SUNDAY, SEPTEMBER 12, 2010
KLMNO
Business fha from G1 But documents and inter-
views reveal that more than 34,000 home loans have been is- sued over the past two years by a dozen FHA-approved lenders that have employed people who were convicted of felonies, banned from the securities in- dustry or previously worked for firms barred by the agency. More than 3,000 of those loans, about 9 percent, were se- riously delinquent or already a claim on the FHA insurance fund as of June 30. That’s nearly triple the rate for all loans made by FHA lenders over the past two years, about 3.4 million. Compared with other regula- tors, critics of the FHA say it rarely cracks down on company executives. “In the securities in- dustry, you bar people for life. You don’t see that a lot with the FHA,” says Mark Calabria, direc- tor for financial regulation stud- ies at the Cato Institute. Policing the cubicles and cor- ner suites of FHA lenders is cru- cial because the agency, which encourages home ownership by insuring mortgages made by qualified lenders, has become a cornerstone of the U.S. housing market. Its portfolio of guaran- teed loans has grown to $800 billion in March from $466 bil- lion in fiscal 2008. The agency’s insurance program is financed by premiums paid by FHA bor- rowers, but taxpayers would be on the line if those funds are de- pleted. The agency has long struggled to stop companies from slipping risky loans under its protective umbrella. It has done this in part by barring lenders if too many of their borrowers default. FHA Commissioner David H.
Stevens has vigorously defended the agency’s bid to drop lenders with higher than average default rates or evidence of fraudulent
“No one can feign that we’re not all over fraud now, in this administration.”
— FHA Commissioner David Stevens
lender ineligible if it employs a person convicted of an offense “that reflects adversely” upon the company.
According to HUD and FHA
loans. “No one can feign that we’re not all over fraud now, in this administration,” Stevens says. Since January, the agency has fined or withdrawn the ap- proval of more than 1,100 lend- ers to issue federally insured mortgages, according to records provided by the FHA.
But he added, “By no means do I think are we are out of the woods, yet. . . . There are going to be some of these guys who slip through.” The internal watchdog at the
Department of Housing and Ur- ban Development, which over- sees the FHA, says the agency has failed to systematically mon- itor the people making home loans. In recent congressional testimony, he called for “a new mind-set at the FHA to know your participants and not just the entity.” Legislation passed by Con- gress last year bars any individu- al from working for an FHA lender in a range of positions if convicted of a felony that “in- volved an act of fraud, dishon- esty, or a breach of trust, or mon- ey laundering.” The law, which broadly addressed foreclosure prevention efforts and housing policies, also rendered an FHA
EZRA KLEIN A Republican stimulus that just might work klein from G1
noted that there was no word of it two weeks ago, when he first drafted his op-ed. “If they’re there,” he told me, “that’s good.” Put all that together, and Daniels is offering more than $500 billion worth of stimulus in 2011. Some of that would be offset by the policies he proposes to pay for the new spending (which include recapturing unspent funds from appropriation bills and the original stimulus, a hiring freeze for the federal government and giving the president authority to block congressional spending projects after they’ve been signed into law), but we’re still talking about a very serious rescue package. A year ago, these proposals would’ve put Daniels in lockstep with his Republican colleagues in Congress. This year, they put him much nearer to the increasingly desperate Democrats. And that might leave him in no-man’s land. In 2009, when Republicans were still proposing serious alternatives to the president’s proposals, many of them — including Sens. John McCain and Mitch McConnell — supported a payroll-tax holiday. It was the administration that balked, preferring a more targeted tax cut combined with infrastructure spending, state and local aid and relief programs like unemployment insurance and food stamps. But the recession quickly overwhelmed the stimulus package Democrats had designed to contain it. That might have been fine: Erring on the side of a smaller stimulus is fine, at least if Congress was willing to increase the size of the policy if the crisis proved larger than the policy. But that’s not what happened: Rather than adjusting the stimulus effort upward, Republicans used the grim economy to drag the Democrats — and most every secondary policy they offered — down. With the grim economy draining their popularity and Republicans turning the public against their stimulus proposals, Democrats began looking for compromises that Republicans might support. Fast forward to September 2010 and the Obama administration is down to proposing a raft of tax cuts for corporate America as its next major move on stimulus.
But as congressional Republicans looked toward
an overwhelming win in the midterm elections, their interest in compromise waned. After all, “President Obama has proposed a sensible and bipartisan set of policies to improve the economy” is not a great message for the opposition party. If Obama is so great, why elect any Republicans at all? The political logic is sound — and Democrats
hew to it when they’re in the minority, too — but it makes compromise difficult. It’s why House Republicans are left without any new or ambitious policies to set the economy right. Better to be vague and win than constructive and lose. Meanwhile, the administration is primed for
something not far from what Daniels has laid out: It supports allowing businesses to write off capital investment, it has proposed a line-item veto similar to the “impoundment” procedure Daniels envisions, and it calls for a freeze in the federal government’s discretionary spending. As for the payroll-tax holiday? Jason Furman, deputy director of the National Economic Council, says the White House would be open to it. “The president is willing to do whatever it takes to accelerate the pace of job growth and income creation,” he told
What they are proposing to stimulate the economy
President Obama:
Small business lending bill Infrastructure bank that puts money toward mass-transit systems, housing properties, roads, bridges, and others Research and development tax credit Capital investment write-offs Extend Bush tax cuts for middle class
House Minority Leader John A. Boehner (R-Ohio)
Extend Bush tax cuts for all Pass budget that holds spending at the 2008 level
Gov. Mitch Daniels (R-Ind.)
2011 Payroll tax holiday Capital investment write-offs Federal hiring freeze Giving the president authority to block congressional spending projects after they’ve been signed into law Regulatory forbearance Recapture unspent appropriation/stimulus/TARP funds
me. The only thing that it’s hard to imagine the administration supporting is Daniels’s idea for a temporary pause in enforcing environmental regulations. What’s harder to imagine is Boehner and the
House Republicans joining with the administration to offer a major new stimulus package. There’s a good chance that John Boehner will be Speaker of the House when Congress reconvenes in 2011, but he’ll have gotten there by directing his flock to oppose most everything over the past two years. That’s left him and his party with precious little they can actually support once burdened with the responsibility of actually governing.
Daniels sees his proposal as requiring something from both sides. “Republicans have to accept the responsibility to step forward constructively, and Democrats have to accept that we’ve been headed in the wrong direction with the expansion of government,” he says. That sounds like a lot less compromise from the Democrats than the Republicans. Shouldn’t constructive engagement be expected from our politicians? The real compromise from congressional Republicans will be agreeing with the administration about something. Giving the other party’s president an accomplishment is always hard. But to Daniels, this set of tax cuts and spending reductions is worth it. The alternative is too painful to contemplate. “I’ve been searching every day for evidence that the economy is getting on its feet in a big way,” he says. “I haven’t been able to find it. I still see as many downside risks as up. So I don’t overclaim for this set of ideas, but I do think that all parties here have a stake in action.” He’s right. So pass the brandy, and let’s get on
with it.
kleine@washpost.com
Morningstar recently rated T. Rowe Price the #1 fund company among the 30 largest fund groups based on portfolio manager tenure and retention, managers’ investment in their funds, their funds’ three-year performance, and Morningstar Stewardship Grades. Past performance cannot guarantee future results. Visit our Web site or call our Retirement Specialists to put our disciplined, proven approach to work for your retirement savings.
ROLL OVER YOUR OLD 401(k)
TO THE FIRM RATED #1 BY MORNINGSTAR
documents, court records and interviews, at least five convict- ed felons are now working for FHA lenders or worked for them in recent years. Gregg S. Marcus, for example, was co-owner of a mortgage company called Gettysburg Funding Corp. when he pled guilty in 1998 to federal tax eva- sion in New York following an investigation of false loan appli- cations at that company, accord- ing to court records. Marcus was sentenced to five years proba- tion and fined $50,000. His busi- ness partner at Gettysburg Funding pled guilty to bank fraud. Marcus went on to become ex-
ecutive director at another mort- gage lender, Somerset Investors Corp. A HUD database shows Somerset remains an FHA-ap- proved lender. The company’s status as an FHA lender did not change after a March 2010 audit by HUD’s inspector general rec- ommended Somerset return $2.8 million in insurance pay- ments to the agency because of “significant underwriting defi- ciencies” in the firm’s loans. The government auditors, who had not set out to examine individu- al executives, didn’t identify Marcus as a convicted felon.
HUD officials declined to comment on Marcus and his criminal conviction. In a state- ment, HUD said that the presi- dent of Somerset recently certi- fied that none of company’s em- ployees “were currently in, or had been involved in, an in- vestigation that could result or has resulted in a criminal con- viction. If the information was false, the certification would be inaccurate and may warrant ad- ministrative action by HUD.” Marcus and his wife, Randi, who is the president of Somer- set, did not respond to certified letters requesting comment for this article. Phone calls and e- mails sent to Somerset were not returned.
While HUD says it tries to
keep felons out of the FHA pro- gram, housing officials say they cannot bar other individuals just because they had previously worked for a banned lender. “Termination of a lender does not specifically prohibit its prin- cipals and senior executives from seeking employment with approved lenders or forming a new company that may seek ap- proval,” HUD said in a state- ment.
HUD’s own inspector general,
Kenneth Donohue, warned at a Senate subcommittee hearing in May that FHA suffers from a “systemic weakness” by allowing these individuals to continue do- ing business with the agency.
“Without specific citations against individuals (FHA) could not link principals of a defunct company to those same individ- uals who would go on to form new entities,” Donohue said. “We see this type of maneuver too often and it makes the FHA program too easy a target for those intent on abusing the pro- gram.”
At least four FHA lenders em-
ploy executives who previously worked at companies banned from doing business with the agency, according to documents and interviews. Lend America was banned by HUD last December after the Justice Department accused the company of originating fraudu- lent loans insured by the FHA. Lend America’s chief business strategist, Michael Ashley, was barred from the FHA for life in March. But at least one of the firm’s other senior executives now works as a sales manager at a company currently approved to make FHA loans. In another instance, a former senior executive with BSM Fi- nancial, an FHA lender based in Allen, Tex., has worked for two other FHA lenders since that company was barred from the program in 2009. The executive is currently a top official at an- other FHA lender in Texas, ac- cording to documents and inter- views.
BSM had run into trouble in 2006 with auditors from HUD’s Office of Inspector General, who reported that “the lender ap- proved mortgages on overvalued properties for borrowers that were less than creditworthy.” The auditors recommended BSM reimburse $2 million in losses on foreclosed homes, along with other penalties. In April 2009, BSM was banned from the FHA program because the firm never made the first payment required by a settle-
G5 Executives with criminal records slip through FHA probe
ment agreement following the audit. In a statement responding to questions about why the exec- utives have been able to move between various FHA lenders, HUD says, “misconduct or poor performance by a company does not necessarily extend to its offi- cers or employees absent evi- dence that the officers or em- ployees participated in, directed, knew about or had reason to know about specific violations or misconduct.” Stevens, the FHA commission-
er, said his agency follows the principle of due process when deciding which individuals to bar. “You can’t just throw someone out because you don’t like them,” he said. “They have to violate a law; they have to commit a crime.”
HUD officials acknowledge
that most background checks on lender employees are generally limited to “principals” — indi- viduals identified by FHA firms as senior executives or owners of the company.
Because HUD allows lenders to identify their own principals, firms sometimes do not disclose the senior role played by con- victed felons.
According to the Justice De-
partment lawsuit filed against Lend America, for example, its chief business strategist, Mi- chael Ashley, had a 10-year his- tory of state sanctions and a fed- eral conviction related to a mort- gage fraud scheme. The Justice Department alleged that he di- rectly controlled sales at the firm. Yet Lend America never identified Ashley as one of its principals.
The Center for Public Integrity is a nonprofit, nonpartisan organization dedicated to producing original investigative journalism on issues of public concern.
Our Retirement Specialists can help you get started. > We’ll help you understand all the advantages of rolling over your old 401(k). > We can contact your previous employer and help you with the transfer paperwork.
> We’ll help you find the right investment mix. We offer over 70 funds for your IRA, with no loads, sales charges, or commissions.
troweprice.com/roll 1.866.862.4074
Request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. All
mutual funds are subject to market risk, including possible loss of principal. Morningstar FundInvestor, June 2010. Morningstar evaluated the 30 largest fund groups (based on asset size) on the following measures: manager retention rates over the last 5 years; fund management tenure (how long the portfolio managers have managed their funds); fund managers’ investment in the fund they manage; 3-year asset-weighted performance of all share classes; and Morningstar Stewardship Grades, which evaluate a fund group’s culture, fees, Boards of Directors, manager incentives, and regulatory records. Data used were as of 5/31/10 except for manager retention, which is through 12/31/09.
©2010 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
T. Rowe Price Investment Services, Inc., Distributor. IRAR079133
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166