FHA attempts to change rules to spur lending

Looks to loosen mortgage lending

The Federal Housing Administration is attempting to limit one of the most powerful tools federal attorneys have to punish banks for making mistakes in mortgage lending, anarticle in The Wall Street Journal said.

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.

The article explained that banks started to pull back from originating mortgages since they feel penalties are too harsh relative to the errors made.

FHA’s attempt to change the provision shows the tightrope policy makers and regulators are trying to walk. While they want to hold lenders accountable for crisis-era mistakes and retain recourse should the loans go bad, they also want the banks to extend loans to some consumers who have been largely shut out of the mortgage market since the crisis.

Source: WSJ

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