It was recently discovered that the Federal Housing Administration (FHA) had been aware of some mortgage companies' fraudulent lending practices but failed to take action.
The FHA, the government agency created to help increase homeownership, knew since at least October 2007 that Cambridge Home Capital posed a danger to home buyers and repeatedly violated the agency's safe-lending standards... In 2008, when Cambridge had one of the worst records of any agency lender, the FHA still approved 528 of the company's mortgages.
So between 2007 and 2008, the FHA was allegedly approving loans which were toxic and which probably sent hundreds if not thousands of families into foreclosure . But why would an agency charged with protecting the American public from toxic mortgages and unjust lending practices continue to approve mortgages from a company guilty of violations? Apparently, the agency didn't want to hurt their feelings and discourage them from using the FHA program.
The FHA for years ignored internal warnings about lenders with high rates of failing loans, partly because it worried about discouraging mortgage companies from using the FHA insurance program. As a result, the FHA approved 15,000 mortgages since late 2008 from companies that had violated agency standards for a full year or more by having an excessive number of their mortgages go into default.
When companies violate the FHA standards and get away with it, we run the risk of allowing them to push through high-risk loans which lead to foreclosure. Foreclosures that could have been prevented if the regulations put in place had been followed or at least enforced by the agency.
(source: USAToday.com )