The Federal Housing Administration released guidelines to clarify requirements for lenders, a move meant to increase mortgage access but that could also make it more difficult for the government to recover damages when lenders make mistakes, Fox Business reported yesterday. Some lenders have recently said that they fear being sued for making mistakes on loans that later default. As a result, they have put in place extra requirements, known as "overlays," that could preclude loans to borrowers with a score below 640. For now, when lenders make an FHA mortgage, they must certify that the loan has no errors. When mistakes have been found, the Justice Department has sometimes pursued damages under the False Claims Act. This has led to some lawsuits and settlements that some banks said have driven them away from making loans under the FHA program. Last year, the Justice Department reached a $614 million settlement with J.P. Morgan Chase & Co. Last Friday, the FHA released for comment modifications to the certification that lenders must make when making an FHA-backed loan. The changes appeared in the <em>Federal Register</em>. However, the FHA didn't immediately inform lenders or other stakeholders that it had been released.
