Administration Again Courting Foreclosures By Encouraging Dubious Firms To Issue New Mortgages

November 27th, 2008 | Tags: Mortgage

All around the country alarm signs are there – the administration is again courting foreclosures by encouraging dubious firms to issue new mortgages backed by FHA. Either the corridors of power are ignorant or choose to be so to allow a rerun of the foreclosure in the near future.

The First Magnus Financial in Tucson dealt primarily with Alt-A mortgages that were highly risky. In these types of mortgages verification of borrower’s income was not required. The federal as well as state regulators said that the company had misled borrowers by employing brokers who did not have licenses to operate. There were other irregularities also. Last summer it downed shutters and laid off 5,500 of its staff. But in May the FHA granted a group of former executives of First Magnus a new license permitting them to make government backed new house mortgages. Since then the group has launched a new firm – Stone Water Mortgage on the same premises of First Magnus.

An attorney representing Stone Water categorically stated in a written statement that this new company “is not First Magnus”. Attorney G. Todd Jackson also said that Stone Water follows a “a new business model with different loan products, in a different market.” He went on to explain that First Magnus had “a long record of compliance. Isolated incidents and personnel problems occurred, but none were remotely systemic, and all were promptly addressed and corrected by management when discovered.”

The story of Nationstar Mortgage runs along similar lines. Located in suburban Dallas it shut down its 75 branches in September 2007 after the foreclosure crisis made its presence felt. But its chief information officer, Peter Schwartz told American Banker in August, that Nationstar now had plans to focus on loans backed by FHA because of its potential for high growth. In March Nationstar got the approval of the feds and began to offer government backed mortgages. Strangely, just a year earlier Nationstar had got embroiled in a $105,000 settlement with the Financial Institutions Department of Kentucky. It was alleged that Nationstar had appointed loan officers who did not have license and it also made false statements about credit scores. The facts did not deter Steven Hess, the vice president of Nationstar from saying, “All loans we originate conform to industry best practices, as well as all applicable federal and state laws.” Referring to the Kentucky settlement he brushed it off by saying that it was not “relevant to our FHS status.”