Return to Current Issue

Community organizations around the country took another bite out of FHA fraud and abuse in late November. Once again, bad FHA lenders are being stopped in their tracks and this time it's the law pulling the brakes.

On Nov. 27, President George W. Bush signed the HUD/VA Appropriations Bill for FY 2002, which included changes to Section 209 of the National Housing Act.

Fought long and hard for by NPA groups, the changes gives legal backing to HUD's Credit Watch program. The bill enables Secretary of Housing and Urban Development Mel Martinez to terminate the ability of a lender to make FHA loans if they present a risk to the program because of their excessively high number of foreclosures.

The new legislation changes Section 533 of the National Housing Act to include, "the Secretary may terminate the approval of a mortgagee to originate or underwrite single family mortgages if the Secretary determines that the mortgage loans originated or underwritten by the mortgagee present an unacceptable risk to the insurance funds."

Over the years, NPA has demanded that HUD monitor its FHA lenders in order to reduce the fraud and abuse that has led to thousands of abandoned buildings throughout the country. Credit Watch emerged as FHA's only lender monitoring system.

Over the last three years, 72 lenders have been terminated from making FHA mortgages because of their extremely high number of foreclosures. In some cases, the termination has been challenged in court. Now, because of changes to the National Housing Act, the Credit Watch program is protected.

"This Credit Watch legislation will further decrease rampant foreclosures brought about by fraud and abuse. It is the result of hard working leaders in neighborhoods throughout the country fighting FHA problems for years," said Phil Prehn, an organizer with Syracuse United Neighbors in Syracuse, NY.