Guilty Unless Proven Innocent: FHA’s Potential New Enforcement Regime

By: Phillip L. Schulman, Krista Cooley

The use of statistical sampling to evidence compliance violations without actually performing loan level reviews is at the center of a new enforcement regime that the U.S. Department of Housing and Urban Development (“HUD” or “Department”) announced on Tuesday it is considering to monitor and sanction Federal Housing Administration (“FHA”) approved mortgagees. The announcement, published as a Notice in the Federal Register, raises a host of questions, not the least of which is how HUD will implement these proposed enforcement efforts given the potential draconian consequences for FHA program participants. Those who already perceive that the risks of doing business with the federal government are increasingly excessive, should sit up and take notice. HUD has offered lenders 60 days to comment on the Notice, and lenders would be wise to carefully consider the changes and make their voices heard.

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