclosures.
FHA Commissioner David H. Stevens said the probe "will help us determine whether there is fraud and better manage risk in the long run."
-- E. Scott Reckard