Yet despite these red flags, a little-known federal agency continued giving its blessing to Lend America, allowing it to do business in the name of the U.S. government. The Government National Mortgage Association, known as Ginnie Mae, authorized the firm to bundle its mortgages into securities and sell them to investors around the world — all backed by U.S. taxpayer money.
Until last week, federal housing officials said that Lend America met requirements for participating in the program run by Ginnie Mae, an agency in the Department of Housing and Urban Development, and allowed the firm to sell more than $1 billion in mortgages via Ginnie Mae securities.
Lend America is hardly the only lender with a troubled record that Ginnie Mae has endorsed. The agency has provided taxpayer backing to at least 36 other mortgage companies with a history of reckless lending, fines or other sanctions by state and federal regulators or civil lawsuits, according to an analysis of government records, court documents and statistics in a HUD database.
RelatedHome interest rates up a bitFanning the flamesGinnie Mae's ongoing relationship with these firms allows them to swap the home loans they've made for new cash so they can make more loans, which can then be traded for even more cash to make even more loans.
Housing experts say this dynamic turbocharges the type of bad mortgage lending that first helped trigger the financial crisis that battered global markets over the past two years. And ultimately, taxpayers are on the hook for the troubled mortgages.
"Ginnie is like an accelerant to a fire," said Anthony Sanders, professor of real estate finance at George Mason University.
More than a dozen lenders with Ginnie's endorsement have made loans that are now delinquent at rates far in excess of what regulators consider acceptable. And some of these lenders have been accused of misleading borrowers and the government about these loans.
(2 of 2)Washington Report: Higher Costs, Tougher StandardsMortgage aid requests soar
