DOJ Lending Case Highlights Abuses on FHA-Backed Mortgages

WASHINGTON, Dec. 9, 2010 /PRNewswire-USNewswire/ -- The Department of Justice's $2 million settlement this week with PrimeLending spotlights serious problems on loans insured by the Federal Housing Administration (FHA). The case found inconsistent and abusive pricing on loans to African-American borrowers, revealing that it's far too easy for lenders making government-backed loans to overcharge home buyers. ( For the DOJ announcement, go to http://bit.ly/gINlMk.)

The FHA insures mortgages that meet specific risk criteria, but the rules on how much lenders can charge remain loose. The result is that equally qualified borrowers have been charged significantly different interest rates.  

"Too many lenders making FHA-backed mortgages are doing Wild West lending," said Evan Fuguet, Senior Policy Counsel for CRL.  "The FHA was created to make mortgages accessible, affordable and sustainable. Without clear rules to prevent overcharging, abuses are inevitable. That undercuts the reason the program was created in the first place."

Many of the bad lending practices that precipitated the subprime crisis have been addressed, but there's more to be done. The FHA should adopt the following policies:

• Immediately apply pending Federal Reserve rules that, come April, will ban kickbacks and other incentives to overcharge for mortgages. 
• Establish reasonable limits on loan costs to prevent inconsistent and abusive pricing.  
• Maintain a strong focus on access to fair and affordable credit for all families regardless of race.
• Continue to strengthen efforts to enforce FHA rules.  

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.

SOURCE Center for Responsible Lending