This week’s Golden Hammer goes to the Federal Housing Administration, which showed us that the lessons of the 2007-08 mortgage crisis haven’t all been fully grasped.
For this honor, FHA managed to give housing loans to 6,000-plus Americans who were tax scofflaws _ without checking first with the IRS to see if they were current on their taxes.
We know this thanks to the Government Accountability Office, which chronicled how $1.4 billion in FHA mortgage went to 6,327 people who owe a whopping $77.6 million in overdue federal taxes as of June 2010. Half the people also received a bonus first-time homebuyer credit from the 2009 American Recovery and Reinvestment Act.
FHA oversight is especially sensitive because federal law prohibits those with unpaid taxes from receiving FHA mortgage insurance unless they’ve agreed to an IRS repayment plan. The GAO took a sample and investigated eight mortgage borrowers, finding that five of them should never have been given the insurance assistance.
Broken down evenly by person, each one owed more than $12,000 in unpaid taxes, but received about $220,000 in government back loans or assistance.
In addition, mortgage borrowers with unpaid taxes foreclosed at two to three times the rate as those who had paid their taxes, the GAO found, putting the FHA at risk of making bad loans.
The loans were part of the 2009 American Recovery and Reinvestment Act which raised the limits a homeowner could get a loan for, an attempt by the government to fix the declining housing market. Almost $760 million in loans were handed out because of the increased limits alone. Another $720 million was given as a credit to first-time home buyers.
Anyone eligible could receive the loans, but the problems slipped through the cracks because FHA loan applications did not adequately check for tax debt, the report found.
Carol Galante, acting assistant secretary for housing at the FHA, said the department is working with the IRS to develop more effective measures to flag loan applicants who owe taxes.
The amount of money given out is large, but the receipts are a small part of those seeking FHA loans. The tax debtors counted for only 3.7 percent of loans with increased limits, and for 0.5 percent of those seeking first time homebuyers credit, according to GAO.
-- Phillip Swarts