Kirsters Baish| It was just confirmed on Monday by a government watchdog group that the Department of Housing and Urban Development allowed roughly $2 billion in federally insured loans to go to around 10,000 borrowers who were banned from these kinds of funds.
According to the Department of Housing and Urban Development’s inspector general, these loans in question were handed out back in 2016 to 9,507 borrowers. These borrowers were either delinquent on federal debt or they did not pay child support when they were supposed to.
The inspector general was in charge of reviewing 60 of the almost 14,000 loans that Federal Housing Administration closed back in 2016. They found that more than 75% of the loans were granted to borrowers who were barred from these funds.
The report read, “FHA faced a higher risk due to an increased likelihood of default on the ineligible loans.” The report also stated that the borrowers had a delinquency rate that was “twice as high as those of the general population.”
The inspector general’s report explained that the guidance of the agency stops all lenders from allowing FHA-insured loans to go to borrowers who have delinquent federal debt.
Western Journal reported:
The source’s lenders used “to identify ineligible borrowers lacked sufficient current information, and FHA did not adequately guide lenders on reviewing child support,” the report said.
HUD requires lenders to check borrowers against an agency database of federal debtors, but the IG found it “was not an adequate source of information on delinquent federal debt,” the report continued.
Meanwhile, the Department of Treasury houses a “Do Not Pay Business Center” used to identify potentially ineligible borrowers, which other agencies can use at no cost. The IG used the center to identify the delinquent borrowers in its report.
“The Do Not Pay databases used for our testing included information on the delinquent federal debt that was missing from” HUD’s database, the report said.
The Department of Housing and Urban Development also enforced that lenders must check all borrowers’ credit reports.
“Credit reports also were not an adequate source of information on federal debt and delinquent child support,” the report further explained.
All debts that were owed the the Small Business Administration as well as to the Department of Justice did not show up in these credit reports. The inspector general also found that student loans weren’t always included.
None of the reports said whether or not the student loans that were listed were private or public.
The report read, “All of this information was included in the Do Not Pay databases for the loans tested.”
The inspector general recommended that the FHA include the “Do Not Pay” database during the underwriting process.
Take a look at Western Journal’s video report on the matter: