In response to a request from Senator Charles Grassley, Ranking Member, Senate Committee on Finance, we conducted an evaluation of Mortgagee Review Board (MRB/Board) enforcement actions as part of HUD's oversight of Federal Housing Administration (FHA) single-family mortgage lenders. Senator Grassley asked us to update a review of the MRB by the Government Accountability Office (GAO) in its 2004 report on FHA risk management. The evaluation focused on MRB rulings in fiscal year (FY) 2008 and the 10 specific questions that were asked in his letter. Our objectives were to identify the facts related to those questions and provide an independent assessment of the MRB's effectiveness in deterring abuse in FHA mortgage lending.
The MRB was established by statute in 1989 as an enforcement body at HUD authorized to take administrative sanctions against FHA approved lenders. These include letters of reprimand, probations and suspensions, withdrawals, and entering into settlement agreements with lenders. It is also authorized to impose civil money penalties against lenders for a set of violations specified in the regulations at 24 C.F.R.  30.35. A description of and the cause for each administrative action taken by the Board is required, under 24 C.F.R.   25.10, to be published in the Federal Register at least quarterly. The MRB's annual report indicated it ruled on 94 single-family lender referrals in FY 2008, 65 of which were administrative cases of noncompliance with FHA annual recertification requirements.

We reviewed 25 referrals (no administrative cases) to the MRB during FY 2008 for rulings on violations of FHA single-family regulations and policy.

The MRB's sanctions directly affected only a small number of lenders out of a possible 12,461 FHA approved single-family lenders. The violations for which the MRB cited lenders rarely warranted withdrawal of FHA lending authority. The sanctions and fines obtained against lenders were frequently mitigated. Elapsed time to complete Board action was slow, taking an average of 6.4 months following notice to the lender, and was prolonged by case development or settlement negotiations in many instances. The MRB's public visibility was also greatly reduced because the results of its rulings were not published in the Federal Register in FY 2008 as required or otherwise disseminated on HUD's Web site.

The MRB will remain marginal as an effective sanctioning body unless its enforcement actions include a much larger caseload. Its effectiveness will depend on FHA dedicating more resources to quality assurance monitoring and referring a greater number of targeted lenders to the MRB for sanctioning. A referral to the Board should elicit the expectation of a maximum sanction that reach in a significant way to problematic lenders and serve as a strong deterrent to abusive practices. Imposed penalties should be viewed as of real financial consequence to the violating lender, rather than as a negotiable administrative cost of doing FHA mortgage business. For greater public impact and higher industry visibility, Board decisions and the adverse consequences of violating FHA lending standards must be timely disseminated through the Federal Register, the Department's and trade association Web sites.