FHA Looks to Ease Banks’ Worry on Mortgage Mistakes
A U.S. housing regulator is considering limiting one of the most powerful tools federal attorneys have to punish banks for making mistakes in mortgage lending, a move the Federal Housing Administration hopes will encourage banks to give more home loans to worthy but weaker borrowers, according to people familiar with the matter.
Since the mortgage crisis, the government has extracted billions of dollars in penalties from lenders that made mistakes on loans to borrowers who later defaulted. The errors ranged from small mistakes to ones that affected the riskiness of the mortgages.
Because banks must certify that FHA-backed mortgages they originate have no errors, when mistakes are found, the Justice Department has sometimes pursued damages under a Civil War-era law known as the False Claims Act that lets the government recover triple damages. In one high-profile application of the act, the Justice Department a year ago reached a $614 million settlement with J.P. Morgan Chase & Co.