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FHA Mortgage Insurance Programs Strained

UPDATED 3:43 pm:

The Federal Housing Administration has launched a SWAT group that will make unannounced visits to lenders whose loans “are exhibiting signs of distress.”

Housing and Urban Development Secretary Sean Donovan mentioned the Special Work Assessment Teams in testimony today before a Senate subcommittee, where he was outlining his plans for FHA’s future and the agency’s efforts to curtail mortgage fraud. A letter sent today to lenders who do business with FHA said these teams were needed to manage risk.

Some policymakers have questioned whether FHA can handle its new popularity. After the subprime market crashed, borrowers flocked back to FHA-insured loans because they are are the sole option for many people who lack stellar credit or hefty down payments. But the agency’s default rate is rising as its loan volume explodes and some unscrupulous former subprime lenders migrate into the FHA lending arena.

During the hearing, Sen. Kit Bond (R-Mo.) said the FHA is a “powder keg” that could explode, leaving taxpayers on the hook if it continues to be overburdened. Donovan assured the panel that would not happen under his watch. In addition to the SWAT groups, FHA also plans to test new anti-fraud technology this fiscal year.

--Dina ElBoghdady

By Michael S. Rosenwald  |  April 2, 2009; 3:46 PM ET
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