HUD wants to jumpstart bank lending on low-income homes

The move, announced with the Department of Justice, will reduce bank fines for minor infractions associated with FHA mortgages

Oct.October 29, 2019 03:00 PM
Housing and Urban Development Secretary Ben Carson (Credit: Getty Images, iStock)

Housing and Urban Development Secretary Ben Carson (Credit: Getty Images, iStock)

Housing and Urban Development Secretary Ben Carson wants to get banks back in the residential mortgage lending game.

One way the agency will do this is by seeking to change the way it handles the False Claims Act. HUD will now enforce Federal Housing Administration violations through “administrative” proceedings, following an agreement with the Justice Department. The move, however, could be seen as a soft approach to banks that violate federal regulations.

Since the last recession — and as federal regulations have increased — banks have pulled back on mortgages originations, allowing nonbanks like Quicken Loans and loanDepot to fill the void. Concerns are growing about nonbanks, because they aren’t subject to the same stringent regulations, and are more vulnerable to failure during a downturn.

Now, HUD wants to encourage banks to originate more FHA loans, which are generally made to low-income borrowers and first-time homebuyers. The move was announced in a joint statement from HUD and the Department of Justice.

The move is geared to reduce bank fines for minor infractions associated with FHA mortgages, Carson told Yahoo Finance.

During the Obama administration, the government used the False Claims Act to levy millions of dollars of fines on the largest financial institutions such as Bank of America, JPMorgan Chase and a $1.2 billion fine against Wells Fargo in 2016.

Banks cite the False Claims Act as a reason that they have retreated from mortgage lending.

Carson maintained that the new agreement will not reduce the agency’s focus on deterring FHA mortgage fraud.

“HUD will not tolerate irresponsible or fraudulent lenders who defraud borrowers and taxpayers,” Carson said in the joint statement.

Today, depository institutions originate less than 14 percent of FHA-insured mortgages, which is down from about 45 percent in 2010, according to HUD. The largest bank in South Florida by assets, Miami Lakes-based BankUnited, stopped originating residential mortgages altogether.

But in addition to increased regulation, some banks such as BankUnited said they backed away from making these loans because it is a low-margin business.

Overall mortgage lending has increased in recent months due to lower rates. Lenders issued the most mortgages in 14 years last quarter, providing $700 billion of home loans to borrowers in the third quarter, according to Inside Mortgage Finance, the Wall Street Journal reported.

Carson, who spoke at The Real Deal’s Miami Showcase and Forum this month, has also gotten HUD more involved in Opportunity Zone investment. He said the agency will give preference to developers and investors who build affordable housing in federal Opportunity Zones when it comes to certain grants.

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