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More lenders under FHA scrutiny

By Judy Martel ·
Wednesday, June 13, 2012
Posted: 6 pm ET

The FHA is casting a wider net in its investigation of mortgage lenders. The Department of Housing and Urban Development, which oversees the FHA, is seeking information from banks and lenders including SunTrust Banks Inc., U.S. Bancorp, USB, MetLife and others.

Four of the largest banks, Deutsche Bank, Citigroup, Flagstar Bancorp and Bank of America, already reached settlements with U.S. attorneys over charges of fraud and failure to check borrowers' ability to pay back mortgages.

The FHA, which insures mortgages but doesn't actually lend money, is looking for any violations that might enable it to bring charges and force a settlement in lieu of a taxpayer bailout to cover its losses from the housing bust.

At the end of first quarter, more than 700,000 past-due mortgages were insured by the FHA, about 9.4 percent of the market, the Wall Street Journal reported. An independent audit of the FHA estimated that after expected losses on its current book of business, it would have only $2.7 billion to cover unexpected losses on more than $1 trillion in mortgage guarantees.

The increased scrutiny by the FHA is also resulting in many lenders becoming more gun-shy and either requiring more financial data from borrowers or refusing to make government-backed loans to those they view as the least bit risky.

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