oversight

Austin Loan Corporation, Non-Supervised Loan Correspondent, Austin, TX

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-06-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                          U.S. Department of Housing and Urban Development
                                                          Office of Inspector General, Region VI
                                                          819 Taylor Street, Room 13A09
                                                          Fort Worth, Texas 76102

                                                          (817) 978-9309 FAX (817) 978-9316
                                                           http://www.hud.gov/offices/oig/




June 4, 2004                                              2004-FW-1802

MEMORANDUM FOR: John C. Weicher
                Assistant Secretary for Housing-Federal Housing Commissioner, H



FROM:                        D. Michael Beard
                             Regional Inspector General for Audit, 6AGA

SUBJECT:                     Austin Loan Corporation
                             Non-Supervised Loan Correspondent
                             Austin, Texas


                                           INTRODUCTION

We have completed an audit of Austin Loan Corporation, a non-supervised loan correspondent.
The objective of our audit was to ensure Austin Loan’s compliance with HUD/FHA Single
Family Insurance regulations.

                                     SCOPE/METHODOLOGY

Our audit included defaulted loans originated by Austin Loan during the period May 1, 2001,
through May 31, 2003. We selected our sample from the list of Austin Loan’s defaulted loans
contained in HUD’s Neighborhood Watch System. 1

In order to achieve our objective, we:
    • Reviewed loan files provided by Austin Loan, HUD, and various title companies;
    • Interviewed HUD staff and the staff of Austin Loan;
    • Reviewed relevant HUD regulations;
    • Reviewed Austin Loan’s policies and procedures;
    • Reviewed Austin Loan’s Quality Control Review Reports;
    • Interviewed third parties to the FHA loans;
    • Contracted for and reviewed field reviews of appraisals;2
    • Analyzed FHA loan and default data from HUD’s automated systems.


1
    We did not perform procedures to assess the data contained in HUD’s Neighborhood Watch System. Our audit
    testing did not include any other computer-generated data.
2
    The field reviews were performed by an outside appraiser.
We performed our fieldwork from September 15, 2003, through March 24, 2004. We performed
our fieldwork at Austin Loan’s office in Austin, Texas, and HUD’s office in San Antonio, Texas.
The audit was conducted in accordance with generally accepted government audit standards.


                                            BACKGROUND

Austin Loan3 is a loan correspondent with multiple direct endorsement sponsors. It began
originating FHA mortgages as well as conventional mortgages in 1999. HUD terminated Austin
Loan’s ability to originate FHA mortgages in the San Antonio district in September 2002 due to
its high default rate. Austin Loan voluntarily discontinued originating FHA mortgages in July
2003.

According to Mr. Ollendorff, Austin Loan’s President, he decided to discontinue originating
mortgages as Austin Loan after losing the ability to originate mortgages in the San Antonio
district since most of its business was generated in that area. Therefore, he approached Premier
Mortgage Funding, Inc. (Premier) regarding becoming a branch of Premier. Mr. Ollendorff
stated that his company began originating loans for Premier in May 2003.4


                                       RESULTS OF REVIEW

Austin Loan did not implement its Quality Control Plan in compliance with HUD regulations.
Austin Loan was either unfamiliar with or ignored HUD’s requirements regarding the
implementation of Quality Control Plans. As a result, HUD has no assurance that Austin Loan’s
quality control process ensured compliance with HUD/FHA regulations.

Our audit work also disclosed possible conflict of interest situations and faulty and deficient
appraisals. We have referred these issues for possible further review.

Criteria
HUD Handbook 4060.1, Mortgagee Approval Handbook contains specific guidance for the
development and implementation of Quality Control Plans. The Handbook requires analysis of
all loans going into default within the first 6 months. These reviews are imperative in order to
determine the reasons for the early defaults.

Austin Loan did not implement its Quality Control Plan in accordance with HUD
regulations.

Contrary to HUD regulations, and their own Quality Control Plan, Austin Loan did not review
100 percent of its loans going into default within the first 6 months. In fact, only 2 of the 17 files
included in our audit sample were included in the Quality Control Reviews provided by Austin

3
    Austin Loan dba Austinloan.com
4
    The dba of Austinloan.com was assigned to Premier Mortgage Funding, Inc. At the same time Austin Loan
    Corp. abandoned the dba of Austinloan.com.


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Loan. Since each of the loans included in our audit sample defaulted within the first 6 months;
they each should have been subjected to a Quality Control Review.

One of the primary objectives of a Quality Control Plan is to assure compliance with HUD/FHA
requirements and to assure prompt and effective corrective measures are taken when deficiencies
in loan origination are identified. HUD should take steps to ensure that the current operation of
Premier Mortgage Funding, Inc. (dba, Austinloan.com) is in compliance with HUD regulations
concerning Quality Control Plans.

We held an exit conference with the auditee on May 18, 2004. In addition, written comments
were provided on May 27, 2004. Mr. Ollendorff generally agreed with the finding in the
memorandum.


                                    AUDITEE COMMENTS

Mr. Ollendorff agreed that Austin Loan did not have the required Quality Control procedures in
place during the audit timeframe. However, Mr. Ollendorff stated that they have taken drastic
steps to correct this deficiency. Numerous consultants provided Mr. Ollendorff and his staff
training on Quality Control procedures. As a branch of Premier, Austin Loan is required to
submit one of every ten FHA loan files for an outside quality control audit. Mr. Ollendorff also
indicated that since operating as a branch of Premier, Austin Loan has no delinquencies or
deficiencies in their loan files and have therefore, not had to submit additional files for review.
Further, Mr. Ollendorff indicated that Austin Loan would welcome a review by HUD, as they
are extremely proud of all the changes they have made.


                      OIG EVALUATION OF AUDITEE COMMENTS

We appreciate the steps taken by Austin Loan to strengthen the quality control process.
However, since effective quality control plays a major role in the loan origination process, we
feel a review of the plan by HUD is necessary.


                                     RECOMMENDATION

We recommend that HUD:

1A   Take steps to ensure that the current operation of Premier Mortgage Funding, Inc. (dba,
     Austinloan.com) is in compliance with HUD regulations concerning Quality Control Plans.




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