What makes FHA lending the newest high risk segment of lending?
There are several reasons why FHA lending is becoming increasingly risky. Most of them seem eerily similar to the drivers that fueled the rise in fraud in subprime lending. Blind belief that guidelines are blanket protection — Some lenders believe that if a loan meets the FHA Guidelines, it is insured and they are protected from liability. In fact, fraud is a legitimate case where the liability does revert back to the lender when identified. This belief creates a situation where lenders rely on guidelines to stop fraud as protection and do not have advanced fraud specific technology or processes in place. FHA screening is limited — The FHA has limited potential to identify fraud in the funding process. This is in large part due to the tremendous increases in volumes and also in part due to the belief that guidelines are providing the needed protection. Without sufficient technology to precisely identify high risk loans and subsequent process to push loans back to lenders for further sc
