HUD Cracks Down on FHA Mortgage Fraud : Tougher Policy on Loan Assumptions and Defaulters Outlined by Secretary Pierce

Associated Press

Steps aimed at cracking down on fraud in FHA-insured mortgages for single-family homes, have been announced by Housing and Urban Development Secretary Samuel R. Pierce Jr..

Pierce said he was acting on a department task force’s recommendations that HUD adopt a tighter policy on assumptions of insured loans and stricter penalties for mortgagors who default on FHA loans.

The task force concluded that much of the problem lies with investors, rather than with those who get FHA loans for homes in which they live. It said that while investors accounted for only 12% of FHA loans in 1985, they accounted for 30% of defaults and claims.

The Administration is seeking legislation to bar investors from FHA single-family home loans.


Help Home Buyers

“We want people who use FHA single-family mortgage insurance to use it for homes they’ll live in for much, if not most, of their lifetime,” he told a news conference. “We want the program to serve the people it was created to help--especially those who need FHA to become home buyers for the first time.”

The head of the task force, assistant secretary Judith L. Tardy, said no attempt was made to calculate how much money has been denied FHA because of fraud. Pierce estimated the amount as “hundreds of thousands of dollars.”

Tardy said the department has fraud investigations under way in 30 communities involving more than 500 loans. There has been a series of recent cases in Camden, N.J.; Milwaukee; Las Vegas and Tulsa, Okla., involving false reporting or verification of jobs for borrowers and false loan applications.


In other cases, Pierce said, investors have sold and allowed loans to be assumed by unqualified buyers, and in some cases have collected rents without making mortgage payments.

Departmental Steps

He said steps the department will take include:

--Denying new FHA-insured loans to any mortgagor for whom a claim has been paid within the last three years.


--Reporting mortgagors who default to credit bureaus.

--Requiring credit-worthiness reviews of those seeking to assume FHA-insured loans in the first 24 months of the loan or since an earlier assumption.