The U.S. Department of Housing and Urban Development – Office of Inspector General audited the Federal Housing Administration because we noted during previous audit work that FHA might not have a system in place to track lenders who voluntarily left the FHA program with outstanding indemnification agreements. Our objective was to determine whether FHA prevented corporate officers from participating in FHA programs after those officers left other lenders that did not honor their FHA indemnification agreements.

FHA did not prevent lenders’ corporate officers from participating in FHA programs after those officers left other lenders that did not honor their FHA indemnification agreements. We found 12 different corporate officers who were participating in the FHA program after leaving 7 lenders that did not honor their indemnification agreements and had lost their FHA approval. However, FHA lacked the authority to prevent these corporate officers from reentering the FHA program.

We recommend that FHA seek legislative and program rule changes to prevent lenders and their corporate officers with unsatisfied indemnification agreements from reentering the FHA program as the same or a new lender.