oversight

Survey of NovaStar Home Mortgage's Use of Net Branches

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-09-30.

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

                                                         Issue Date
                                                                September 30, 2004
                                                         Audit Case Number
                                                                2004-KC-1801




TO: John Weicher, Assistant Secretary for Housing - Federal Housing Commissioner,
      Chairman, Mortgagee Review Board, H


      //signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: Survey of NovaStar Home Mortgage’s Use of Net Branches


                                       INTRODUCTION
We surveyed NovaStar Home Mortgage’s (NovaStar) use of net branches to determine whether
it is complying with applicable requirements in its use of net branches. We determined that it
was not fully complying with applicable U.S. Department of Housing and Urban Development
(HUD) requirements in its use of net branching at the time of our review. We found the
agreements used in its branch offices contained language prohibited by HUD. We also
determined that NovaStar improperly used independent contract loan officers in the origination
of Federal Housing Administration mortgages. NovaStar is currently updating its branch
agreements and as of June 1, 2004, is no longer allowing the employment of independent
contract loan officers. These changes should help ensure that NovaStar complies with HUD
requirements in its use of net branches.

During our survey, we interviewed appropriate headquarters and field staff. In addition, we
reviewed HUD Handbooks, Mortgagee Letters, and the Code of Federal Regulations to obtain an
understanding of the regulatory guidance pertaining to net branching. We also interviewed
NovaStar’s main office staff and branch office staff, and reviewed and evaluated its quality
control processes and policies and procedures. We conducted limited testing of NovaStar data
and HUD’s Single Family Data Warehouse. However, due to time constraints and the
expectation of minimal added benefit, we did not determine the reliability of the data provided
by NovaStar. We used these data solely to identify loans that were originated by contractors.
We verified the results of this effort with NovaStar.

The survey period was January 1 through December 31, 2003. This period was expanded to
include the most current data when applicable. We conducted the survey in accordance with
generally accepted government auditing standards.
In accordance with HUD Handbook 2000.06, REV-3, within 60 days, please provide us for each
recommendation without a management decision, a status report on (1) the corrective action
taken, (2) the proposed corrective action and the date to be completed, or (3) why action is
considered unnecessary. Additional status reports are required at 90 days and 120 days after the
report is issued for any recommendation without a management decision. Also, please furnish
us copies of any correspondence or directives issued because of the audit.

Should you or you staff have any questions, please contact me at (913) 551-5870.


                                          SUMMARY

NovaStar did not comply with applicable HUD requirements in its use of net branches. We found
that the limited liability company agreements, employment agreements, and lease/sublease
agreements used in its branch offices contained language prohibited by HUD. We also determined
that NovaStar improperly used independent contract loan officers in the origination of Federal
Housing Administration mortgage loans. As a result, HUD lacks assurance that NovaStar has the
capability to successfully originate Federal Housing Authority-insured loans and, therefore,
assumes an increased risk.

NovaStar has initiated actions to correct these deficiencies by eliminating all limited liability
company agreements, as well as removing the prohibited language from the employment and
lease/sublease agreements. Also, as of June 1, 2004, NovaStar is no longer allowing the
employment of independent loan officers.


                                       BACKGROUND

NovaStar Mortgage created NovaStar Home Mortgage, a retail branch organization, to allow
established loan originators the opportunity to maintain a high degree of independent thought,
while obtaining the benefits of being affiliated with a large, financially sound organization.
NovaStar was approved by HUD on March 22, 2001, as a nonsupervised loan correspondent.
As such, its principal activity is the origination of mortgages for sale or transfer to an approved
sponsor.

Only a small portion (4.5 percent) of NovaStar’s business is the origination of Federal Housing
Administration loans. During the 2-year period of January 1, 2002, through December 31,
2003, NovaStar originated 57,720 loans, of which 2,580 were Federal Housing Administration
loans, including 61 that defaulted within the first year. The following chart depicts Novastar’s
Federal Housing Administration loan activity and all Federal Housing Administration activity
during this same timeframe.

                                                                                  1st Year
                              Total Loans             Defaulted Loans           Default Rate
NovaStar                         2,580                       61                    2.36%
Overall                        2,370,440                  64,261                   2.71%




                                             Page 2
                                             FINDING 1

                  Branch Office Agreements Contained Prohibited Language

NovaStar’s branch office agreements contained language strictly prohibited by HUD. Its
management did not take appropriate actions to ensure that HUD requirements were followed for
the origination of loans. As a result, HUD lacks assurance that NovaStar has the capability to
successfully originate insured loans and, therefore, assumes an increased risk on those loans
originated by NovaStar.

We reviewed the following agreements between NovaStar and its branch offices to determine
whether they complied with HUD requirements:

    •   Limited liability company agreements
    •   Employment agreements
    •   Leases/sublease agreements

We found deficiencies with each of the agreements. The limited liability company agreement
stated that once a branch office was established, “. . .the branch manager may be required to
contribute cash capital from time to time on a monthly basis in an amount equal to the most recent
month’s fixed expenses to maintain sufficient working capital and reserves for the Company’s
business.” The agreement also stated, “NovaStar shall receive compensation for its services
provided to the company. Such compensation shall include distributions twice per month for Office
Expenses, but only to the extent such expenses exceed the total of all fees, yield spread premium
and other compensation received by NovaStar for all Closed Loans for that month, minus
NovaStar's Fee.” Paragraph 2-17, “Operating Expenses,” of HUD Handbook 4060.1, REV-1, states
that a mortgagee is required to pay all of its operating expenses. The operating expenses that must
be paid by the mortgagee include but are not limited to equipment, furniture, office rent, overhead,
and other similar expenses incurred in operating a mortgage lending business.

The limited liability company agreement also stated, “. . .the members and their affiliates may
engage or invest in any activity, including without limitation those that might be in direct or indirect
competition with the Company.” Paragraph 2-14, “Conducting Mortgagee Business,” of HUD
Handbook 4060.1, REV-1, states that all employees of the mortgagee, except receptionists, whether
full or part time, must be employed exclusively by the mortgagee at all times and conduct only the
business affairs of the mortgagee during normal business hours.

In addition, the employment agreements between NovaStar and the branch offices contained
provisions indemnifying the mortgagee from any risk associated with the loans originated by the
independent contract loan officer. The agreement stated, “. . .an employee shall indemnify and hold
NovaStar and its affiliated corporations, and their respective officers, directors, agents, employees,
and insurers harmless from and against any and all claims, losses, damages, etc. arising on account
of (1) any intentional misconduct or misrepresentation made by Employee, and/or (2) any violation
of this agreement, and (3) any third party claim for personal injury or property damage, any other
civil liability, or any fines or penalties imposed by any state or federal regulatory agency to the
extent caused by the actions or conduct of Employee outside the course and scope of Employee's
employment.” In Mortgagee Letter 95-36, “Mortgagee Approval – Single Family Loan

                                                Page 3
Production,” HUD specifies that customary loan origination functions may not be contracted out, as
the mortgagees are held responsible for the quality of loans and compliance with HUD
requirements. Furthermore, in Mortgagee Letter 00-15, “Prohibited Branch Activities,” HUD
provides examples of provisions identified during reviews of employment agreements, which
violated departmental branch requirements, and one of these provisions includes an indemnification
clause.

The lease/sublease agreements also contained indemnification language and assignment of
responsibility language, which is strictly prohibited by HUD. The previous versions of the lease
agreements also contained an “assignment of lease” and a “consent of landlord” agreement, which
is how some of the responsibility was assigned to NovaStar. The assignment of lease contained a
clause that indemnifies NovaStar from any loss, cost, or expense relating to the failure to fulfill
obligations under the lease. Mortgagee Letter 00-15, “Prohibited Branch Activities,” prohibits the
use of indemnification agreements. The consent of landlord contained a clause that leaves the
branch manager primarily obligated as the tenant under the lease. Paragraph 2-17 of HUD
Handbook 4060.1, REV-1, states that a mortgagee is required to pay all of its operating expenses.
The operating expenses that must be paid by the mortgagee include but are not limited to
equipment, furniture, office rent, overhead, and other similar expenses incurred in operating a
mortgage lending business.

We believe that the deficiencies in the branch agreements occurred because NovaStar’s
management did not take appropriate actions to ensure that HUD requirements were followed for
the origination of insured loans. NovaStar’s management developed the limited liability company
agreements, as well as the lease agreements, to increase NovaStar’s capital structure and help offset
losses from the branch offices that were not successful. The employment agreement that contained
the HUD-prohibited language was developed by NovaStar management to be used in conjunction
with the limited liability company agreement. All of these agreements were developed to alleviate
some of the risk from NovaStar for its branch offices.

When improper net branching practices are followed, HUD lacks assurance that a mortgagee has
the proper accountability and control over the origination of insured loans. HUD also lacks
assurance that the mortgagee has the capability to successfully originate insured loans and,
therefore, assumes an increased risk.

NovaStar has initiated actions to correct the deficiencies by eliminating all limited liability
company agreements, as well as removing the prohibited language from the employment and
lease/sublease agreements. Once the deficiencies are corrected, NovaStar will be more responsible
for its branch office operations and more compliant with HUD regulations.


                                    AUDITEE COMMENTS

NovaStar believes its agreements were designed to comply with HUD requirements, but has
taken efforts to remove all potentially prohibited provisions from the agreements. Excerpts of
NovaStar’s comments follow. Appendix B contains the complete text of comments.

“. . . In establishing the Limited Liability Company Agreements and related arrangements,
NHMI obtained the advice of competent legal counsel for purposes of complying with


                                              Page 4
HUD/FHA requirements. NHMI believes that the agreements and arrangements complied with
HUD/FHA requirements. Nevertheless, on its own initiative, based on changes to company
policies and procedures, NHMI eliminated the Limited Liability arrangements. . ..”

“. . . The Employment Agreements and related arrangements were established by NHMI based
on the advice of competent counsel for purposes of complying with HUD/FHA requirements,
and NHMI believes that the agreements and arrangements complied with HUD/FHA
requirements.” “On its own initiative, based on changes in company policies and procedures,
and prior to the HUD IG review, NHMI had started the process of revising the Employment
Agreements to remove the language cited as being inappropriate by the HUD IG. . ..”

“In establishing the Lease/Sublease Agreements and related arrangements, NHMI obtained the
advice of competent legal counsel for the purposes of complying with HUD/FHA requirements.
NHMI believes that the agreements and arrangements complied with HUD/FHA requirements.
Nevertheless, on its own initiative, based on changes to company policies and procedures, and
prior to the HUD IG review, NHMI started the process of revising the Lease/Sublease
Agreements and related arrangements. . ..”


                    OIG EVALUATION OF AUDITEE COMMENTS

We commend NovaStar for taking steps to remove the prohibited language from the branch
office agreements. If fully implemented, this should correct the deficiencies noted in these
agreements.


                                  RECOMMENDATIONS

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner,
Chairman, Mortgagee Review Board

   1A. Verify that NovaStar follows through and corrects all the deficiencies identified in its
       branch office agreements. At a minimum this should include:

           •   Removal of all limited liability company agreements.
           •   Removal of prohibited language from employment agreements.
           •   Removal of prohibited language from lease/sublease agreements.




                                           Page 5
                                           FINDING 2

   NovaStar Allowed Independent Contract Loan Officers To Originate Federal Housing
                                Administration Loans

NovaStar improperly allowed independent contract loan officers, or Internal Revenue Service
Form 1099 contractors, to serve as loan officers on 122 loans during fiscal year 2003.
NovaStar’s management did not take appropriate action to ensure that staff followed HUD
requirements when originating loans. As a result, HUD lacks assurance that NovaStar has the
capability to successfully originate insured loans, and therefore, HUD assumes a greater risk.

Mortgagee Letter 95-36, “Mortgagee Approval - Single Family Loan Production,” states that
customary loan officer functions may not be contracted out, as mortgagees are held responsible
for the quality of loans and compliance with HUD requirements. More specifically, loan
origination functions may not be contracted out to third party originators, real estate brokers, and
other similar entities. HUD Mortgagee Letter 00-15, “Prohibited Branch Activities,” further
defines HUD’s position that the use of non-employees for the origination of insured loans
increases the risk to the insurance fund.

NovaStar provided information showing that independent contract loan officers originated 122
Federal Housing Administration loans during 2003 (see appendix A). Initially during the audit,
we used NovaStar’s data to identify 33 loans that were originated by independent contract loan
officers. When we notified NovaStar officials of these findings, they responded that their desire
was to provide a different and more comprehensive list of loans originated by independent
contract loan officers. The new list of independent contract loan officers contained 122
violations.

We conducted limited testing of the data provided by NovaStar, but due to time constraints and
the expectation of minimal added benefit, we did not perform additional work to determine the
reliability of the data. We verified the 122 exceptions with NovaStar. However, since we did
not verify the reliability of the data we used, we cannot conclude whether there are more
exceptions than the 122 identified in appendix A.

NovaStar management is aware that independent contract loan officers are prohibited from
originating Federal Housing Administration-insured loans. We believe that the use of
independent contract loan officers in the origination of insured loans occurred because
NovaStar’s management did not take appropriate action to ensure that staff followed HUD
requirements during the origination of insured loans.

When improper net branching practices are followed, HUD lacks assurance that a mortgagee has
the capability to successfully originate insured loans, and therefore, HUD assumes an increased
risk.

NovaStar has initiated actions to correct the deficiencies identified by eliminating all
independent contract loan officers. A memorandum from NovaStar management dated April 1,
2004, details that effective June 1, 2004, NovaStar will no longer pay anyone who remains as an
Internal Revenue Service Form 1099 contractor. Once the deficiencies are corrected, NovaStar


                                              Page 6
will be more responsible for its branch office operations and more compliant with HUD
regulations.


                                  AUDITEE COMMENTS

NovaStar disagrees with our conclusion that it inappropriately used contract loan officers to
perform loan origination functions, but has made efforts to eliminate all contract loan officer
arrangements. Excerpts of NovaStar’s comments follow. Appendix B contains the complete
text of comments.

“. . . HUD/FHA requirements do not mandate that loan officers be compensated on a W-2 basis,
nor do they prohibit the compensation of loan officers on a 1099 basis. No HUD Handbook or
Mortgagee Letter provides that compensation of loan officers on a 1099 basis is prohibited. In
fact, during the 4th Annual FHA Mortgage Conference. . .the Director of FHA’s Office of Lender
Activities and Program Compliance stated that paying FHA loan officers using IRS Form 1099
is permitted under FHA program rules.”

“HUD Handbook 4060.1 provides simply that “Mortgagees are required to exercise control and
responsible management supervision over their employees. The requirement regarding control
and supervision must include, at a minimum, regular and ongoing reviews of employee
performance and of work performed. . ..” “In Mortgagee Letter 95-36, HUD announced that
mortgagees could contract out certain functions, but advised that underwriting and customary
loan officer functions may not be contracted out. Thus, the focus of the HUD/FHA requirements
is that the mortgagee conduct functions with its staff that is supervised. IRS tax rules do not
address control and supervision of loan officers for FHA purposes - the rules address only tax
issues. If HUD desired to adopt IRS tax rules for purposes of defining staff requirements for
mortgagees it could have done so. HUD has not done so. Thus, the issue for FHA purposes is
whether a mortgagee exercises appropriate control and supervision over staff, and IRS rules have
no bearing on this issue. . ..”

“We understand that HUD is in the process of considering changes to its requirements to provide
greater guidance in this area. Specifically, the Office of Inspector General. . .issued an Audit
Report . . .on April 23, 2004 (the “Audit Report”) regarding the review of eight FHA mortgagees
that, according to the Audit Report, used independent contract loan officers to originate FHA
loans.” “. . .the Office of Inspector General recommends that HUD (a) “issue appropriate
guidance and specific instructions to HUD’s Homeownership Centers and to FHA approved
mortgagees requiring the use of mortgagee employed loan officers versus independent
contractors or non-employees to originate FHA-insured loans” and (b) “require mortgagees to
report their originating loan officer’s income on IRS form W-2, which would include the
withholding of federal income tax, Social Security tax and Medicare tax. . ..” “Thus, the Audit
Report acknowledges the absence of a requirement that loan officers be compensated on a W-2
basis, or that HUD rules equate compensation of a loan officer on a 1099 basis as being
inconsistent with employee status. Further, the Audit Report emphasizes the need for HUD to
provide further guidance to mortgagees in this area. In fact, the Audit Report notes that the
Office of Housing – Single Family has drafted a proposed rule to define a lender employee. . ..”




                                            Page 7
“. . .Under existing requirements, NHMI exercised appropriate control and supervision over loan
officers. Loan officers involved in the origination of FHA-insured loans were required to follow
the same policies and procedures regarding the origination of FHA-insured loans and were under
the same quality control requirements of NovaStar regardless of whether they were independent
contract loan officers or W-2 employees of NovaStar.”

“Finally, on its own initiative, based on changes in company policies and procedures, and prior
to the HUD IG review, NHMI eliminated the loan officer arrangements cited as being
inappropriate by the HUD IG. . ..”


                     OIG EVALUATION OF AUDITEE COMMENTS

We commend NovaStar for taking steps to eliminate all independent contract loan officers. This
should prevent any future occurrences.

NovaStar commented that Federal Housing Administration staff provided verbal instructions
during a mortgage conference, indicating that mortgagees are allowed to pay loan officers using
Internal Revenue Service Form 1099. While we cannot ascertain what instructions may have
been given at a mortgage conference, mortgagees must follow HUD’s written requirements (i.e.
handbooks and mortgagee letters); and HUD’s written requirements specifically prohibit
mortgagees from using independent contract loan officers (non-employees) for loan origination
functions. Because Internal Revenue Service Form 1099 is used to report miscellaneous income
for payments for services performed for a trade or business by people not treated as employees
(e.g., independent contractors), NovaStar’s use of Form 1099 to compensate the 122 loan
officers demonstrates that these loan officers were not NovaStar employees.

NovaStar also referred to an Office of Inspector General report issued April 23, 2004, that
addresses the use of independent contract loan officers. NovaStar believes this report
acknowledges that HUD does not require mortgagees to compensate loan officers on a W-2
basis. However, the April 23rd report does draw the conclusion that other mortgagees
improperly used independent contract loan officers, or non-employees, to perform loan
origination functions. The report also concludes that this was caused, in part, by mortgagee
misinterpretation of HUD’s requirements. HUD regulations do not currently specify whether
compensation to loan officers is to be reported on Internal Revenue Service Form 1099 or Form
W-2. However, Form 1099 is used to report miscellaneous income for payments or services
performed by independent contractors. Form W-2 is used to report wages and other
compensation paid to employees. Therefore, because NovaStar compensated these 122 loan
officers on a Form 1099 basis, we concluded they were not employees.

NovaStar also emphasized that it exercised appropriate control and supervision over its contract
loan officers by placing them under the same quality control requirements as it own employees.
However, this is not the issue expressed in our report. NovaStar violated HUD requirements by
allowing contract loan officers, instead of mortgagee employees or commercial providers, to
perform customary loan officer functions.

Mortgagee Letter 95-36 states that customary loan officer functions may not be contracted out,
as mortgagees are held responsible for the quality of loans and compliance with HUD


                                            Page 8
requirements. More specifically, loan origination functions may not be contracted out to third
party originators, real estate brokers, and other similar entities. In addition, Mortgagee Letter
00-15 further explains HUD’s position that the use of non-employees for the origination of
insured loans increases the risk to the insurance fund. Therefore, we maintain that NovaStar
improperly allowed its independent contract loan officers to perform functions prohibited by
HUD and in doing so, increased the risk to the insurance fund.


                                   RECOMMENDATIONS

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner,
Chairman, Mortgagee Review Board

    2A. Take appropriate administrative action(s) against NovaStar, such as requiring it to pay
        civil money penalties for the 122 loans improperly originated by independent contract
        loan officers.




                                             Page 9
                                MANAGEMENT CONTROLS

Management controls include the plan of organization, methods, and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.

We determined that the following management controls were relevant to our survey objective:

       •   Controls over the origination of Federal Housing Administration loans.

It is a significant weakness if management controls do not provide reasonable assurance that the
process for planning, organizing, directing, and controlling program operations will meet an
organization’s objectives.

Based on our review, we believe the following item is a significant weakness:

       •   Branch agreements do not comply with Federal requirements (see finding 1).


                              FOLLOWUP ON PRIOR AUDITS

This is the first Office of Inspector General audit of NovaStar.




                                             Page 10
                                                                                               Appendix A


           SCHEDULE OF CONTRACTOR ORIGINATED MORTGAGES


  Mortgagor                   Property   Property        Mortgagor                  Property   Property
  Last Name   Loan Amount      State     Zip Code        Last Name   Loan Amount     State     Zip Code
Redacted       $136,984.00      IN        47711      Redacted         $103,331.00     UT        84302
Redacted       $260,245.00      NJ        07003      Redacted          $75,741.00     KY        40208
Redacted       $176,506.00      CA        95350      Redacted         $116,909.00     KY        40330
Redacted         $87,975.00     KY        40216      Redacted          $93,021.00     KY        41017
Redacted         $77,140.00     IN        47557      Redacted          $91,839.00     NY        12144
Redacted         $72,623.00     NY        13045      Redacted         $138,837.00     NV        89122
Redacted       $183,126.00      MD        20715      Redacted         $115,090.00     KY        41018
Redacted         $84,330.00     NY        12144      Redacted          $95,030.00     KY        40502
Redacted         $45,675.00     OK        74447      Redacted          $48,500.00     OK        74110
Redacted       $170,000.00      NJ        07731      Redacted         $284,960.00     NY        11378
Redacted       $142,759.00      MN        55412      Redacted          $99,216.00     NY        14080
Redacted         $80,860.00     KY        40515      Redacted         $183,500.00     CO        80026
Redacted       $166,109.00      CA        95204      Redacted          $67,434.00     KY        41723
Redacted       $193,612.00      CO        80205      Redacted         $119,059.00     KY        40505
Redacted         $68,359.00     KY        42633      Redacted         $142,055.00     KY        40299
Redacted         $54,150.00     OK        74437      Redacted          $96,747.00     KY        40505
Redacted         $94,902.00     OK        74073      Redacted         $114,622.00     VA        22553
Redacted         $86,899.00     WA        99202      Redacted         $108,145.00     KY        40422
Redacted         $86,997.00     FL        32808      Redacted          $95,742.00     KY        40391
Redacted       $102,483.00      CO        80247      Redacted         $110,269.00     NV        89110
Redacted       $142,675.00      OR        97080      Redacted         $114,500.00     AR        72120
Redacted         $89,320.00     OK        74445      Redacted          $80,859.00     KY        40475
Redacted         $83,750.00     IN        47331      Redacted          $88,305.00     KY        40069
Redacted         $96,485.00     NV        89101      Redacted         $132,686.00     CO        80012
Redacted       $180,897.00      KY        40291      Redacted         $132,000.00     CO        81001
Redacted         $82,348.00     KY        40403      Redacted          $76,670.00     KY        40214
Redacted       $121,000.00      FL        32818      Redacted          $76,670.00     KY        40272
Redacted       $284,951.00      NY        11720      Redacted          $94,530.00     KY        40258
Redacted         $95,503.00     KY        40272      Redacted         $143,350.00     CT        06238
Redacted         $76,500.00     FL        32792      Redacted         $124,747.00     AR        72022
Redacted       $104,979.00      KY        41018      Redacted         $130,985.00     NY        12189
Redacted       $212,000.00      MA        01841      Redacted         $240,000.00     NY        11413
Redacted         $96,831.00     NY        12601      Redacted         $198,940.00     NY        11691
Redacted       $157,435.00      UT        84116      Redacted          $65,163.00     NY        12047
Redacted       $135,892.00      NY        11951      Redacted          $89,500.00     OK        74129
Redacted         $50,300.00     NV        89103      Redacted         $139,806.00     KY        40241
Redacted       $118,475.00       IL       60440      Redacted         $131,929.00     FL        34235
Redacted       $156,576.00      OR        97206      Redacted          $68,000.00     NY        12020
Redacted       $172,321.00      NY        11738      Redacted         $120,920.00     CO        80247
Redacted         $95,655.00     OR        97408      Redacted         $117,246.00     NV        89701
Redacted       $148,326.00      KY        40514      Redacted         $136,360.00     OK        73162
Redacted       $128,735.00      UT        84106      Redacted         $194,000.00     CO        80233
Redacted       $166,840.00      CA        95207      Redacted          $58,652.00     NY        12885
Redacted         $89,666.00     KY        40356      Redacted          $71,113.10     OK        73109
Redacted       $104,288.00      KY        41018      Redacted         $238,564.00     NY        11722
Redacted       $144,809.00      KY        41048      Redacted         $136,285.00     CO        80128



                                               Page 11
  Mortgagor                   Property   Property        Mortgagor                  Property   Property
  Last Name   Loan Amount      State     Zip Code        Last Name   Loan Amount     State     Zip Code
Redacted       $157,219.00      NY        12528      Redacted          $76,630.00     NY        12804
Redacted         $64,621.00     KY        41071      Redacted         $139,055.00     MT        59714
Redacted       $189,442.00      CA        95621      Redacted          $77,779.00     NY        12047
Redacted         $63,002.00     KY        40511      Redacted         $137,837.00     MT        59714
Redacted       $141,875.00      KY        40517      Redacted          $87,975.00     NY        10950
Redacted         $88,015.00     FL        32808      Redacted         $102,087.00     UT        84015
Redacted         $62,000.00     OK        74033      Redacted          $89,370.00     NY        12208
Redacted         $68,400.00     NY        12944      Redacted         $133,375.00     NC        28625
Redacted         $91,278.00     KY        40508      Redacted         $123,931.00     MT        59714
Redacted       $148,896.00      CA        95206      Redacted         $304,195.00     NY        11735
Redacted       $154,696.00      CO        80017      Redacted         $350,610.00     NY        11435
Redacted         $37,473.00     KY        40004      Redacted          $71,357.00     OK        73119
Redacted         $83,686.00     OK        74011      Redacted         $131,950.00     MT        59714
Redacted       $123,069.00      NV        89108      Redacted         $102,007.00     OK        74873
Redacted         $54,000.00     NV        89130      Redacted         $105,000.00     NY        12065




                                               Page 12
                   Appendix B
AUDITEE COMMENTS




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