The sources of information used by FHA lenders in 2016 were outdated or insufficient, and lenders didn’t request sufficient information from borrowers about delinquent federal debt and in some cases, delinquent child support payments. Because of this, the FHA insured loans for some people who were legally ineligible to receive them.
The Department of Housing and Urban Development’s Office of the Inspector General discovered the number of ineligible borrowers granted loans in 2016 to total 9507, accounting for $1.9 billion. This is approximately 0.9% of the total for 2016, which had over 1 million loans totalling $212 billion.
HUDs OIG office recommended an overhaul to the FHA’s procedure. Since the FHA stands to lose money from bad loans, they had no reason not to agree. They proposed plans in a letter to work with the Department of the Treasury to determine the best course of action regarding changes to bank lending procedures.