Washington, DC - Congresswoman Jackie Speier partnered with fellow Californian, Congresswoman Maxine Waters, and Ohio Congressman Steve Driehaus to author the Honest FHA Originator Act of 2009 to prohibit unscrupulous lenders from participating in Federal Housing Administration (FHA) programs.

The bill was included as an amendment to the Helping Families Save Their Homes Act” (HR 1106), which was passed by the House of Representatives on Thursday.  HR 1106 also included Speier’s amendment to include homeowners in higher-cost areas like the Bay Area into the Treasury Department’s mortgage modification program.

In February, the Center for Responsible Lending issued a report estimating that the 12th Congressional District can expect 26,388 foreclosures over the next four years.  Nationally, recent estimates run as high as one in eight homes being currently in foreclosure or “under water” (the amount owed exceeds the current market value).  To help remedy this situation, Congress and the president have introduced programs to make it easier for homeowners to refinance or modify their mortgages.  The Speier/Waters/Driehaus amendment requires the Department of Housing and Urban Development to approve all parties participating in the FHA single family mortgage origination process and prohibits applicants who have been found to engage in unscrupulous or predatory lending practices. 

“It would be a real tragedy if the same crooks and incompetents who drove our economy into the ditch were allowed to get back behind the wheel and write more loans,” Congresswoman Speier said.  “This legislation helps prevent that from happening.”

At a January meeting of the House Financial Services Committee, Rep. Speier raised the issue of Jerry Cugno, owner of Florida-based Premier Mortgage Funding, one of the nation’s largest subprime lenders.  By the time Premier filed for bankruptcy in 2007, its license had been revoked by five states - Florida, Georgia, North Carolina, Ohio and Wisconsin - for multiple violations.  After the bankruptcy, Premier continued to issue taxpayer-insured mortgages, more than 2,000 worth a total of $250 million, according to a November 19, 2008 BusinessWeek article.

“Now, members of the Cugno family have started a brand new company called Paramount Mortgage Funding,” the BusinessWeek piece continued.  It operates a floor below Premier’s headquarters in a three-story black-glass office building Jerry Cugno owns in Clearwater.  In August, 2007, only weeks after Premier sought bankruptcy protection, the FHA granted Paramount a license to issue government-backed mortgages.”  

Speier asked an FHA administrator what his agency was doing to make sure this wasn’t still happening and was told that they were reviewing their process.  That’s when Speier and fellow committee members Waters and Driehaus decided to act.  In addition to HUD approval of all licenses, the amendment requires that all FHA-approved mortgagees use their licensed names and retain a copy of all advertising materials.

“Fraud and abuse are problems even during the best of times,” Speier said, “but when economic markets are reeling and ordinary Americans are desperate for solutions, the scam artists seem to multiply faster than cockroaches.  This bill puts teeth into the regulators’ bite so they can rid the FHA market of those who would seek to take advantage of our situation.”