oversight

Sahara Mortgage Company Non-Supervised Mortgagee, Las Vegas, Nevada

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-06-17.

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

   AUDIT REPORT




SAHARA MORTGAGE COMPANY
NON-SUPERVISED MORTGAGEE
    LAS VEGAS, NEVADA


       2004-LA-1004


       JUNE 17, 2004

       OFFICE OF AUDIT
    PACFIC/HAWAII REGION
   LOS ANGELES, CALIFORNIA
                                                                  Issue Date
                                                                          June 17, 2004
                                                                 Audit Case Number
                                                                          2004-LA-1004




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



FROM:          Joan S. Hobbs, Regional Inspector General for Audit, 9DGA

SUBJECT:       Sahara Mortgage Company
               Non-Supervised Mortgagee
               Las Vegas, Nevada


We completed an audit of Sahara Mortgage, a non-supervised mortgagee located in Las Vegas,
Nevada. We selected Sahara because of its high default rate. Sahara had the eighth highest
default ratio of the 72 active FHA lenders in the Las Vegas area. The objective of the audit was
to determine if Sahara originated Federal Housing Administration (FHA) insured mortgages in
accordance with prudent lending practices and HUD requirements.

Our report contains four findings with recommendations requiring action by your office. In
accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us for each
recommendation without 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 report issuance for
any recommendations without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

Should you or your staff have any questions, please contact me at (213) 894-8016, or
Clyde Granderson, Assistant Regional Inspector General for Audit, at (415) 436-8291.
Management Memorandum




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2004-LA-1004              Page ii
Executive Summary
We completed an audit of Sahara Mortgage (Sahara), a non-supervised direct endorsement
mortgagee located in Las Vegas, Nevada. The objective of the audit was to determine if Sahara
complied with prudent lending practices and HUD regulations, requirements, and instructions in
the origination and underwriting of FHA-insured mortgage loans. The review generally covered
the period between January 1, 2001, and December 31, 2003, and consisted of a review of 20 FHA-
insured loans that totaled $2,307,225. We found that Sahara engaged in predatory lending, approved
loans for unqualified borrowers, and failed to implement a quality control plan. Sahara’s president
also obtained investment properties with FHA-insured loans. A summary of our review is provided
below.



                                      Sahara took advantage of first-time homebuyers by
  Sahara Engaged In                   charging loan discount points with no corresponding
  Predatory Lending                   reduction in the interest rate, and by charging higher than
  Practices                           par interest rates for which the borrower received no
                                      benefit. Borrowers were routinely charged a 1% or 2 %
                                      discount fee, but the funds were not applied to lower the
                                      loan interest rate. Instead, the funds were simply retained
                                      by the lender as profit. Sahara charged a total of $21,479
                                      in discount fees on 18 of the 20 loans we reviewed, and the
                                      average discount fee was $1,193. In addition, when Sahara
                                      sold the loans to investors, Sahara received an average
                                      $2,542 rebate for each loan due to the high interest rates
                                      charged. This occurred because Sahara’s president, who
                                      was also Sahara’s primary underwriter during the period
                                      covered by the audit, chose to disregard HUD
                                      requirements. Sahara’s president admitted that Sahara did
                                      not lower interest rates in exchange for the discount fees
                                      and stated she believed this was standard practice.

                                      Sahara also overcharged for credit reports. Sahara routinely
                                      charged $65 for the reports, although the actual costs
                                      varied between $12 and $50. The average overcharge to
                                      borrowers was $34 per credit report.

                                      Sahara and its underwriter/president did not exercise due
Sahara Approved                       diligence in the origination and underwriting of FHA loans,
Unqualified Borrowers                 or perform these functions in accordance with HUD
                                      requirements and prudent lending practices. As a result,
                                      loans were approved for unqualified borrowers, defaults
                                      occurred, and HUD paid four claims. HUD resold one
                                      house at a net loss of $14,157. HUD retains the other three
                                      homes in its inventory.
                                          Page iii                                    2004-LA-1004
Executive Summary


                               Our review disclosed that each of these loans had multiple
                               significant underwriting deficiencies. We believe these
                               deficiencies occurred because of Sahara’s disregard for
                               HUD/FHA requirements.

                               The president of Sahara was the secretary and treasurer of
 Sahara’s President Obtained   Titan Investment, an investment company that obtained
 FHA Insured Properties as     ownership of four properties with FHA-insured loans.
 Investments                   HUD’s tracking systems show the original FHA
                               mortgagors retained title. Sahara’s president co-owns Titan
                               Investment with the president of Canyon Lake Mortgage,
                               Sahara’s only loan correspondent. Through their actions,
                               they violated FHA’s single-family insurance program
                               requirements that generally restrict insured loans to owner-
                               occupied principal residences.

                               Sahara had not adequately implemented its quality control
  Sahara Did Not Implement     plan and was deficient in its overall quality control
  Its Quality Control Plan     processes. HUD requires lenders to adopt a written quality
                               control plan that will ensure at least 10 percent of all FHA
                               loans are reviewed within 90 days of closing for
                               compliance with HUD requirements for the origination and
                               underwriting of insured loans. In addition, the plan should
                               ensure the lender reviews all loans that go into default
                               before the first six monthly payments are made. At the
                               time of our review, Sahara was a full year behind in its
                               reviews, and management had not taken action to correct
                               deficiencies that were listed in the last two quality control
                               reports it had received. As a result, there was no assurance
                               that Sahara originated and underwrote loans in accordance
                               with HUD’s regulations. We believe this occurred because
                               Sahara’s president did not make quality control a priority.

                               We recommend that the Assistant Secretary for Housing –
 Recommendations               Federal Housing Commissioner and Chairman, Mortgagee
                               Review Board: (1) take appropriate administrative action
                               against Sahara for not adhering to HUD’s program
                               requirements, up to and including removal from
                               participation in HUD’s Single Family Mortgage Insurance
                               Program; (2) require Sahara to repay the overcharges for
                               loan discount points and credit reports; (3) require Sahara
                               to pay HUD for the $14,157 sustained loss; (4) require
                               Sahara to indemnify HUD for any losses on 3 loans
                               conveyed but not yet sold, insured for $329,762 and for 13
                               other loans insured for $1,518,704; and (5) require Sahara’s
2004-LA-1004                       Page iv
                                                                 Executive Summary


                          president pay off all loans held with FHA insurance
                          obtained through deed-in-lieu or foreclosure actions. If
                          Sahara is allowed to continue originating FHA-insured
                          loans, we further recommend Sahara provide your office
                          with documentation showing it is current with its quality
                          control reviews and has taken appropriate corrective action
                          on reported deficiencies.

                          We discussed the findings with Sahara officials during the
Audit Results Discussed
                          audit and at an exit conference held on May 12, 2004. We
With Auditee – Auditee
                          provided a discussion draft audit report to Sahara on April
Comments Not Provided
                          27, 2004, prior to the exit conference.          Based on
                          discussions at the exit conference, we made minor changes
                          to the report and issued the final draft report on May 24,
                          2004. A one-week extension to the June 7, 2004, due date
                          was granted. As of June 16, 2004, Sahara’s response had
                          not been received. Therefore, the report was issued without
                          auditee comments.




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Executive Summary




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2004-LA-1004          Page vi
Table of Contents
Management Memorandum                                                    i



Executive Summary                                                    iii



Introduction                                                          1


Findings

1. Sahara Engaged In Predatory Lending Practices                     3

2. Sahara Approved Unqualified Borrowers for FHA Insured Loans       9

3. Sahara’s President Obtained Ownership of FHA Insured Properties 13

4. Sahara Did Not Implement Its Quality Control Plan                17


Management Controls                                                 21


Follow Up On Prior Audits                                           23


Appendices
   A. Schedule of Questioned Costs and Funds Put to Better Use      25

   B. Predatory Lending – Schedule of Fees Collected                27

   C. Overcharges for Credit Reports                                29
                              Page vii                      2004-LA-1004
Table of Contents



    D. Debt Ratios for Sahara’s Borrowers                      31

    E. Origination and Underwriting Deficiencies               33

    F. Schedule of Loans Sahara Should Indemnify/Pay In Full   35




2004-LA-1004                 Page viii
Introduction
Section 203 (b) (1) of the National Housing Act, as amended, authorizes HUD to provide
mortgage insurance for single-family homes. HUD must formally approve a mortgagee that
originates, purchases, holds or sells FHA-insured loans. Mortgagees must follow the statutory
and regulatory requirements of the National Housing Act and HUD instructions, guidelines, and
regulations when originating insured loans. Mortgagees that do not follow these requirements
are subject to administrative sanctions.

Sahara is a non-supervised, direct endorsement lender, and therefore may originate and
underwrite loans. The loan origination process includes taking the initial loan application,
initiating the appraisal assignment, obtaining the credit report, and processing verifications of
deposit and employment. Based on the information gathered by its loan processors, Sahara
underwrites the loan and makes a decision as to whether the borrower represents an acceptable
credit risk for HUD.

Sahara’s main office, in Las Vegas, Nevada, received FHA approval on October 29, 1996.
Currently, Sahara has one approved loan correspondent, Canyon Lake Mortgage. Although
Sahara has five FHA approved branches, almost all FHA loans are originated from the main
office.

In July 2002, the Quality Assurance Division (QAD) of the Santa Ana Homeownership Center
(HOC) did an on-site review of Sahara, including a review of 31 loans. QAD’s report included
13 findings, including:

Finding 1:    Sahara failed to maintain and implement a quality control plan.

Finding 7:    Sahara failed to retain all loan origination case files.

Finding 13:   Sahara charged excessive fees to mortgagors.

The other 10 findings consisted of processing and underwriting deficiencies. As a result, the
HOC imposed a Limited Denial of Participation on Sahara’s underwriter, who is also Sahara’s
president, and Sahara agreed to indemnify HUD for any losses incurred on 29 of the 31 loans
reviewed.



                                      The objective of our audit was to determine if Sahara
Audit Objectives                      complied with prudent lending practices and HUD
                                      regulations, requirements, and instructions when originating
                                      and underwriting FHA insured single-family mortgages.




                                           Page 1                                    2004-LA-1004
Introduction


                   We performed our audit from August through November of
 Audit Scope and   2003. We selected Sahara for audit based on its high
 Methodology       number of early defaults.

                   To accomplish our audit objectives, we:

                      •   Selected and performed in depth reviews on 18
                          FHA-insured loans originated by Sahara during the
                          period from January 2001 through December 2002.

                      •   Selected and performed limited reviews on two
                          additional Sahara FHA-insured loan files originated
                          between March and October 2001. We are reporting
                          on one additional mortgage for which our review
                          was limited to title transfers and rental information.
                          We reviewed these additional loans when we
                          discovered their titles had transferred to an
                          investment company, but the FHA mortgages were
                          still active.

                      •   Interviewed Sahara management and employees.

                      •   Interviewed FHA borrowers and borrowers’
                          employers to verify information submitted to
                          HUD/FHA as part of the FHA loan files reviewed.

                      •   Verified purported borrower wage information.

                      •   Reviewed settlement agents’ escrow files to verify
                          sources and uses of funds for loan closing costs and
                          prepaid expenses.

                   The audit generally covered the period from January 1,
                   2001, through December 31, 2003, and the loans reviewed
                   were originated between January 1, 2001, and December
                   31, 2002. During this period, Sahara originated 228 FHA
                   loans. The audit was conducted in accordance with
                   generally accepted government auditing standards.




2004-LA-1004           Page 2
                                                                                         Finding 1


Sahara Engaged In Predatory Lending Practices
Sahara used several methods to obtain profits on FHA loans in violation of the Real Estate
Settlement Procedures Act (RESPA). Sahara charged its FHA borrowers $21,479 in loan discount
fees, an average of $1,193 per mortgage, on 18 of the 20 loans we reviewed, but did not provide any
reduction in interest rates. Sahara obtained additional profit by selling its FHA loans at premium
prices (also known as rebate pricing), and the rebates on all 12 loans reviewed, totaling $30,501,
were not used to pay borrower's closing costs. Finally, Sahara overcharged some borrowers for
credit reports. We believe this occurred because Sahara’s president chose to disregard the law and
HUD requirements. As a result, first-time homebuyers paid more for their loans than necessary and
the higher interest rates contributed to mortgage payment defaults and subsequent foreclosures.



                                      In April 2000, the HUD/Treasury National Predatory Lending
 Lending Practices, Rules,            Task Force was convened. The Task Force drew its members
 and Policies                         from a large group of individuals interested in, and affected
                                      by, predatory lending, including consumer advocacy groups,
                                      industry trade associations, local and state government
                                      officials, and academics. In a report issued by the Task
                                      Force, it described predatory lending as “… engaging in
                                      deception or fraud, or taking unfair advantage of a borrower’s
                                      lack of understanding of loan terms.” The report further
                                      stated the “…practices are often combined with loan terms
                                      that, alone or in combination, are abusive or make the
                                      borrower more vulnerable to abusive practices.”

                                      HUD Handbook 4060.1, REV-1, paragraph 2-24B.3 does
                                      not allow a lender to “Pay any compensation or fee that is
                                      prohibited by the Real Estate Settlement Procedures Act
                                      (RESPA).”

                                      The Real Estate Settlement Procedures Act (RESPA) is a
                                      consumer protection statute first passed in 1974. Section 8
                                      of RESPA prohibits a person from giving or accepting any
                                      part of a charge for services that are not performed.

                                      In 24 CFR 3500.14, Prohibition Against Kickbacks and
                                      Unearned Fees, it states, “A charge by a person for which
                                      no or nominal services are performed or for which
                                      duplicative fees are charged is an unearned fee and violates
                                      this section. The source of the payment does not determine
                                      whether or not a service is compensable,” and “any
                                          Page 3                                      2004-LA-1004
Finding 1


                            violation of this section is a violation of Section 8 of
                            RESPA.”

                            Mortgagee Letter 94-7, states premium rate mortgages, also
                            known as “rebate pricing” mortgages, permit the borrower
                            to pay a higher interest rate in exchange for the lender
                            paying the borrower’s closing costs.” It also states, “…if a
                            premium rate will result in excess funds (an amount
                            exceeding closing costs and prepaids), the principal balance
                            of the mortgage must be reduced by the overage. A seller
                            may pay the borrower’s closing costs (or a portion), with
                            the lender using the funds from a premium to fund the
                            borrower’s prepaid expenses or other remaining closing
                            costs.”

                            Sahara charged a total of $21,479 in loan discount points on
Discount Point Charges      18 of the 20 loans we reviewed. The discount points were 1
Did Not Result in Lowered   to 2 percent of the loan amount and the average charge for
Interest Rates              each loan was $1,193 (See Appendix B). It is generally
                            accepted and agreed that loan discount points are paid to
                            reduce the interest rate on a loan. Sahara was unable to
                            provide any evidence it reduced interest rates for these loans.
                            In fact, Sahara’s president admitted the rates were not
                            discounted, and told us she believed HUD allowed the lender
                            to earn two points, or two percent of the loan amount, on each
                            loan. Sahara’s president also said she believed it was
                            standard practice for lenders to charge one origination point
                            and one discount point. The president’s understanding of
                            HUD regulations is erroneous and so is her implication that
                            Sahara only earned two percentage points on each loan. In
                            addition to the origination fee and the loan discount fee,
                            Sahara received profits through premium pricing and
                            overcharges for credit reports.

                            HUD allows lenders who originate FHA insured loans to
                            charge borrowers a one percent origination fee and eligible
                            closing and prepaid costs; however, additional fees should be
                            for specific services performed beyond the normal loan
                            processing and underwriting. Section 8 of RESPA prohibits
                            giving or accepting any part of a charge for services that are
                            not performed (unearned fees). Since loan discount points
                            were charged and the interest rates were not reduced, we
                            concluded these were unearned fees, a RESPA violation, and
                            a predatory lending practice.

2004-LA-1004                    Page 4
                                                                              Finding 1


                           Most of the borrowers we interviewed were first-time
                           homeowners and said they were unaware they had a choice
                           of lenders. Generally, they were directed to Sahara by the
                           developers of new housing or by real estate agents. One
                           borrower had visited other lenders before Sahara and said
                           Sahara was the only lender who would work with her, due
                           to her poor credit history. Most borrowers said they did not
                           know what discount points were and Sahara never
                           explained them. Some were not aware discount points had
                           been paid when their loan closed. Others paid the points,
                           but were not aware they had a choice.

                           We asked Sahara to provide purchase advices for each of
Premium Rate Mortgages     the 20 loans in our sample. The purchase advices show the
                           details of Sahara’s sale of loans to investors, including the
                           price the investor paid, rebates for premium pricing, and
                           service release premiums. Sahara’s president said she
                           could only find purchase advices for 12 of the 20 loans.
                           Each of the 12 purchase advices Sahara’s president
                           provided showed premium rate, or rebate pricing
                           mortgages for which Sahara received $30,501 in loan
                           rebates (See Appendix B).

                           Premium pricing occurs when the lender sells a loan to an
                           investor with an above par interest rate and receives a
                           rebate from the investor. HUD allows this practice and
                           expects the rebate to be used to pay the borrower’s closing
                           costs or prepaid expenses; however, our test results
                           indicated Sahara sold its loans at premium prices and did
                           not apply the rebates to the borrowers’ costs. Sahara did
                           not apply rebate credits to closing costs or prepaid
                           expenses, all of which the borrower or the seller had paid.
                           Sahara received an average rebate of $2,542 per loan for
                           those we tested. This was in addition to the service release
                           premiums, which are the customary amounts loan
                           originators receive when they sell the servicing rights to
                           their loans. Sahara received an average of $2,515 in
                           service release premiums for each loan we tested.

                           Lenders are allowed to recover actual costs they must pay
  Overcharges for Credit   to outside firms in order to process a loan. These costs
  Reports                  include appraisal fees to determine the value of the
                           property and credit reports to determine if the borrower is
                           credit worthy. HUD does not allow the lender to charge
                               Page 5                                      2004-LA-1004
Finding 1


                  the borrower more than the actual cost or more than the
                  amount customary in the area. Sahara routinely charged
                  $65 dollars for credit reports, when actual costs ranged
                  from $12 to $50. The average overcharge to borrowers was
                  $34. In some cases, the borrowers paid the charges and in
                  other cases the sellers paid. (See Appendix C)




Recommendations   We recommend the Assistant Secretary for Housing –
                  Federal Housing Commissioner and Chairman, Mortgagee
                  Review Board:

                  1A.     Take appropriate action against Sahara up to and
                          including removal from participation in HUD’s
                          Single Family Mortgage Insurance Program.

                  1B.     Require Sahara to establish written policies and
                          procedures for when loan discount fees and premium
                          interest rates may be charged, and certify it will not
                          engage in predatory lending practices.

                  1C.     Require Sahara to review and analyze all FHA-
                          insured loans generated by Sahara since August 1,
                          1999, with loan discount points (including the
                          $21,479 shown in Appendix B) where no interest rate
                          reduction occurred and report the results to the MRB.
                          Refunds should be issued in the following order:

                          1. If the loan is current, a refund must be made to the
                             borrowers.

                          2. If the loan is delinquent, a refund must be applied
                             to the delinquency.

                          3. If a claim has been paid, a refund must be paid to
                             HUD and sent to HUD Single Family Claims.


                  1D.     Require Sahara to review and analyze all FHA-
                          insured loans it generated since August 1, 1999, with
                          premium pricing rebates (including the $30,501
                          shown in Appendix B) and report the results to the

2004-LA-1004            Page 6
                                                   Finding 1


        MRB. Refunds should be issued in the same order
        shown in recommendation 1C.

1E.     Require Sahara to charge for only actual costs for
        credit reports and refund the $207 in overcharges
        identified in Appendix C to the respective borrowers.




      Page 7                                    2004-LA-1004
Finding 1




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2004-LA-1004   Page 8
                                                                                        Finding 2




   Sahara Approved Unqualified Borrowers For
              FHA Insured Loans
Sahara did not comply with HUD’s requirements for prudent lending practices in the origination
and underwriting of FHA insured loans on 17 of the 20 loans reviewed, valued at $2.3 million.
Sahara did not exercise due diligence in the: (1) verification of the borrowers’ income or source
of funds for down payments and closing costs; (2) review of the borrowers’ liabilities and credit
characteristics; and (3) analysis of the borrowers’ ability to pay. As a result of these
deficiencies, Sahara approved mortgagors who were not qualified for FHA-insured loans.
Sahara’s deficiencies in loan origination and underwriting activities are a result of its
noncompliance with HUD requirements and contributed to Sahara’s high default rate, which led
to claims against the FHA insurance fund.




                                     Under HUD’s Single Family Direct Endorsement Program,
   Loan Origination and              the mortgagee underwrites and closes the mortgage loan
   Underwriting                      without prior HUD review or approval. HUD Handbook
   Requirements                      4155.1 REV-4 CHG-1 contains the basic mortgage credit
                                     underwriting requirements for single-family mortgage loans.

                                     Section 2-3, Analyzing the Borrower’s Credit, states in part:
                                     “Past credit performance serves as the most useful guide in
                                     determining the attitude toward credit obligations that will
                                     govern the borrower's future actions. A borrower who has
                                     made payments on previous or current obligations in a timely
                                     manner represents reduced risk. Conversely, if the credit
                                     history, despite adequate income to support obligations,
                                     reflects continuous slow payments, judgments, and
                                     delinquent accounts, strong offsetting factors will be
                                     necessary to approve the loan.”

                                     Section 2-12, Debt to Income Ratios, states in part: “Ratios
                                     are used to determine whether the borrower can reasonably be
                                     expected to meet the expenses involved in homeownership,
                                     and otherwise provide for the family. The lender must
                                     compute two ratios:

                                     A. Mortgage payment expense to effective income. If the
                                     total mortgage payment does not exceed 29 percent of

                                         Page 9                                      2004-LA-1004
Finding 2


                           gross effective income, the relationship of the mortgage
                           payment to income is considered acceptable.

                           B. Total fixed payment to effective income. If the total
                           mortgage payment and all recurring charges do not exceed
                           41 percent of gross effective income, the relationship of
                           total obligations to income is considered acceptable.”

                           Section 3, Funds to Close, paragraph 2-10, states in part:
                           “The cash investment in the property must equal the
                           difference between the amount of the insured mortgage,
                           excluding any upfront MIP, and the total cost to acquire the
                           property, including prepaid expenses, (see paragraph 1-9).
                           All funds for the borrower's investment in the property
                           must be verified.”

                           Sahara approved loans for borrowers with extremely poor
     Sahara Approved       credit patterns and/or excessive current obligations. The
     Borrowers with Poor   borrowers in our sample typically had numerous accounts
     Credit Patterns       that were referred for collection and multiple judgments
                           against them. Credit histories for 13 of the 20 mortgagors
                           in our sample indicated an inability to manage money and
                           obligations. Borrowers in 17 out of 20 loans had excessive
                           current obligations that indicated they would have
                           difficulty making monthly mortgage payments (See
                           Appendix D). Predictably, the borrowers defaulted on their
                           FHA insured loans.

                           In one case, the borrower had 5 collections listed on his
                           credit report, and two were from the last two apartments he
                           had rented prior to purchasing the home. The co-borrower
                           had 19 collections and 1 judgment on her credit report.
                           The file did not document any acceptable compensating
                           factors. Foreclosure was completed on the $130,281
                           mortgage on November 3, 2003, and HUD’s Neighborhood
                           Watch System listed the reason for the default as
                           “excessive obligations.”

                           In another case, the borrower had 21 collections and 3
                           judgments shown on the credit report. The compensating
                           factors cited on the Mortgage Credit Analysis Worksheet
                           were that the borrower was a "minimum credit user" and
                           had a second job with income of $1,690. The cited
                           compensating factor regarding credit use was apparently
                           not true, and the second job was not verified or supported.
2004-LA-1004                   Page 10
                                                                             Finding 2


                          Again, the borrower's reason for default, according to
                          Neighborhood Watch, was "excessive obligations."
                          Foreclosure was completed on the $135,670 loan in May
                          2003.

                          In 17 of the 20 loans we reviewed, either the borrowers’
Sahara Approved           mortgage payment-to-income ratios exceeded HUD’s
Borrowers, Despite High   guideline of 29% or they exceeded HUD’s guideline of
Debt-to-Income Ratios     41% for total fixed obligations to effective income (See
                          Appendix D). Review of the loan origination files did not
                          reveal any acceptable compensating factors, such as large
                          cash reserves, large down payments, previous history of
                          making similar payments for housing, or conservative use
                          of credit.

                          Sahara miscalculated effective income by overstating
                          earnings and/or understating debts in 15 cases.

                          For one loan, the file documentation showed the borrower
                          paid $701 each month in child support. In its calculations,
                          Sahara used $475 for the child support amount. Sahara did
                          not provide any explanation or support for the change, and
                          had Sahara used the correct amount, it would have calculated
                          the fixed obligations to effective income ratio at 52.6%, more
                          than ten percentage points over HUD’s guideline.
                          Foreclosure was completed on the $130,281 loan in
                          November 2003.

                          In another loan, Sahara included unsupported amounts of
                          $332 in overtime earnings and $347 in child support in its
                          calculation of the mortgagor’s effective monthly income.
                          The mortgagor’s employer did not verify employment in
                          writing and there was no documentation of child support
                          payments. Wage statements showed sporadic overtime over a
                          period of four months, and the origination file contained a
                          written statement from the mortgagor that she received child
                          support based on a verbal agreement with the child’s father.
                          If Sahara had not included the unsupported amounts in its
                          calculations, the mortgagor’s ratios would have been 49% for
                          mortgage payment to income and 62% for total fixed
                          payments to income. The loan was in default in February
                          2002, when Titan Investment took ownership through a deed
                          in lieu of foreclosure..


Funds to Close Were Not       Page 11                                     2004-LA-1004
Certified
Finding 2


                            In 17 of the 20 cases in our sample, Sahara also failed to fully
                            verify the borrowers’ source of funds to close. Most
                            borrowers received part of their closing funds as a gift from
                            nonprofit organizations, and the sources of gift funds were
                            verified. However, the gifts did not cover all of the closing
                            requirements. Sahara failed to fully verify the source of
                            closing funds attributed to the borrowers. In most cases, the
                            borrowers’ funds were deposited into escrow in the form of
                            cashiers’ checks. The borrowers’ bank statements, which
                            should have shown the withdrawal of the funds, showed that
                            the borrowers never had sufficient funds in the bank to cover
                            the deposits. Sahara also failed to verify any other source for
                            the funds. As a result, there was no assurance the borrowers
                            did not obtain prohibited second loans.

                            We believe Sahara’s president, who was the primary
 Risk of Losses Increased   underwriter, was more interested in generating profits than in
                            adhering to HUD requirements. She explained her intent was
                            to help people to attain home ownership; however, the
                            mortgagors who defaulted on their loans because of excessive
                            obligations or insufficient income did not benefit from
                            Sahara’s lack of due diligence. As a result, the risk of losses
                            increased for HUD’s FHA insurance fund.




Recommendations             We recommend the Assistant Secretary for Housing –
                            Federal Housing Commissioner and Chairman, Mortgagee
                            Review Board require Sahara Mortgage to:

                            2A.      Reimburse HUD for the $14,157 loss on one paid
                                     claim (See Appendix F).

                            2B.      Indemnify HUD for future losses on the loans listed
                                     in Appendix F (13 loans totaling $1,518,704 and 3
                                     loans in HUD’s inventory insured for a total of
                                     $329,762).




2004-LA-1004                      Page 12
                                                                                      Finding 3




Sahara’s President Obtained Ownership of FHA
               Insured Properties
The president of Sahara was the secretary and treasurer of Titan Investment, an investment
company that obtained ownership of four properties with FHA-insured loans totaling $439,593.
Sahara’s president co-owned Titan Investment with the president of Canyon Lake Mortgage,
Sahara’s only loan correspondent. Through their actions, they violated FHA’s single-family
insurance program requirements, which generally restrict insured loans to owner-occupied
principal residences. When the transfers occurred, Sahara’s president was also Sahara’s primary
underwriter, and she was responsible for ensuring Sahara conducted business in accordance with
FHA requirements. We believe the co-owners of Titan Investment disregarded FHA regulations
in pursuit of personal gain.



                                    HUD Handbook 4155.1 REV-4, CHG-1, states in Chapter
Investors Are Prohibited            1-1 that HUD’s single-family FHA programs are generally
From Obtaining FHA                  limited to owner-occupied principal residences. In Chapter
Loans                               1-2, it states individuals may not obtain more than one
                                    FHA mortgage at a time, except for very limited exceptions
                                    which included relocations, increase in family size,
                                    vacating a jointly-owned property, or a non-occupying co-
                                    borrower (where the other borrower is a family member
                                    who will occupy the property as a principal residence).
                                    Chapter 1-2 explained the one mortgage limit as follows:

                                           “To prevent circumvention of the restrictions on
                                           FHA-insured mortgages to investors, we generally
                                           will not insure more than one mortgage for any
                                           borrower.”

                                    Chapter 1-4 listed the limited exceptions to the ban on FHA
                                    loans on investment properties:

                                           •       Section 203(k) Rehabilitation loans;

                                           •       Purchases of FHA-owned properties (when
                                                   permitted by the local FHA office selling the
                                                   property); and

                                        Page 13                                    2004-LA-1004
Finding 3


                                    •       Streamline refinances without appraisals for
                                            properties the investor purchased with an
                                            FHA loan prior to the 1989 ban on
                                            investors.”

                             Titan Investment did not meet any of the exceptions listed
 Titan Acquired Three        above and all of the loans were originated by Sahara.
 Properties through          Three of the loans were in default, with the first legal
 Deeds In Lieu of            action to foreclose initiated. The president of Sahara
                             accepted deeds in lieu of foreclosure in the name of Titan
                             Investment, but did not terminate the FHA loans. As a
                             result, HUD was misled to believe the mortgagors had
                             reinstated the loans and retained ownership. Although she
                             was the underwriter for only one of the three defaulted
                             loans, Sahara’s president was the primary underwriter for
                             Sahara at the time.

                             The loan origination files showed processing and
 Mortgagors Did Not          underwriting deficiencies for all of the loans in default. In
 Qualify for FHA Loans       all three loans, Sahara failed to verify the mortgagors’
                             source of funds for the down payment, and in one, the
                             mortgagor did not meet the requirement to provide at least
                             a 3% investment in the property. For one of these loans,
                             the mortgagor’s credit history showed 22 accounts that
                             were in collection and one judgment. Sahara did not
                             identify adequate compensating factors, such as large cash
                             reserves.    HUD recommends a maximum mortgage
                             payment-to-income ratio of 29% and a maximum fixed
                             payment-to-income ratio of 41%. For this loan, the
                             mortgagor’s ratios far exceeded HUD's guidelines when we
                             recomputed them to be 49% and 62% respectively.
                             Sahara’s president underwrote this loan and understated the
                             ratios.

                             The fourth property was purchased by Titan Investment in
 Family Member               October 2001 and transferred to a member of Sahara’s
 Transferred Property Back   president’s family four days later. The family member
 to Titan Investment         obtained an FHA loan from Sahara for the purchase. In
                             April 2002, the family member transferred the property
                             back to Titan but did not terminate the FHA insured loan.
                             Titan transferred the property back to the family member in
                             January 2003, and he obtained a FHA-insured streamline
                             refinance loan.


2004-LA-1004                     Page 14
                                                                              Finding 3


                            Titan Investment entered into Section 8 Housing Assistance
Titan Investment Rented     Payment (HAP) contracts with the City of Las Vegas
Properties with owner-      Housing Authority for two of the properties it obtained
occupied loans to Section   through deeds-in-lieu and for the property it transferred
8 Tenants                   back and forth to the family member. The Section 8
                            Program provides HUD funds to assist low-income renters
                            by paying landlords the difference between thirty percent
                            of the eligible renter’s income and the contract rent
                            amount. The HAP contract on the family member’s
                            property was in effect during the time Titan owned it.

                            On December 9, 2003, we visited one home and spoke to
                            the Section 8 tenant, who confirmed she has lived there and
                            has been a Section 8 recipient since March 2002. The FHA
                            loan on this property was in default when Titan Investment
                            took possession through a Deed-In-Lieu on February 27,
                            2002. The president of Sahara Mortgage (and secretary-
                            treasurer for Titan Investment) signed the transfer deed on
                            behalf of Titan. On March 12, 2002, Titan entered into a
                            HAP contract with the City of Las Vegas Housing
                            Authority for a Section 8 tenant. Since then, Titan has been
                            receiving monthly rental payments.

Conclusion                  Regarding the FHA insured properties that Titan obtained
                            through deeds in lieu, we believe Sahara’s president acted
                            first to prevent Sahara’s default rate from increasing and
                            jeopardizing its standing as an FHA lender. At the same
                            time, we believe the president saw an opportunity to profit
                            from the acquisition of investment properties. In the fourth
                            property case, where a family member took title in order to
                            obtain an FHA loan on the property and then transferred
                            the property back to Titan, we can only conclude Sahara’s
                            president knowingly ignored HUD’s requirements for
                            personal gain. As a result, the FHA insurance program was
                            used for the benefit of investors rather than owner-
                            occupants, as intended.




Recommendations             We recommend the Assistant Secretary for Housing –
                            Federal Housing Commissioner and Chairman, Mortgagee
                            Review Board:

                                Page 15                                    2004-LA-1004
Finding 3


               3A.      Require Sahara to immediately pay in full and
                        terminate the four loans with FHA insurance
                        totaling $439,593 (See Appendix F).

               3B.      Permanently       withdraw       the     underwriter
                        identification approval of Sahara’s president.




2004-LA-1004         Page 16
                                                                                          Finding 4


  Sahara Did Not Implement Its Quality Control
                     Plan
At the time of our audit, Sahara was more than a year in arrears in performing required quality
control reviews of its origination files. In addition, Sahara had not taken any action on the
deficiencies reported in the last two quarterly reports it received from its quality assurance
contractor. Unless the quality control plan is fully implemented, there can be no assurance Sahara is
originating and underwriting loans in compliance with HUD/FHA requirements or that deficiencies
are corrected.



 HUD Requirements                     Quality control requirements are detailed in HUD Handbook
                                      4060.1 REV-4, Chapter 6. In addition to a review of any loan
                                      that goes into default before six payments are made, the
                                      handbook states that the selection process for the review of
                                      10% of all other FHA loans must provide assurance that all
                                      loan officers, underwriters, and appraisers will have loans
                                      subjected to reviews. Further, the handbook requires that
                                      lenders have a written quality control plan to ensure the
                                      reviews are conducted and management takes appropriate and
                                      timely corrective action.

                                      HUD’s Quality Assurance Division (QAD) did a review of
                                      Sahara in July 2002 and provided the results to Sahara in
                                      September 2002. The first of QAD’s 13 findings stated,
                                      “Sahara failed to maintain and implement a quality control
                                      plan in compliance with HUD’s requirements.” After
                                      explaining that Sahara’s written quality control plan was
                                      inadequate, the report went on to say that the most recent
                                      reviews had been performed on loans originated a year
                                      earlier, in June 2001. QAD required Sahara to revise its
                                      quality control plan to include all elements required by HUD,
                                      and to provide HUD with the steps it had taken to assure that
                                      quality control reviews were performed within 90 days of
                                      loan closing. When Sahara received the results of QAD’s
                                      review in September 2002, Sahara revised its quality control
                                      plan to include these requirements, but Sahara did not
                                      implement the plan. A year later, in September 2003, the
                                      only periods for which reviews had been completed were the
                                      first two quarters of 2002. Further, Sahara’s management had
                                      not yet taken corrective action on the deficiencies found
                                      during the reviews, although they received the results of the
                                           Page 17                                     2004-LA-1004
Finding 4


               reviews in April 2003. As of September 30, 2003, no
               additional loans had been reviewed.

               Sahara's president blamed the delays on poor performance by
               a quality control firm, which she replaced in January 2003.
               However, the new firm stated it could usually provide a 30-
               day turnaround on loan reviews and the last two reports
               included reviews of only 4 loans each; therefore, there was no
               reason the reviews for 2003 were not timely. After sending
               the 8 files for the first two quarters of 2002, Sahara did not
               send any funding logs to the contractor until September 2003;
               therefore, the contractor did not select any additional loans to
               review until September 2003.

               As we completed our audit, the contractor was reviewing 8 of
               Sahara’s files for the period July through December 2002, but
               had not yet selected any files for 2003. Further, for the first
               half of 2002, we learned that Sahara selected the files for
               review. The employee who selected the files stated he
               consciously chose the ones least likely to have deficiencies.
               The same employee was the loan officer for many of the
               loans. Although this employee continues to act as a loan
               officer, he currently also carries the title “Quality Control
               Manager.” The selection method Sahara used obviously
               violated the intent of the quality control requirements, which
               is to ensure that all loans are processed and underwritten in
               compliance with HUD requirements. Further, naming a
               person who directly participated in the loan’s processing as
               the quality control manager creates a conflict of interest and
               compromises the integrity of the quality control process.

               At the time of our audit, Sahara had not accomplished
               reviews of any of the loans that had defaulted before six
               payments were made. Sahara’s president said she was
               unaware of the early default review requirement until HUD’s
               QAD review. She stated that she did not know how to find
               out when loans went into default, because Sahara sold all of
               its loans to a warehouse lender and the lender did not provide
               the information. Sahara amended its contract with the
               warehouse lender and began receiving default reports in May
               2003. Sahara’s president said there have been no early
               defaults since then.

               Some of the deficiencies the quality control requirements are
               designed to prevent and correct were evident in the loan
2004-LA-1004         Page 18
                                                                     Finding 4


                  origination files we reviewed. In Findings 1 and 2, we
                  discussed significant deficiencies in Sahara’s origination and
                  underwriting processes including: improper and excessive
                  charges for services (Finding 1); approval of unqualified
                  borrowers for FHA loans; and Sahara did not do an adequate
                  job of verifying the source of funds each borrower was
                  required to provide at closing (Finding 2). Therefore, until
                  Sahara fully implements the quality control plan, there is no
                  assurance that it is originating and underwriting loans in
                  accordance with HUD/FHA requirements, or that deficiencies
                  are being corrected.




Recommendations   We recommend the Assistant Secretary for Housing –
                  Federal Housing Commissioner and Chairman, Mortgagee
                  Review Board require Sahara to:

                  4A.    Provide evidence that its required loan reviews are
                         up to date and management has taken appropriate
                         action to correct deficiencies.

                  4B.    Replace the quality control manager with someone
                         who has no direct participation in the origination or
                         underwriting processes.




                        Page 19                                   2004-LA-1004
Finding 4




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2004-LA-1004   Page 20
Management Controls
In planning and performing our audit, we considered the management controls of Sahara in order to
determine our auditing procedures, not to provide assurance on the 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 its business operations. They include the systems for measuring, reporting and
monitoring business performance.



                                     We determined the following management controls were
 Relevant Management
                                     relevant to our audit objectives:
 Controls
                                     Compliance with Laws and Regulations – Policies and
                                     procedures implemented by management to reasonably
                                     ensure that its loan origination process is carried out in
                                     accordance with applicable laws and regulations.

                                     Validity and Reliability of Data - Policies and procedures
                                     that management has implemented to reasonably ensure
                                     that valid and reliable data are obtained, maintained, and
                                     used during the mortgage loan origination process.

                                     We assessed the relevant controls identified above.

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

                                     Based on our review, we believe the following items are
 Significant Weaknesses              significant weaknesses:

                                     •   Compliance with laws and regulations for the loan
                                         origination and underwriting processes and the quality
                                         control process (Findings 1, 2, 3 and 4).

                                     •   Validity and reliability of data (Findings 1 and 2).




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2004-LA-1004           Page 22
Follow Up On Prior Audits
This is the first HUD Office of Inspector General audit of Sahara. The mortgagee’s last two
independent audits for the years ending December 31, 2001, and December 31, 2002, did not contain
any findings.

HUD’s Quality Assurance Division performed a monitoring review of Sahara in July 2002.




                                         Page 23                                    2004-LA-1004
Follow Up On Prior Audits




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2004-LA-1004                 Page 24
                                                                                     Appendix A

Schedule of Questioned Costs
and Funds Put to Better Use
 Recommendation                  Type of Questioned Cost                 Funds Put to
     Number                     Ineligible 1/     Unsupported 2/         Better Use 3/
       1C                           $21,479
       1D                            30,501
       1E                              $207
       2A                           $14,157
       2B                                                $329,762              $1,518,704
       3A                                                                      $ 439,593


1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that
   the auditor believes are not allowed by law, contract, or Federal, State or local policies or
   regulations.

2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or activity
   and eligibility cannot be determined at the time of the audit. The costs are not supported by
   adequate documentation or there is a need for legal or administrative determination on the
   eligibility of the costs. Unsupported costs require a future decision by HUD program officials.
   This decision, in addition to obtaining documentation, might involve a legal interpretation or
   clarification of Departmental policies and procedures.

3/ Funds put to better use are costs that will not be expended in the future if our
   recommendations are implemented.




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2004-LA-1004    Page 26
                                                                                                                             Appendix B




                         Predatory Lending - Fees Collected By Sahara
                                       Loan               Loan     Loan
                  Loan     Interest Origination Discount Rebate Rebate Other
       FHA Case # Amount     Rate       Fee        Fee Points      Amount Fees**                               Total
   1   332-3503789    $ 58,362.00      7.500%   $     575.00   $ 583.62        0.375 $ 218.86      $1,167.24   $ 2,544.72
   2   332-3546148    $ 109,520.00     8.125%   $   1,079.02   $1,095.20          2.5 $2,738.00    $2,409.44   $ 7,321.66
   3   332-3549013*   $ 101,559.00     8.000%   $   1,000.59   $1,048.49                           $ 775.00    $ 2,824.08
   4   332-3563776    $ 117,059.00     8.375%   $   1,153.30   $2,341.18           2 $2,341.18     $3,450.30   $ 9,285.96
   5   332-3569292    $ 75,617.00      8.250%   $     745.00   $ 756.17        2.375 $1,795.90     $2,136.11   $ 5,433.18
   6   332-3599591*   $ 98,445.00      8.000%   $     969.90   $ 984.45                                        $ 1,954.35
   7   332-3611149    $ 131,885.00     8.000%       1,298.68   $1,318.16       2.625 $3,457.85     $3,128.53   $ 9,203.22
   8   332-3611871*   $ 126,297.00     7.875%   $   1,244.31   $1,262.97                           $ 775.00    $ 3,282.28
   9   332-3618755    $ 124,489.00     7.875%   $   1,226.50   $1,244.89       2.218 $2,759.27     $3,785.56   $ 9,016.22
  10   332-3619413    $ 116,866.00     8.000%   $   1,151.39   $1,168.66       2.625 $3,065.67     $3,601.26   $ 8,986.98
  11   332-3638982*   $ 117,151.00     8.000%   $   1,154.20   $1,171.51                                       $ 2,325.71
  12   332-3663494    $ 96,387.00      8.000%   $     949.63   $ 963.87          2.5 $2,409.68     $2,383.40   $ 6,706.58
  13   332-3689824*   $ 141,518.00     7.875%   $   1,394.27   $1,415.18                           $ 775.00    $ 3,584.45
  14   332-3693024*   $ 130,281.00     8.000%   $   1,283.56         -                                         $ 1,283.56
  15   332-3706997*   $ 118,144.00     8.000%   $   1,163.99   $1,181.44                           $ 775.00    $ 3,120.43
  16   332-3707905    $ 135,670.00     7.875%   $   1,336.66   $1,356.70       2.515   $3,412.10   $4,058.21   $ 10,163.67
  17   332-3756118    $ 123,561.00     7.375%   $   1,217.35   $1,235.61       2.238   $2,765.30   $3,765.18   $ 8,983.44
  18   332-3855375    $ 149,458.00     8.000%   $   1,472.50         -             3   $4,483.74   $2,989.16   $ 8,945.40
  19   332-3867968    $ 120,353.00     7.000%   $   1,185.75   $1,203.53       0.875   $1,053.09   $2,407.06   $ 5,849.43
  20   332-3909365*   $ 114,700.00     7.500%   $   1,130.05   $1,147.00                           $1,000.00   $ 3,277.05

*Sahara would not provide sale information (rebate points, rebate amount) for these 8 loans; therefore total fees collected are
understated.
**”Other Fees” includes Service Release Premiums, Loan Processing Fees, Underwriting Fees, and Administrative Fees.


                                                               Page 27                                                       2004-LA-1004
Appendix B




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2004-LA-1004          Page 28
                                                   Appendix C




    Overcharges for Credit Reports
            Charged to
            Borrower Per Actual     Total
FHA# 332-   HUD-1         Cost      Overcharged
  3693024   $       65.00 $ 65.00   $        -
  3867968   $       65.00 $ 37.00   $      28.00
  3707905   $       65.00 $ 50.00   $      15.00
  3638982   $       65.00 $ 27.00   $      38.00
  3663494   $       65.00 $ 12.00   $      53.00
  3855375   $       65.00 $ 35.00   $      30.00
  3599491   $       65.00 $ 22.00   $      43.00
                                    $     207.00




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                                Appendix C




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2004-LA-1004    Page 30
                                                                             Appendix D




                     Debt Ratios for Sahara's Borrowers
                      Reported by Sahara        Calculated by OIG

                  Front Ratio Back Ratio Front Ratio Back Ratio
                  (should not (should not (should not (should not Excessive
        FHA# 332- exceed 29%) exceed 41%) exceed 29%) exceed 41%) Ratio(s)
    1     3693024       25.70%     47.50%       25.70%        52.60%  X
    2     3909365      31.13%      35.88%       31.63%        35.88%  X
    3     3563776      38.15%      48.83%       38.86%        51.35%  X
    4     3756118       28.20%     32.30%       65.01%        74.49%  X
    5     3867968      35.58%      35.58%       58.79%        58.79%  X
    6     3707905       27.45%     35.31%       27.45%        35.31%
    7     3689824      38.30%      39.90%       43.27%        45.02%  X
    8    3503789* N/A             N/A          N/A           N/A
    9     3546148      39.43%      42.52%       39.43%        60.94%  X
   10     3569292      29.43%      44.67%       29.43%        75.85%  X
   11     3618755      42.80%      48.30%       48.20%        54.30%  X
   12     3619413       22.00%     35.50%       28.80%        46.40%  X
   13     3638982      37.30%      46.60%       49.00%        62.00%  X
   14     3663494      46.20%      51.50%       54.06%        60.91%  X
   15     3706997      41.96%      41.96%       41.96%        41.96%  X
   16     3855375       20.70%     32.68%       20.70%        32.68%
   17     3549013      32.90%      33.80%       32.93%        33.80%  X
   18     3611149       28.85%     33.51%       36.16%        53.39%  X
   19     3599951      39.76%      39.76%       39.76%        39.76%  X
   20     3611871       27.11%     29.33%       30.03%        32.49%  X
                               Number of loans with excessive ratios  17



*This was a streamline finance that did not require calculation of ratios.




                                   Page 31                                   2004-LA-1004
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2004-LA-1004    Page 32
Appendix E




                     Origination and Underwriting Deficiencies
                                                                Source of
                                  High      Poor   Over- Under- Funds
           FHA#       Loan        Debt     Credit stated stated   Not
            332-     Amount       Ratios   Record Income Debts Verified       Status
       1 3693024   $ 130,281        X        X             X       X       foreclosed
       2 3909365   $ 114,700        X        X       X             X          default
       3 3563776   $ 117,059        X                X     X       X          default
       4 3756118   $ 123,561        X                X             X          default
       5 3867968   $ 120,353        X                X                        default
       6 3707905   $ 135,670                 X                     X       foreclosed
       7 3689824   $ 141,518        X        X       X             X          default
       8 3503789   $    58,362               X                              reinstated
       9 3546148   $ 109,520        X        X             X       X        reinstated
      10 3569292   $    75,619      X        X             X       X          default
      11 3618755   $ 124,489        X        X       X             X          default
      12 3619413   $ 116,866        X        X       X             X           claim
      13 3638982   $ 117,151        X        X       X     X       X      deed-in-lieu
      14 3663494   $    96,387      X                X                         claim
      15 3706997   $ 118,114        X                              X          default
      16 3855375   $ 149,458                 X                     X        reinstated
      17 3549013   $ 101,559       X         X                     X      refi & claim
      18 3611149   $ 131,816       X         X       X     X       X           claim
      19 3611871   $ 126,297       X                 X             X      deed-in-lieu
      20 3599591   $    98,445     X                 X             X      deed-in-lieu
     Total           $2,307,225    17        13     12      6      17




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Appendix E




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               Page 34        2004-LA-1004
Appendix F




                         Active Loans Sahara Should Indemnify
                                                   Settlement
                  FHA# 332-       Loan Amount         Date                     Status
             1      3693024   $          130,281    7/20/2001   Foreclosure Completed
             2      3909365   $          114,700    6/12/2002   In Default
             3      3563776   $          117,059    2/28/2001   In Default
             4      3756118   $          123,561    11/5/2001   In Default
             5      3867968   $          120,353    3/13/2002   In Default
             6      3707905   $          135,670    10/2/2001   Foreclosure Completed
             7      3689824   $          141,518    7/12/2001   In Default
             8      3503789   $           58,362    7/20/2001   Reinstated by Mortgagor
             9      3546148   $          109,520    1/26/2001   Reinstated by Mortgagor
            10      3569292   $           75,619     4/2/2001   In Default
            11      3618755   $          124,489    4/11/2001   In Default
            12      3706997   $          118,114     8/7/2001   In Default
            13      3855375   $          149,458    3/15/2002   Reinstated by Mortgagor
       Total                  $        1,518,704


                   Schedule of HUD Losses Sahara Must Indemnify
                                                   Loss
                                                 (Gain) to
                  FHA# 332-       Loan Amount      HUD                  Status
            14      3663494 $            96,387 Unknown Claim - property in HUD's inventory
            15      3549013 $           101,559 Unknown Claim - property in HUD's inventory
            16      3611149 $           131,816 Unknown Claim - property in HUD's inventory
       Subtotal             $           329,762
            17      3619413 $           116,866   $14,157 Claim & Loss
       Total                $           446,628


                      Loans Sahara's President Should Pay in Full
                                                   Settlement
                  FHA# 332-       Loan Amount         Date                     Status
            18      3638982   $         117,151      5/1/2001   Investment Property
            19      3611871   $         126,297     3/23/2001   Investment Property
            20      3599591   $          98,445      5/1/2001   Investment Property
            21     4073536*   $          97,700     1/31/2003   Investment Property
       Total                  $         439,593



* Investment property currently owned by a member of Sahara's president's family
 Not included in OIG’s review of processing and underwriting.



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