Mortgages dumped, HUD says
Banks illegally sent bad loans to FHA, audits find
Tuesday, June 06, 2006
Geoff Dutton
THE COLUMBUS DISPATCH


National City Mortgage and Huntington National Bank could face fines and other penalties for improperly dumping $265 million in troubled mortgages into a government insurance program.

Separate government audits obtained by The Dispatch accuse the two Ohio-based lenders of shifting mortgages with histories of late payments off their books and into the Federal Housing Administration insurance program.

The transfers in many cases could amount to administrative fraud, not mere mistakes, because they included letters certifying that the borrowers hadn’t missed payments, according to reports by the inspector general for the U.S. Department of Housing and Urban Development.

HUD, which administers the FHA program, is reviewing the inspector general’s recommendations.

"We’re fully committed to working with HUD," National City spokeswoman Kelly Wagner Amen said, declining to discuss the audit. National City accounts for $263 million of the mortgages in question.

Huntington said it would withhold comment until HUD makes a decision.
"It might come back we don’t have anything they’ve got a problem with," spokeswoman Jeri Grier-Ball said.

This is a second blow for both lenders, who also were singled out in an unrelated FHA audit of Dominion Homes in April. Dominion, whose lending partners included National City and Huntington, was found to have skirted standards to qualify buyers for FHA loans.

FHA is considering penalties in that case as well, with the potential of millions in fines or even removal from the program.

In the separate late-payment audits, HUD flagged the faulty National City and Huntington mortgages while reviewing small samples of their FHA loans covering two years, ending in 2004.

The audits identified more than 2,000 improperly submitted loans, or about 3 percent of the mortgages examined for both lenders.

The inspector general recommends:
• Canceling FHA insurance for many of the mortgages and shifting financial liability back to the lenders, in case the borrowers default. That would include 529 National City loans of $63.5 million and 14 Huntington loans of $1.4 million.

• Making the lenders repay FHA for mortgages that already have failed. At the time of the audit, 102 National City loans had gone bad, costing FHA $5.5 million. Two Huntington mortgages totaling $228,000 had defaulted, with an undetermined cost to FHA.

• Requiring Huntington to repay five borrowers who were charged excessive fees.

• Considering stiffer penalties against both lenders for administrative fraud. That’s because in many cases they not only improperly forwarded mortgages to FHA but also attached a letter falsely vouching that the borrowers hadn’t missed payments, the government says.

HUD is required to respond within 180 days. Huntington’s audit was issued March 15. The deadline to rule on National City’s audit, which was issued in August 2005, has passed.

"We have not provided a response yet," said William Glavin, special assistant to the federal housing commissioner in Washington. He declined to elaborate or discuss the audits.

The FHA program was created to help people who could not otherwise afford to buy homes. FHA loans require smaller down payments and have more flexible terms. If the loans go bad, an FHA insurance fund reimburses the lender.

Loans must meet certain conditions before they can be submitted for FHA insurance coverage.

For example, if the loans aren’t forwarded to HUD soon — typically within 60 days of closing — the lender must demonstrate that each borrower is making the monthly mortgage payments.

HUD relies on the lenders to monitor themselves but periodically audits their performance. National City and Huntington were audited because they often submitted FHA loans late, according to the reports.

Last year, HUD loosened the timely-payment requirements. But the audit found both lenders had violated the new and old standards.

Under the old standards, a lender submitting a mortgage late for FHA insurance first had to show that the borrower had made full, timely payments. If there were any late payments, the lender couldn’t submit the mortgage to FHA until after six consecutive monthly payments.

In May 2005, HUD lowered the standard, saying lenders could submit mortgages as long as they were current at the time of submission.

National City, in a written response to the audit, argued that it shouldn’t be penalized under the old rules because HUD itself has since relaxed them.

The Miamisburg-based lender also wrote that "oversights occurred as a result of high refinance volume and the inexperienced staff it hired to accommodate its expanding business during the audit period."

Huntington, in its written response to HUD, said it, too, was overwhelmed by a boom in loans and refinancings. The Columbus-based lender added that it "would never knowingly violate FHA requirements or endanger the reputation of Huntington or its employees."

Both Huntington and National City emphasized that they have added safeguards to avoid future problems. They disagreed with some of the inspector general’s conclusions, especially the possibility of administrative fraud findings.

National City was one of the largest FHA lenders in the nation during the audit, originating more than 171,000 FHA mortgages totaling $21.6 billion. The audit looked at 68,730 FHA loans submitted late from May 2002 through April 2004.

HUD identified 2,071 improperly submitted mortgages totaling $263 million.
Huntington wrote 2,346 FHA mortgages during the audit period totaling $264 million. The audit of Huntington examined 761 loans submitted late from January 2003 through December 2004.

HUD found 20 improper Huntington mortgages totaling $2.2 million.

gdutton@dispatch.com







Article Submitted By:
John Lopez
Budget Realty
Livonia, MI
Cell: 313-258-1001
Top Secret Fax: 480-393-4049
RealEstateMichigan@Yahoo.Com
www.MichiganInvestorNetwork.com__._,_.___