Federal housing officials on Tuesday served subpoenas on 15 mortgage companies, including one in Maryland, saying the firms appeared to have high default rates for loans backed by the Federal Housing Administration.
Dell Franklin Financial, a small Columbia firm with about 20 employees, is among those being investigated, but President Richard Reese said it has done nothing wrong and that a federal audit performed late last year found the bank to be in good standing. The firm originates about 800 loans every year on homes around the country, working with clients by telephone and from its headquarters.
“When they come in and do their investigation, they won’t find anything wrong,” Reese said. “The subpoena has no evidence of wrongdoing by the company. It merely reflects HUD’s desire for more information to see if they have to conduct an investigation. There are no accusations against us.”
The investigation, an initiative by the U.S. Department of Housing and Urban Development and the FHA, is part of a crackdown on unscrupulous lenders as the agency tries to stem losses.
After the housing market went bust, the FHA became the major source of funding for first-time home buyers. But the agency, which insures roughly 30 percent of new loans, has seen its losses rise dramatically. While the agency has avoided a taxpayer rescue so far, its reserves have sunk below the minimum level required by Congress.
There also have been fears that subprime lenders have shifted their business to the FHA after the subprime business went bust.
Federal investigators said there is no proof at this point the companies have done anything criminal, but they will “aggressively pursue” any indication of fraud. “It could just be simple incompetence,” HUD spokesman Michael Zerega, said in a phone interview yesterday.
Reese, who started Dell Franklin in 2003, said the company’s high number of defaults were due to the bad economy and the fallout in the housing market. Many people were “incentivized” to stop paying on their mortgages because their home values were falling, he said.
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