Many Larger Lenders Cut Back on FHA Lending Due to False Claims Act

After the housing crisis and faced with a flood of insurance claims, FHA and the Department of Justice responded with enforcement efforts against lenders that had made underwriting mistakes , levying large fines, requiring more indemnification, and bringing claims of fraud under the False Claims Act. Urban Institute (UI) analysts Jim Parrott and Laurie Goodman write that this generated confusion among lenders, first because they hadn't faced such enforcement actions in the past and second because the rules weren't being applied consistently or predictably. Many, especially the large, well-capitalized ones, cut back, sometimes dramatically, on FHA lending and eventually newer, often less capitalized lenders filled the gap, leading to a shift in counterparty mix. This makes the FHA market less...(read more)

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