HUD Archives: News Releases
HUD No. 02-077
August 9, 2002
BUSH ADMINISTRATION ANNOUNCES ADDITIONAL PROTECTIONS FOR HOMEBUYERS
TO CURB PREDATORY LENDING
Martinez Demands Increased Accountability from FHA Lenders through Credit
WASHINGTON - Housing and Urban Development Secretary Mel Martinez today said
HUD will strengthen its oversight of Federal Housing Administration-approved
mortgage lenders by allowing fewer defaults and claims on loans before levying
sanctions against lenders.
The changes, which will be phased-in over nine months under the provisions
of the Department's Credit Watch Termination Initiative, will impact over 21,000
home offices and branches of FHA-approved lenders nationwide.
Credit Watch was established to identify poorly performing mortgage lenders,
advise marginal performers that they must improve to maintain as an approved
lender, and terminate a lender's ability, at the branch level, from originating
FHA-insured mortgages if it fails to improve.
"FHA-insured mortgages are a key component of the Bush Administration's housing
policy, which has helped push homeownership rates to record levels, particularly
for first-time, low and moderate income homebuyers," said HUD Secretary Mel
Martinez during a speech to the American Legislative Exchange Council annual
meeting in Orlando, FL. "We will not allow lenders with high default and claim
rates on their FHA-insured loans to jeopardize a family's ability to achieve
and maintain the American dream of homeownership."
Under the provisions of Credit Watch, HUD has the authority to bar lenders
from issuing FHA-insured mortgages if their default and claims rates on loans
made within the last 24 months in a geographical area are 200 percent of the
average rate for that area, and if their rate exceeds the national default
and claim rate.
Since Credit Watch was implemented in May 1999, HUD has focused its efforts
on lenders with the worst default and claim rates, those whose rates exceeded
300 percent of the average rate. That will change on October 1, 2002, however,
when HUD will begin focusing on lenders whose rates are 275 percent of the local
average. Those lenders will be subject to removal under the new guidelines in
late December 2002. On January 1, 2003, HUD will focus on lenders with rates
of 250 percent; 225 percent April 1; and, finally, 200 percent on July 1, 2003.
Since launching Credit Watch, the Department has terminated lending approval
for 120 branches and placed an additional 219 branches on warning status.
Other recent actions by the Bush Administration to protect homeowners from predatory
lending and promote homeownership include:
- Early this month HUD announced plans to expand protection of homeowners
by proposing performance standards for appraisers of FHA-single family homes
under its Appraiser Watch
Initiative. Under Appraiser Watch, some 25,000 appraisers will be held
accountable for faulty appraisals, which too often lead to default and foreclosure.
FHA will monitor appraisers' default and claim rates and will levy sanctions
- including removal from its list of approved appraisers - against those whose
rates are excessive.
- A proposal, currently available for public comment for 90 days, to reform
the regulatory requirements of the Real Estate Settlement Procedures Act (RESPA)
that would make the process of buying and refinancing a home significantly
simpler, potentially less expensive and would protect consumers from unscrupulous
- The recently announced "Homebuyer Bill of Rights," which requires greater
disclosure of costs associated with buying a home, allows consumers more choices
in choosing providers of closing services, limits excessive settlement fees
and encourages innovation and competition in the marketplace.
- Martinez also announced five major settlement agreements with mortgage
lenders and service providers with payments of nearly $2.3 million. HUD will
spend $1.5 million to investigate RESPA violations, a six-fold increase over
current funding, and is more than doubling its investigative staff to further
bolster its RESPA enforcement activities. HUD is also increasing its efforts
to educate homebuyers in ways to avoid predatory lending practices in the
- A goal to increase the number of minority homeowners by 5.5 million by
the year 2010. To reach this goal the Bush Administration has proposed: the
American Dream Downpayment Fund, aimed at helping 40,000 families each
year with down payment cost, the most common barrier to minority homeownership;
and, a tax credit for builders of single-family homes. The Administration
has also proposed a $15 million increase in the fiscal year 2003 HUD budget
for housing counseling, which would increase funding for consumer education
on many topics, including predatory lending.
- Developing a rule to stop "flipping" - quickly reselling properties at
inflated values - of FHA insured loans. The proposal would make properties
that have been sold within a defined period of time ineligible for FHA insurance,
effectively prohibiting resale of the property.
HUD is the nation's housing agency committed to increasing homeownership, particularly
among minorities, creating affordable housing opportunities for low-income Americans,
supporting the homeless, elderly, people with disabilities and people living
with AIDS. The Department also promotes economic and community development as
well as enforces the nation's fair housing laws. More information about HUD
and its programs is available on the Internet.
Content Archived: April 9, 2010