120 branches already terminated under HUD's Credit Watch initiative

MortgageDaily.com August 14

By MortgageDaily.com staff

While only lenders with the worst delinquency levels have previously been affected by a Clinton-era initiative, more lenders will become subject to it at an increasing rate over the next year. The Bush administration plans to allow fewer defaults and claims on loans before levying sanctions against lenders.

The Department of Housing and Urban Development (HUD) announced it will strengthen its oversight of Federal Housing Administration (FHA) lenders during the next nine months through its Credit Watch Termination Initiative. Under the initiative, which was implemented in May 1999, HUD has already terminated lending approval for 120 branches and placed an additional 219 branches on warning status.

Up until now, HUD has focused on lenders whose default and claim rates exceeded 300% of the average rate. In October, HUD says it will begin focussing on lenders whose rates are 275% of the local average. HUD plans to gradually lower the average until July of 2003, at which point HUD will be focussing on lenders whose default and claim rates exceed 200%.

"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," said HUD Secretary Mel Martinez.

HUD says the changes will impact over 21,000 home offices and branches of FHA-approved lenders nationwide.

During 2001, HUD said it endorsed $106 billion in single family mortgages. The department previously said it expects it will endorse $120 billion this year.