Wielding a Heavy Enforcement Hammer Has Unintended Consequences for the FHA Mortgage Market

Brief

Wielding a Heavy Enforcement Hammer Has Unintended Consequences for the FHA Mortgage Market

May 7, 2015

Abstract

This brief examines the impact of uncertain litigation risk as a factor contributing to lenders’ current reluctance to originate Federal Housing Administration loans. The author concludes that the significant, easily triggered liability of both the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act have had a chilling effect, causing some lenders to do less origination to reduce their litigation risk. The author recommends slight modifications to the enforcement regime, including some already under development, that would more effectively encourage proper lender behavior, without unnecessarily constraining access to credit.

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