FHA Moves to Allay Lenders’ Concerns Over False Claims Act

In May, the Federal Housing Administration (FHA) unveiled changes to its loan defect taxonomy, earning broad support from the industry for the clarity it provided. A recent article in National Mortgage News details how lending has increased since the prior system—which flagged too many potential errors on loans—was replaced with an automated loan review system that provides a more streamlined method for identifying defects.

These developments were in response to False Claims Act litigation that the Department of Justice (DOJ) filed against FHA lenders, resulting in large fines and enforcement actions that led to many banks exiting the FHA single-family mortgage space. While increased transparency from the FHA for loan defects has helped restore lenders' confidence, the article also notes that the DOJ is in charge of enforcement, which remains fairly inconsistent. SFIG advocates for transparency and consistency in regulatory treatment for potential loan defects, as well as equitable treatment in enforcement actions arising from any defects. SFIG will continue to work with regulators, policymakers, and legislators to reach common-sense solutions that will benefit consumers, lenders, and secondary market participants. If you have any questions, or would like to be involved in advocacy surrounding the False Claims Act, please contact William.Innes@sfindustry.org for more details.

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