oversight

Mortgage America Bankers, LLC, a Non-Supervised Loan Correspondent, Kensington, Maryland

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-09-10.

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

        AUDIT REPORT




  MORTGAGE AMERICA BANKERS, LLC,

A NON-SUPERVISED LOAN CORRESPONDENT

           KENSINGTON, MD

              2004-PH-1012

            September 10, 2004



       OFFICE OF AUDIT, MID-ATLANTIC
             PHILADELPHIA, PA
                                                                  Issue Date
                                                                          September 10, 2004
                                                                  Audit Case Number
                                                                          2004-PH-1012




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


FROM: Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic, 3AGA

SUBJECT: Mortgage America Bankers, LLC, a Non-Supervised Loan Correspondent
         Kensington, Maryland

We completed an audit of Mortgage America Bankers, limited liability company (LLC). We
selected Mortgage America Bankers, LLC for review because of its high default rates. The
objectives of our review were to determine whether Mortgage America Bankers, LLC, complied
with HUD mortgagee approval requirements; complied with HUD regulations, procedures, and
instructions in originating Federal Housing Administration (FHA)-insured loans selected for
review; and Mortgage America Bankers, LLC’s quality control plan is implemented according to
U.S. Department of Housing and Urban Development (HUD) regulations. This report contains
three findings and applicable 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 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 110 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.

We appreciate the courtesies and assistance extended by the management and staff of Mortgage
America Bankers, LLC, and the HUD Philadelphia Homeownership Center.

Should you or your staff have any questions, please contact Ms. Christine Begola, Assistant
Regional Inspector General for Audit, at (410) 962-2520.
Management Memorandum




                        THIS PAGE LEFT
                            BLANK
                        INTENTIONALLY




2004-PH-1012              Page ii
Executive Summary
We completed a review of Mortgage America Bankers, LLC (Mortgage America), an FHA-
approved non-supervised loan correspondent whose main office is located in Kensington, Maryland.
The objectives of our audit were to determine whether Mortgage America complied with HUD
mortgagee approval requirements; complied with HUD regulations, procedures, and instructions
in originating FHA-insured loans selected for review; and Mortgage America’s quality control
plan was developed and implemented according to HUD regulations.

We found that Mortgage America’s office operations did not comply with HUD/FHA mortgagee
approval requirements, failed to justify loan overages and premium rate mortgages, and did not
adequately develop and implement a quality control plan that meets HUD requirements. As a result,
Mortgage America received $61,138 in ineligible fees and $27,718 in unsupported fees. In
addition, it originated $2,983,501 in questioned loans. The results of our review are summarized
below and detailed in the finding sections of this report.



 Mortgage America Did                Mortgage America did not administer its mortgagee office
 Not Comply With HUD’s               operations in conformity with HUD/FHA approval
 Mortgagee Approval                  requirements as discussed in HUD Handbook 4060.1,
 Requirements                        REV-1. It originated loans from unauthorized offices and
                                     by non-Mortgage America employees, did not require
                                     exclusivity of its employees, and did not exercise control
                                     and supervision over its employees. In addition, it did not
                                     pay all of its employees’ operating expenses. In our
                                     opinion, these deficiencies are a result of either Mortgage
                                     America’s disregard for or lack of knowledge of
                                     HUD/FHA mortgagee approval requirements. Due to these
                                     compliance weaknesses, Mortgage America’s eligibility as
                                     a HUD/FHA-approved mortgagee is questionable.

 Mortgage America Could              Mortgage America did not comply with HUD/FHA’s loan
 Not Justify Loan Discount           origination regulations. It failed to justify loan overages (loan
 Fees And Premium Rate               discount fees) charged to 13 borrowers; provided premium
 Mortgages Charged To                rate mortgages without reducing the borrower’s closing costs
 Borrowers                           (yield spread premiums) in 14 loans; and charged a real estate
                                     commission fee to one borrower when a financial interest
                                     existed between the real estate agent and Mortgage America.
                                     In our opinion, these deficiencies are a result of Mortgage
                                     America’s disregard for or lack of understanding of
                                     HUD/FHA loan origination requirements. In addition,
                                     Mortgage America did not adequately supervise its
                                     branches and employees. Consequently, FHA loans
                                     originated by Mortgage America had unnecessarily higher
                                     mortgage payments, resulting in an increased risk to the
                                     FHA insurance fund.

                                         Page iii                                       2004-PH-1012
Executive Summary

 Mortgage America’s        Mortgage America did not adequately develop and
 Quality Control Process   implement a quality control plan that fully meets HUD
 Was Not Adequate          requirements as outlined in HUD Handbook 4060.1, REV-
                           1, chapter 6. It failed to conduct the required quality
                           control reviews or maintain its loan origination case files
                           for the required 2-year period. The deficiencies associated
                           with Mortgage America’s quality control plan and
                           procedures stem from either its disregard for or lack of
                           knowledge of HUD’s and its own quality control
                           requirements. Therefore, Mortgage America is unable to
                           guarantee the accuracy, validity, and completeness of its
                           loan origination operations.

 Recommendations           We recommend that HUD require Mortgage America to take
                           immediate action to correct its ongoing operational
                           deficiencies that do not comply with HUD/FHA mortgagee
                           approval requirements. We also recommend that HUD
                           require Mortgage America to establish policies and
                           procedures to ensure that loans originated by its main and
                           branch offices comply with HUD/FHA loan origination
                           requirements. Further, we recommend that HUD take
                           appropriate steps to ensure that Mortgage America takes
                           immediate action to implement a quality control plan that
                           meets all HUD requirements and consider taking appropriate
                           administrative action against Mortgage America for its
                           continual failure to comply with HUD requirements.

 Auditee Comments          We provided our initial draft of this report to Mortgage
                           America on June 25, 2004. We discussed the findings and
                           recommendations with Mortgage America at an exit
                           conference on July 8, 2004. Mortgage America provided
                           written comments to the draft on July 22, 2004. Mortgage
                           America’s response consisted of a six-page letter and three
                           attachments. The complete text of the letter is included in
                           Appendix G. We did not include the attachments because
                           they contained clients’ personal loan information not
                           available for public distribution.




2004-PH-1012                   Page iv
Table of Contents
Management Memorandum                                                   i



Executive Summary                                                     iii



Introduction                                                           1



Findings

1.   Mortgage America Did Not Comply With HUD’s                        3
     Mortgagee Approval Requirements

2.   Mortgage America Could Not Justify Loan Discount Fees            11
     and Premium Rate Mortgages Charged to Borrowers

3.   Mortgage America’s Quality Control Process                       17
     Continues to Be Inadequate


Management Controls                                                   21



Follow Up On Prior Audits                                             23




                             Page v                          2004-PH-1012
Table of Contents


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

       B. Twenty-Two FHA-Insured Loans Selected for Review      27

       C. Loan Originations at Unauthorized Offices             29

       D. Loans Originated by Non-Mortgage America Employees    31

       E. Loans Originated by Marlow Heights/Camp Springs       33
          Offices

       F. Chart of Unearned and Unallowable Fees                35

       G. Auditee Comments                                      37




2004-PH-1012                   Page vi
Introduction
The U.S. Department of Housing and Urban Development (HUD) insures mortgages made by
private lending institutions under Section 203 of the National Housing Act. HUD designates
these institutions as supervised mortgagees, non-supervised mortgagees, loan correspondents,
investing mortgagees, and government institutions. Depending upon their designation, the
institutions have the authority to originate, purchase, hold, service, or sell FHA-insured
mortgages. A loan correspondent can only originate loans for an approved sponsor.

Mortgage America Bankers, LLC (Mortgage America) formed a limited liability company on
May 6, 1996 under the laws of the state of Maryland. On December 4, 1998, HUD authorized
Mortgage America as a non-supervised loan correspondent mortgagee. Mortgage America’s
main office is located at 3930 Knowles Avenue, Suite 305, Kensington, MD 20895.

As a non-supervised loan correspondent, Mortgage America’s principal activity is the origination of
mortgages for sale or transfer to an approved FHA sponsor under the HUD Single Family Direct
Endorsement Program. The sponsor is responsible to HUD for the actions of its loan correspondent
in originating insured mortgages. The sponsor underwrites the loans originated by the loan
correspondent and is required to supervise and perform quality control reviews of its loan
correspondents. The sponsor must be an approved mortgagee that is also authorized to participate in
the HUD Single Family Direct Endorsement Program.

From September 1, 2001, through August 31, 2003, Mortgage America originated 146 FHA-insured
loans totaling approximately $20 million. As of October 3, 2003, 14 of these loans (10 percent)
have gone into default status at least once (see Appendix B). As of March 31, 2004, foreclosure
action had been initiated on 8 of the 14 defaulting loans at least once during the life of the loan.
Four of the eight loans have been conveyed to HUD with claims paid totaling $531,906 (see
Appendix C). As of March 31, 2004, none of these four properties had been re-sold.

HUD’s Quality Assurance Division performed a Title II monitoring review of Mortgage America in
November 2001. The findings letter, prepared by the Quality Assurance Division, disclosed that
Mortgage America’s quality control plan failed to contain all elements required by HUD, and
Mortgage America failed to implement its quality control plan in accordance with HUD guidelines
and standards. It was not able to provide HUD with any quality control reports.



 Audit Objectives                     Our audit objectives were to determine whether Mortgage
                                      America complied with HUD mortgagee approval
                                      requirements; complied with HUD regulations, procedures,
                                      and instructions in originating FHA-insured loans selected
                                      for review; and to determine whether Mortgage America’s
                                      quality control plan was developed and implemented
                                      according to HUD regulations.




                                           Page 1                                      2004-PH-1012
Introduction

 Audit Scope And   To accomplish the audit objectives, we:
 Methodology
                   •   Reviewed 100 percent of the FHA-insured loans (14 case
                       files) originated by Mortgage America that had gone into
                       early default at least once as of October 3, 2003. The 14
                       loans reviewed were from the universe of 146 loans
                       originated by Mortgage America with beginning
                       amortization dates for the 2-year period from September
                       1, 2001, to August 31, 2003. The results of the detailed
                       testing apply only to the 14 FHA-insured loans selected
                       and cannot be projected to the universe of 146 FHA-
                       insured loans.

                   •   Selected and reviewed an additional eight FHA-insured
                       loans originated by Mortgage America with closing dates
                       between July 1, 2003, to September 30, 2003 due to
                       Mortgage America’s current non-compliance with
                       HUD/FHA guidelines (see Appendix B).

                   •   Examined records and related documents of Mortgage
                       America.

                   •   Reviewed applicable HUD records relating to Mortgage
                       America’s non-supervised loan correspondent activities.

                   •   Conducted interviews with officials and employees of
                       Mortgage America and the HUD Quality Assurance
                       Division.

                   In addition, we relied, in part, on data maintained by HUD
                   in the Single Family Data Warehouse and Neighborhood
                   Watch. We did not perform a detailed analysis of the
                   reliability of HUD’s Single Family Data Warehouse or
                   Neighborhood Watch data.

                   Our audit generally covered the period of September 1,
                   2001, through August 31, 2003. Where applicable, the
                   audit period was expanded to include current data through
                   March 31, 2004. We conducted our fieldwork from
                   October 2003 through May 2004.

                   Our review was conducted in accordance with Generally
                   Accepted Government Auditing Standards.




2004-PH-1012           Page 2
                                                                                                     Finding 1


       Mortgage America Did Not Comply With
       HUD’s Mortgagee Approval Requirements
Mortgage America did not administer its mortgagee office operations in conformity with
HUD/FHA approval requirements as discussed in HUD Handbook 4060.1, REV-1. It originated
loans from unauthorized offices and by non-Mortgage America employees, did not require
exclusivity of its employees, and did not exercise control and supervision over its employees. In
addition, Mortgage America did not pay all of its employees’ operating expenses. These
deficiencies and others noted below are a result of either Mortgage America’s disregard for or
lack of knowledge of HUD/FHA mortgagee approval requirements. Due to these compliance
weaknesses, Mortgage America’s eligibility as a HUD/FHA-approved mortgagee is
questionable.



    Mortgage America                       Contrary to HUD requirements, we found Mortgage
    Originated HUD/FHA-                    America was originating, processing and submitting FHA
    Insured Mortgages From                 loans for endorsement from three locations that had not
    Offices Not Approved By                been approved by HUD. These locations included:
    HUD
                                           1. 3930 Knowles Avenue, Suite 305, Kensington, MD
                                              (Main Office)

                                           2. 3006 St. Clair Drive, Marlow Heights, MD (Marlow
                                              Heights/Camp Springs)1

                                           3. 1738 Elton Road, Silver Spring, MD

                                           HUD Handbook 4060.1, REV-1, paragraph 1-2, General,
                                           states a mortgagee must be approved by HUD to originate,
                                           purchase, hold, or sell HUD/FHA-insured mortgages. In
                                           addition, subparagraph A states that for each branch office
                                           from which the mortgagee will submit mortgages for
                                           insurance, a Branch Office Notification Form and
                                           application fee must be submitted to the HUD field office
                                           in the jurisdiction in which the branch office is located.
                                           Further, according to Mortgagee Letter 2000-15, the
                                           origination of insured mortgages by lenders that have not
                                           received HUD/FHA approval increases the risk to the FHA
1
  The Marlow Heights office was formed in July or August 2002 after a previous branch located at 5625 Allentown
Road, Camp Springs, MD, was closed. Two of the Camp Springs loan officers remained employed with Mortgage
America and formed the Marlow Heights office. For purposes of this audit, we have grouped these branch offices
together (Marlow Heights/Camp Springs).


                                                Page 3                                           2004-PH-1012
Finding 1


                             insurance funds and to the public. Mortgagees found to be
                             in violation may be subject to the full range of HUD
                             sanctions.

                             HUD records show the only Mortgage America office
                             approved by HUD to originate FHA mortgages is an office
                             located at 8555 16th Street, Suite 205, Silver Spring, MD.
                             However, our review found this location no longer
                             functions as a Mortgage America office; instead, it is
                             operated as a net branch of 1st Metropolitan Mortgage.
                             Mortgage America moved its main office from the Silver
                             Spring location to Kensington, MD in June or July 2003.

                             Of the 22 loans reviewed, Mortgage America originated 17
                             loans (77 percent) from unauthorized locations. Of these
                             17 loans, 15 loans were originated from the Marlow
                             Heights/Camp Springs offices. The remaining two loans
                             were originated from Mortgage America’s branch office on
                             Elton Road in Silver Spring.

                             Mortgage America’s loan origination from unauthorized
                             offices is a serious violation of HUD/FHA rules and
                             regulations. Mortgage America’s failure to register its
                             main and branch offices with HUD has increased the risk to
                             the FHA insurance fund and to the public. Four of the 17
                             loans originated from unauthorized offices have since been
                             conveyed to HUD. The claims paid by HUD on these loans
                             total $531,906 and should be paid back by Mortgage
                             America. The other 13 loans originated from unauthorized
                             offices have original mortgage amounts totaling $1,878,205
                             (see Appendix C). Due to the failure by Mortgage America
                             to properly register its offices, we are seeking
                             indemnification on these loans.

   Mortgage America Did      Contrary to HUD loan origination requirements, Mortgage
   Not Originate And Close   America did not originate and close all mortgages for
   All HUD/FHA Loans In      HUD/FHA insurance endorsement in their own name. Of
   Their Own Name            the 22 loans we reviewed, 4 loans totaling $573,390 were
                             originated and closed by 1st Metropolitan Mortgage
                             employees. Two of the four loans were originated and
                             closed in the name of 1st Metropolitan Mortgage; however,
                             Mortgage America’s lender identification number was used
                             to both originate and close these loans. In the other two
                             loans, employees of 1st Metropolitan Mortgage originated



2004-PH-1012                     Page 4
                                                                             Finding 1


                         and closed the loans in Mortgage America’s name (see
                         Appendix D). By allowing these four loans to be
                         originated by non-Mortgage America employees, Mortgage
                         America’s former General Manager violated HUD/FHA
                         requirements.

                         HUD Handbook 4060.1, REV-1, paragraph 2-25, Loan
                         Origination Requirement, requires that mortgagees
                         originate, close, fund, and submit mortgages for HUD/FHA
                         insurance endorsement in their own name. Paragraph 2-14,
                         Conducting Mortgagee Business, requires all employees,
                         except the receptionist, whether full-time or part-time, to be
                         employed exclusively by the mortgagee at all times.

                         Mortgage America’s former General Manager did not
                         comply with HUD’s loan origination requirements that all
                         loans originate and close in their own name. During the
                         transition of Mortgage America’s main office from Silver
                         Spring to Kensington, its General Manager stopped
                         functioning as the General Manager/Loan Officer for
                         Mortgage America. Instead, he, along with some former
                         Mortgage America loan officers, remained at the Silver
                         Spring office to operate as a net branch of 1st Metropolitan
                         Mortgage.

Senior Management Did    HUD Handbook 4060.1, REV-1, paragraph 2-13, Control
Not Adequately Control   and Supervision of Staff, requires a mortgagee to exercise
And Supervise Its        control and responsible management supervision over its
Employees                employees. The requirement regarding control and
                         supervision must include, at a minimum, regular and
                         ongoing reviews of employee performance and of work
                         performed.

                         Mortgage America’s management did not exercise control
                         and supervision over its employees and did not actively
                         participate in the loan origination process performed by its
                         loan officers and loan processors. The only review of the
                         loan officer’s and processor’s work that takes place is the
                         completion of a standard checklist to ensure that all the
                         necessary documents are present, signed, and dated. This
                         review does not verify the quality or validity of the
                         information provided in the loan file. Also, Mortgage
                         America was unable to provide any written reviews
                         regarding the loan officer’s performance or improvements
                         needed.


                             Page 5                                       2004-PH-1012
Finding 1


                           Mortgage America’s failure to exercise control and
                           responsible management over its employees prevents it
                           from ensuring that the origination operations of its
                           employees are in accordance with HUD/FHA practices.

 Not All Employees Were    HUD Handbook 4060.1, REV-1, paragraph 2-14,
 Employed Exclusively By   Conducting Mortgagee Business, requires all employees
 Mortgage America At All   except the receptionist, whether full-time or part-time, to be
 Times                     employed exclusively by the mortgagee at all times.

                           Mortgage America did not enforce and require exclusivity
                           of its employees as required by HUD. Review of the loan
                           origination files documented that the branch manager of the
                           Marlow Heights office was also an agent for Murrell,
                           Incorporated, Realtors. Murrell, Incorporated, Realtors is
                           located next door to the Marlow Heights branch office. Of
                           the 22 loans we selected for review, 15 (68 percent) were
                           originated from the Marlow Heights/Camp Springs offices.
                           Murrell, Incorporated, Realtors was listed as the real estate
                           agent in 6 of these 15 loans. The Marlow Heights branch
                           manager acted as the real estate agent on two of these six
                           loans, while the other Marlow Heights loan officer
                           originated the loans (see Appendix E).

 Mortgage America Does     HUD Handbook 4060.1, REV-1, paragraph 2-17, Operating
 Not Pay All Its Own       Expenses, specifies the mortgagee is responsible for paying
 Operating Expenses        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. Also, Mortgagee Letter 2000-15 states that if
                           “the expenses are paid by the branch manager from a
                           personal or non-mortgagee account (or by some third
                           party), the arrangement is prohibited and a true branch does
                           not exist.”

                           Mortgage America does not pay all of its employees’
                           operating expenses. When the Marlow Heights office was
                           opened in 2002, the employees furnished the office. These
                           employees personally paid for computers, telephones, a
                           copy machine, and other office supplies. Mortgage
                           America did not reimburse the employees for the set up of
                           the office.




2004-PH-1012                   Page 6
                                                                         Finding 1


                       Also, the employees continue to pay general expenses such
                       as office supplies, maintenance of the copier and
                       computers, and the office’s phone bill. When questioned
                       about the payment of office expenses, Mortgage America
                       stated that it pays the bills for the branch offices when it
                       receives the bills from the loan officers. However,
                       Mortgage America declared it is difficult to pay expenses
                       when the officers in the respective branch offices do not
                       submit bills to be paid. Mortgage America holds the staff
                       responsible for submitting bills to be paid.

                       In addition, Mortgage America was unable to provide
                       evidence of who was paying the lease for the Marlow
                       Heights office space. We requested a copy of the lease
                       agreement for the Marlow Heights office, but; Mortgage
                       America was not able to provide us with one. Therefore,
                       we question whether Mortgage America is paying for
                       and/or leasing the office space for the Marlow Heights
                       office.

                       Mortgage America’s failure to pay all of its employees’
                       operating expenses is a direct violation of HUD/FHA
                       regulations. Not paying all the operating expenses creates
                       a prohibited arrangement, and a true net branch does not
                       exist.

Mortgage America Did   HUD Handbook 4060.1, REV-1, paragraph 2-16, Office
Not Notify HUD Of      Facilities, states a mortgagee's main office must be its
Business Changes       designated facility to which HUD directs all
                       communications about the management affairs of the
                       mortgagee and from which the public obtains information
                       on the activities of the mortgagee. In addition, paragraph
                       2-21 specifies that mortgagees be required to notify HUD
                       within 10 days of all corporate changes.

                       As discussed above, Mortgage America moved its main
                       office from the Silver Spring location to 3930 Knowles
                       Avenue, Suite 305, Kensington, MD, sometime in June or
                       July 2003. However, Mortgage America failed to notify
                       HUD of this change. By not notifying HUD of its new
                       office location, Mortgage America’s main branch in
                       Kensington, MD is not an FHA-approved office. In
                       addition, with no knowledge of its new office location,
                       HUD is still directing all correspondence to an address at



                           Page 7                                     2004-PH-1012
Finding 1


                     which Mortgage America no longer operates. Therefore,
                     HUD is not able to accurately monitor the office activities
                     of Mortgage America.

                     HUD Handbook 4060.1, REV-1, paragraph 2-16, Office
                     Facilities, stipulates offices must be clearly labeled so that
                     they are properly identified to the public. Mortgage
                     America’s branch office in Marlow Heights is located in a
                     residential neighborhood. The office is located inside a
                     detached house. The exterior of this building has no
                     business signs to inform the public that it is either acting as
                     a business or operating as a branch office of Mortgage
                     America.

 Mortgage America    In our opinion, the deficiencies addressed above and in
 Claimed A Lack Of   Findings 2 and 3 stem from Mortgage America’s disregard
 Knowledge Of HUD    for or lack of knowledge of HUD requirements. Mortgage
 Requirements        America admittedly failed to obtain the necessary
                     understanding of HUD/FHA rules and regulations. This
                     led to its inability to ensure the accuracy, validity, and
                     completeness of its loan origination operations. This
                     disregard or lack of knowledge has greatly increased the
                     risk to the FHA insurance fund.



Auditee Comments     Except for Mortgage America’s disagreement with our
                     finding that a loan officer cannot simultaneously be
                     employed as a real estate agent, Mortgage America
                     generally agreed with our findings. In its response to the
                     audit, it documented the actions it has taken to date to
                     correct the deficiencies noted during the review. In
                     December 2003, the General Manager was replaced.
                     Under the new General Manager a systematic review of
                     Mortgage America’s operations and procedures was
                     completed. A CPA was hired to assist in establishing the
                     financial records and accounting system for the upcoming
                     year. New contracts were issued to all loan officers and
                     branch managers, requiring exclusivity. Leases were
                     obtained for all offices, and bills are being collected and
                     paid by the main Mortgage America office. In addition, all
                     branch locations have been reported to HUD and are
                     properly identified to the public.




2004-PH-1012             Page 8
                                                                      Finding 1


                    Mortgage America states that there are many realtors who
                    also are employed as loan officers in the industry.
                    Mortgage America believes that because the loan
                    officer/realtor did not receive a commission from Mortgage
                    America on any loan for which they serve as the realtor,
                    there is no violation of HUD/FHA’s exclusivity rules.



OIG Evaluation of   We are encouraged by the changes Mortgage America
Auditee Comments    stated it has started to implement in response to the issues
                    noted in this report. However, HUD will need to determine
                    whether the proposed actions have been completed and are
                    acceptable to correct the problems. Regarding the
                    exclusivity of employees, we maintain our stance that the
                    loan officer/realtor relationship is a violation of HUD/FHA
                    regulations.


Recommendations     We recommend that the Assistant Secretary for Housing-
                    Federal Housing Commissioner:

                    1A. Require Mortgage America to take immediate action to
                        correct the operational deficiencies that are not in
                        compliance with HUD/FHA loan correspondent
                        approval requirements.

                    1B. Seek indemnification from Mortgage America against
                        future losses to HUD/FHA on 13 of the 17 loans
                        (original mortgage amounts totaling $1,878,205)
                        originated from unauthorized offices in Marlow
                        Heights/Camp Springs and Silver Spring.

                    1C. Seek reimbursement from Mortgage America to
                        HUD/FHA for the net loss incurred by HUD (claims
                        totaling $531,906) on the four remaining loans
                        originated from the unauthorized offices which have
                        already been conveyed to HUD.

                    1D. Seek indemnification against future losses to
                        HUD/FHA on the four loans (original mortgage
                        amounts totaling $573,390) originated in Mortgage
                        America’s name and/or using Mortgage America’s




                        Page 9                                     2004-PH-1012
Finding 1


                    origination identification by non-Mortgage America
                    employees.

               1E. Take administrative actions against the former General
                   Manager of Mortgage America for continued non-
                   compliance with HUD/FHA rules and regulations.

               1F. Determine whether Mortgage America’s deficiencies in
                   its mortgagee approval requirements warrant
                   administrative actions and/or its removal from
                   participation in HUD’s Single Family Mortgage
                   Insurance Programs.

               1G. If HUD determines Mortgage America can maintain its
                   approval as a non-supervised loan correspondent, take
                   appropriate monitoring measures to ensure that
                   Mortgage America discontinues the practice of
                   submitting loans that are originated by non-Mortgage
                   America employees or unauthorized branches.




2004-PH-1012       Page 10
                                                                                           Finding 2


    Mortgage America Could Not Justify Loan
    Discount Fees and Premium Rate Mortgages
              Charged to Borrowers
Mortgage America did not comply with HUD/FHA loan origination regulations. It failed to justify
loan overages (loan discount fees) charged to 13 borrowers; provided premium rate mortgages
without reducing the borrower’s closing costs (yield spread premiums) in 14 loans; and charged a
real estate commission fee to one borrower when a financial interest existed between the real estate
agent and Mortgage America. In our opinion, these deficiencies are a result of Mortgage
America’s disregard for or lack of understanding of HUD/FHA loan origination requirements.
In addition, Mortgage America did not adequately supervise its branches and employees.
Consequently, FHA loans originated by Mortgage America had unnecessarily higher mortgage
payments, resulting in an increased risk to the FHA insurance fund.



 Mortgage America Could               The Tiered Pricing Rule, as described in 24 Code of Federal
 Not Justify Discount Fees            Regulations (CFR) 202.12 and HUD Mortgagee Letters 94-
 It Charged Borrowers                 16 and 94-43, allows the lender to charge overages (discount
                                      fees) and retain them; however, a lender’s customary lending
                                      practices may not provide for a variation in “mortgage charge
                                      rates” (discount point, origination fee and other such fees)
                                      exceeding two percentage points on its FHA-insured single
                                      family mortgages within a geographical area. Any variation
                                      within two percentage points must be based on actual
                                      variations in fees or costs to the lender to make a loan.
                                      Whenever a lender makes a variation in pricing within the
                                      two percent, the lender must provide a justification. A record
                                      of the justification must be maintained for a period of at least
                                      two years and must be made available to the Secretary of
                                      Housing and Urban Development upon demand.

                                      Mortgage America charged borrowers overages in the form
                                      of loan discount fees in 16 of the 22 cases we reviewed. The
                                      loan discount fees were between 0.5 and 3.0 percent of the
                                      loan amount. However, we found in 13 of the 16 loans no
                                      justification was provided showing the reasons for the
                                      variations. When we asked the Operations Manager about
                                      the loan discounts, we were told that the loan discount is a
                                      way for Mortgage America to get a second origination fee.
                                      The loan discount fees in the 13 loans totaled $23,841 (see
                                      Appendix F, Chart 1).


                                          Page 11                                       2004-PH-1012
Finding 2


                          In addition, the borrower in one case (249-4274668) was
                          charged $3,877 or 3.75 percent of the loan amount for
                          “services rendered.” The HUD-1 closing statement indicates
                          this amount was “paid outside of closing” by the borrower to
                          Mortgage America. However, we found no documentation to
                          justify what services were “rendered” by Mortgage America
                          for the additional fees or costs incurred in originating this
                          loan.

                          These overages charged by Mortgage America totaling
                          $27,718 were not properly supported; therefore, we consider
                          them to be a violation of HUD/FHA regulations.

 Mortgage America         Mortgagee Letter 94-7, states that premium rate mortgages
 Provided Premium Rate    (yield spread premiums), also known as “rebate pricing”
 Mortgages To Borrowers   mortgages, permit the borrower to pay a slightly higher
 Without Reducing         interest rate in exchange for the lender paying the borrower’s
 Closing Costs            closing costs. For mortgages to be insured by HUD, the funds
                          derived from a premium interest rate must be disclosed on the
                          “good faith estimate” and the HUD-1 settlement statement.
                          The good faith estimate and HUD-1 settlement statement
                          must provide an itemized statement indicating which items
                          are being paid on the borrower’s behalf; disclosing only a
                          lump sum is not acceptable.

                          We found Mortgage America provided 14 borrowers with
                          premium rate mortgages without reducing the borrower’s
                          closing costs. Mortgage America provided no evidence that
                          the borrower received an up-front reduction in closing costs
                          nor did the itemized closing statements indicate any items
                          were paid on the borrower’s behalf. In total 19 of the 22
                          loans we reviewed contained yield spread premiums. In 14 of
                          the 19 loans, the 1.0 percent loan origination fee plus an
                          additional loan discount fee were charged in addition to the
                          yield spread premiums. The yield spread premiums in these
                          14 cases totaled $52,888 and ranged from $1,031 to $6,093.
                          The total of the loan origination fee plus the loan discount fee
                          in these cases ranged from $1,842 to $6,007 (see Appendix F,
                          Chart 2).

                          For example, in one loan for $187,468 (249-4493039), the
                          borrower paid a loan origination fee of $1,847 and a loan
                          discount fee of $3,749. In addition to these fees, the loan
                          contained one yield spread premium of $6,093 and a second



2004-PH-1012                  Page 12
                                                                               Finding 2


                          yield spread premium of $3,241. The total of all these fees is
                          $14,930 or 8.0 percent of the loan amount.

                          Mortgage America did not provide any evidence to
                          demonstrate the borrower actually received an up-front
                          reduction in closing costs nor did the itemized closing
                          statements indicate any items were paid on the borrower’s
                          behalf. Instead, it appears that the broker simply delivered a
                          loan with a higher interest rate with no benefit being provided
                          to the borrower. Therefore, we consider the yield spread
                          premiums in these 14 cases, totaling $52,888, to be a
                          violation of HUD/FHA regulations.

 Borrower Paid A          HUD Handbook 4000.2, REV-2, paragraph 5-3, subpart L,
 Prohibited Real Estate   Real Estate Broker’s Fees, explains that real estate broker’s
 Broker’s Fee             fees are allowable only if the broker is engaged independently
                          by the mortgagor. It also states that these fees are prohibited
                          if there is any financial interest between the broker and the
                          mortgagee.

                          As discussed in Finding 1, the branch manager/loan officer of
                          Mortgage America’s Marlow Heights office is also employed
                          as an agent of Murrell, Incorporated, Realtors. In one loan
                          (249-4781170) the borrower paid a real estate commission to
                          Murrell, Incorporated, Realtors in the amount of $8,250. This
                          loan was originated from Mortgage America’s Marlow
                          Heights office. However, the branch manager/loan officer of
                          this branch office acted as the agent for Murrell, Incorporated,
                          Realtors on this loan. Due to the financial interest between
                          the broker and the mortgagee, we consider this fee to be
                          unallowable.



Auditee Comments          Mortgage America disagrees with our finding. In its
                          response to the audit, it explains that charging yield spread
                          premiums and broker discount fees on both FHA and
                          conventional loans has been common practice for at least
                          20 years throughout the lending industry. Mortgage
                          America states that the sponsoring lenders monitor each
                          loan to ensure compliance with HUD/FHA regulations.
                          Never has a sponsoring lender questioned Mortgage
                          America on this practice.




                              Page 13                                       2004-PH-1012
Finding 2

OIG Evaluation of   We do not dispute that charging variations (discount fees)
Auditee Comments    and yield spread premiums are allowed practices.
                    However, we maintain our stance that Mortgage America
                    failed to provide (1) justification for the discount fees they
                    charged and (2) reductions in the up front cash owed by the
                    borrower or an itemized statement on either the HUD-1
                    settlement statement or good faith estimate showing which
                    items were paid on the borrower’s behalf in cases in which
                    a yield spread premium was charged. We agree that the
                    sponsoring lenders are responsible for reviewing each loan
                    for compliance with HUD/FHA regulations; however, this
                    does not absolve Mortgage America of its duties to comply
                    with those regulations.



Recommendations     We recommend that the Assistant Secretary for Housing-
                    Federal Housing Commissioner:

                    2A. Require Mortgage America to establish policies and
                        procedures to ensure loans originated by its main and
                        branch offices are in compliance with HUD/FHA loan
                        origination regulations pertaining to tiered pricing and
                        premium rate mortgages.

                    2B. Determine the eligibility of the $27,718 in overages
                        charged by Mortgage America, which lacked adequate
                        pricing documentation to justify such fees. If it is
                        determined these fees are ineligible, require Mortgage
                        America to reimburse the fees charged totaling $27,718
                        as follows:

                         i.       If the loan is current, a refund must be made to the
                                  borrowers.
                         ii.      If the loan is delinquent, a refund must be applied
                                  to the delinquency.
                         iii.     If a claim has been paid, a refund must be paid to
                                  HUD and sent to HUD Single Family Claims.

                    2C. Require Mortgage America to reimburse the ineligible
                        $52,888 in yield spread premiums as follows:

                         i.       If the loan is current, a refund must be made to the
                                  borrowers.
                         ii.      If the loan is delinquent, a refund must be applied


2004-PH-1012            Page 14
                                                      Finding 2


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

2D. Require Mortgage America to reimburse the ineligible
    $8,250 real estate commission as follows:

     i.      If the loan is current, a refund must be made to the
             borrowers.
     ii.     If the loan is delinquent, a refund must be applied
             to the delinquency.
     iii.    If a claim has been paid, a refund must be paid to
             HUD and sent to HUD Single Family Claims.




   Page 15                                         2004-PH-1012
Finding 2




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 16
                                                                                            Finding 3


   Mortgage America’s Quality Control Process
          Continues to Be Inadequate
Mortgage America did not adequately develop and implement a quality control plan that fully meets
HUD requirements as outlined in HUD Handbook 4060.1, REV-1, chapter 6. It failed to conduct
the required quality control reviews or maintain its loan origination case files for the required 2-
year period. The deficiencies associated with Mortgage America’s quality control plan and
procedures stem from either its disregard for or lack of knowledge of HUD’s and its own quality
control requirements. Therefore, Mortgage America is unable to guarantee the accuracy, validity,
and completeness of its loan origination operations.



 Mortgage America’s                   As a condition of the HUD/FHA approval process, loan
 Quality Control Plan Does            correspondents must have and maintain a quality control plan
 Not Meet HUD                         for the origination and servicing of insured mortgages. HUD
 Requirements                         Handbook 4060.1, REV-1, chapter 6, provides the general
                                      requirements along with mortgagee type specific
                                      requirements, for quality control plans. The primary objective
                                      of a quality control plan is to assure compliance with
                                      HUD/FHA requirements.

                                      During a review conducted by the Philadelphia
                                      Homeownership Center in 2001, Mortgage America was
                                      informed that its quality control plan did not contain all of the
                                      specific elements as outlined in HUD Handbook 4060.1,
                                      REV-1, chapter 6. HUD instructed Mortgage America to
                                      update its plan to include all the required elements that
                                      pertain to loan correspondents. Mortgage America completed
                                      some of the necessary changes but not all. Thus, its quality
                                      control plan continues not to meet HUD requirements.
                                      Mortgage America’s quality control plan did not include
                                      procedures to:

                                      •   Identify and review all loans that go into default within
                                          6 months of closing,

                                      •   Require on-site branch office reviews at least once a
                                          year,

                                      •   Identify the cause of deficiencies and initiate prompt
                                          action to notify employees to correct the deficiencies, or



                                          Page 17                                        2004-PH-1012
Finding 3


                           •   Require notification     to    HUD     of    significant
                               discrepancies.

                           The lack of an adequate quality control plan prevented
                           Mortgage America from evaluating the accuracy, validity,
                           and completeness of its loan origination operations.
                           Therefore, potential deficiencies in the loan origination
                           process were not identified and corrected.

 Past Quality Control      In the Philadelphia Homeownership Center 2001
 Reviews Were Not          monitoring review, Mortgage America was unable to
 Adequate                  provide any evidence it completed quality control reviews.
                           However, during our review Mortgage America did
                           provide us with copies of past quality control reviews for
                           loans it originated from January 1, 1999, through October
                           31, 2001. All three reviews were performed by an
                           independent agency. Further, each of the audit summation
                           letters that was provided to Mortgage America’s
                           management stated, “All files were given a cursory review
                           for set-up and calculation accuracy. The information in the
                           files was not re-verified.” As such these three reviews are
                           insufficient and do not meet the requirements of a quality
                           control review.

                           HUD Handbook 4060.1, REV-1, paragraph 6-1, General,
                           states that the quality control plan must be a prescribed
                           function of the mortgagee’s operations and assure that the
                           mortgagee maintains compliance with HUD/FHA
                           requirements and its own policies and procedures.
                           Mortgage America’s own quality control plan requires a
                           “thorough analysis of the information by the quality control
                           reviewer, as opposed to a cursory check of the existence of
                           the various documents.”

 No Quality Control        We found that Mortgage America has not completed any
 Reviews Have Been         quality control reviews for loans originated after
 Completed Since October   October 31, 2001. The failure to implement quality control
 2001                      procedures prevents Mortgage America from evaluating the
                           accuracy, validity, and completeness of its loan origination
                           operations and increases the overall risk to the FHA
                           insurance fund.




2004-PH-1012                   Page 18
                                                                           Finding 3

 Case Files Were Not   HUD Handbook 4000.2, REV-2, paragraph 5-10, Retention
 Retained For The      of Files, states the originating mortgagee must retain the
 Required Two-Year     entire case file pertaining to loan origination, either in hard
 Period                copy or microfilm form, for at least 2 years from the date of
                       insurance endorsement for auditing purposes. We requested
                       that Mortgage America provide us copies of the 22 loan files
                       we selected for review. It provided us 5 of the 22 loan files
                       we requested. It did not retain 17 of the 22 loan origination
                       files for the required 2 years; therefore, it was unable to
                       ensure the loan origination process was properly documented.



Auditee Comments       Mortgage America agreed with our findings. On March 1,
                       2004, it hired a manager to maintain a quality control
                       department. As part of his duties, he will ensure that all
                       loan files (past and present) are organized and complete
                       and that the data maintained in the files meets Mortgage
                       America’s quality control plan. In addition, he will
                       implement a verbal/written quality control audit of 10
                       percent of all loans originated from January 1, 2003, to
                       July 20, 2004, and provide monthly updates of his progress
                       in each area, bring deficiencies to management’s attention,
                       and implement remedies. Lastly, the quality control
                       manager will add Neighborhood Watch status checks to the
                       quality control plan starting in September 2004 and review
                       all loans that go into default within 6 months to determine
                       the cause and to correct deficiencies.



OIG Evaluation of      We are encouraged by the changes Mortgage America
Auditee Comments       stated it has started to implement in response to the issues
                       noted in this report. However, HUD will need to determine
                       whether the proposed actions have been completed and are
                       acceptable to correct the problems.



Recommendations        We recommend that the Assistant Secretary for Housing-
                       Federal Housing Commissioner:




                           Page 19                                      2004-PH-1012
Finding 3


               3A. Take appropriate monitoring measures to ensure that
                   Mortgage America makes changes to its existing
                   quality control plan according to HUD requirements.

               3B. Require Mortgage America’s senior management to
                   implement the quality control plan. The controls should
                   ensure that deficiencies in the loan origination process
                   are identified and corrected before the loan packages
                   are submitted to the direct endorsement sponsor.

               3C. Require Mortgage America to take immediate action to
                   comply with HUD’s loan retention requirements.

               3D. Take appropriate administrative action(s) due to the
                   continual deficiencies and noncompliance with HUD
                   requirements.




2004-PH-1012       Page 20
Management Controls
In planning and performing our audit, we considered the management controls of Mortgage America
Bankers, LLC to determine the audit procedures, not to provide assurance on its management
controls. Management controls include the plan of organization, methods and procedures adopted
by management to ensure that its goals are met; the processes for planning, organizing, directing,
and controlling program operations; and the systems for measuring, reporting, and monitoring
program performance.



 Relevant Management                 We determined the following management controls were
 Controls                            relevant to our audit objectives:

                                     •   Loan Origination Process - Policies and procedures that
                                         management has in place to reasonably ensure that the
                                         loan origination process complies with the HUD/FHA
                                         program requirements.

                                     •   Quality Control Plan - Policies and procedures that
                                         management has in place to reasonably ensure
                                         implementation of HUD/FHA quality control
                                         requirements.

                                     The following audit procedures were used to evaluate the
                                     management controls:

                                     •   Review of established procedures formulated by
                                         Mortgage America in originating FHA-insured loans,

                                     •   Interviews with officials and employees of Mortgage
                                         America,

                                     •   Examination of records and related documents for FHA-
                                         insured loans originated between September 1, 2001 and
                                         September 30, 2003,

                                     •   Review of records and files maintained by HUD’s
                                         Quality Assurance Division in connection with the
                                         oversight of Mortgage America, and

                                     •   Interviews with applicable officials and employees of
                                         HUD’s Quality Assurance Division relating to activities
                                         associated with Mortgage America.



                                         Page 21                                     2004-PH-1012
Management Controls


 Significant Weaknesses   A significant weakness exists if management controls do not
                          give reasonable assurance that resource use is consistent
                          with laws, regulations, and policies; that resources are
                          safeguarded against waste, loss, and misuse; and that
                          reliable data are obtained, maintained, and fairly disclosed
                          in reports.

                          Our review of Mortgage America’s management controls
                          over its loan origination and quality control procedures for the
                          origination of FHA-insured loans showed Mortgage America
                          did not comply with HUD requirements. Our audit disclosed
                          the following significant weaknesses with Mortgage
                          America’s Single Family loan program:

                          •   Quality control process,

                          •   Operating in accordance with HUD/FHA mortgagee
                              approval requirements, and

                          •   The loan origination process.

                          The deficiencies are discussed in detail in the findings in this
                          report.




2004-PH-1012                  Page 22
Follow Up On Prior Audits
This is the first audit of Mortgage America Bankers, LLC conducted by HUD’s Office of the
Inspector General. The mortgagee’s last independent audit report for the year ending December 31,
2002, did not contain any findings.




                                         Page 23                                    2004-PH-1012
Follow Up On Prior Audits




                            THIS PAGE LEFT
                                BLANK
                            INTENTIONALLY




2004-PH-1012                  Page 24
                                                                                  Appendix A

Schedule of Questioned Costs
and Funds to Be Put to Better Use
     Recommendation               Type of Questioned Cost                 Funds Put to
         Number              Ineligible 1/       Unsupported 2/           Better Use 3/
           1B                                                              $ 1,878,205
           1C                                                              $ 531,906
           1D                                                              $ 573,390
           2B                                         $27,718
           2C                  $52,888
           2D                  $ 8,250
         Totals                $61,138                $27,718              $ 2,983,501



1/    Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
      that the auditor believes are not allowable 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 audit. The costs are not
      supported by adequate documentation or there is a need for a legal or administrative
      determination on the eligibility of the costs. Unsupported costs require a decision by
      HUD program officials.          This decision, in addition to obtaining supporting
      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.




                                         Page 25                                  2004-PH-1012
Appendix A




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 26
                                                                                          Appendix B

Twenty-Two FHA-Insured
Loans Selected for Review
The following shows the 22 loans selected for review:

                                          Default Information
     Case Number    Mortgage Amount Current Status Code as of 10/3/03           Sponsor Name
     081-0717369      $150,727.00                      46                         Wells Fargo
     081-0724563      $144,732.00     Y                28                         Wells Fargo
     249-4244377      $126,308.00                      20                         Wells Fargo
     249-4382189      $163,195.00     Y                42                         Wells Fargo
     249-4471936      $100,207.00     Y                68                  International Mort. Corp
     249-4493039      $187,468.00     Y                68                  International Mort. Corp
     249-4445170      $139,894.00                      20                  Fidelity Home Mortgage
     249-4445187      $173,627.00                      20                  Fidelity Home Mortgage
     249-4467153      $148,824.00                      20                  Fidelity Home Mortgage
     249-4210423      $129,972.00     Y                45                  Fidelity Home Mortgage
     249-4274668      $103,377.00     Y                68                  Fidelity Home Mortgage
     081-0701658      $104,562.00                      19                  Fidelity Home Mortgage
     081-0710298      $ 92,766.00     Y                28                  Fidelity Home Mortgage
     241-6581097      $124,019.00     Y                42                  Fidelity Home Mortgage
     249-4818445      $205,680.00     NR               NR                         Wells Fargo
     249-4648938      $166,320.00     NR               NR                         Wells Fargo
     249-4766144      $121,800.00     NR               NR                         Wells Fargo
     249-4781170      $103,603.00     NR               NR                         Wells Fargo
     249-4795770      $132,250.00     NR               NR                         Wells Fargo
     249-4803122      $148,824.00     NR               NR                         First Mutual
     249-4774857      $153,020.00     NR               NR                         Wells Fargo
     249-4779472      $148,824.00     NR               NR                         First Mutual

                                           Default Status
                           Codes                     Descriptions
                            19       Partial Reinstatement
                            20       Reinstated by Mortgagor
                            28       Modification
                            42       Delinquent 90 Days or More
                            45       Foreclosure Completed
                            46       Property Conveyed to Insurer
                            68       First Legal Action to Foreclose
                            NR       None Reported in Neighborhood Watch




                                         Page 27                                          2004-PH-1012
Appendix B




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 28
                                                                                  Appendix C

Loan Originations at
Unauthorized Offices
The following are the 4 loans originated by unauthorized offices and already conveyed to HUD:

                                                     Default Status    Claims Paid by FHA
              Originating
Case Number      Office     Loan Amount Code As of 3/31/04             Principal    Other
249-4471936  Camp Springs    $100,207.00 46    1/1/2004               $104,957.49 $ 8,448.16
081-0710298  Camp Springs    $ 92,766.00 46    1/1/2004               $ 96,854.02      -
249-4210423  Camp Springs    $129,972.00 46   10/1/2003               $139,057.06 $14,326.95
081-0717369 Elton Road - SS $150,727.00 46     3/1/2003               $156,244.33 $12,018.33
                 Total       $473,672.00        Totals                $497,112.90 $34,793.44

                                        Default Status
                             Codes              Description
                              46       Property Conveyed to Insurer

Total claims paid by FHA (rounded to the nearest dollar):

$ 497,113 - Principal
$ 34,793 - Other
$ 531,906 - Total Claims Paid by FHA

The following are the remaining 13 loans originated by unauthorized branches:

                      Case Number Originating Office Loan Amount
                      249-4445170      Camp Springs   $ 139,894.00
                      249-4274668      Camp Springs   $ 103,377.00
                      249-4244377      Camp Springs   $ 126,308.00
                      249-4382189      Camp Springs   $ 163,195.00
                      249-4493039      Camp Springs   $ 187,468.00
                      249-4445187      Camp Springs   $ 173,627.00
                      249-4467153      Camp Springs   $ 148,824.00
                      081-0701658      Camp Springs   $ 104,562.00
                      249-4781170 Marlow Heights $ 103,603.00
                      249-4779472 Marlow Heights $ 148,824.00
                      249-4818445 Marlow Heights $ 205,680.00
                      249-4803122 Marlow Heights $ 148,824.00
                      241-6581097     Elton Road - SS $ 124,019.00
                         Total Original Loan Amounts $1,878,205.00




                                         Page 29                                  2004-PH-1012
Appendix C




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 30
                                                                           Appendix D

Loans Originated by
Non-Mortgage America Employees
The following are the loans closed by non-Mortgage America employees:


                                            Loan     Mortgagee Name Used to
         Case Number   Originating Office Amount          Close the Loan
         249-4648938    1st Metropolitan $166,320.00 1st Metropolitan Mortgage
         249-4766144    1st Metropolitan $121,800.00 1st Metropolitan Mortgage
                                                         Mortgage America
         249-4795770    1st Metropolitan $132,250.00          Bankers
                                                         Mortgage America
         249-4774857    1st Metropolitan $153,020.00          Bankers
                             Total       $573,390.00




                                      Page 31                              2004-PH-1012
Appendix D




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 32
                                                                                 Appendix E

Loans Originated at Marlow Heights/
Camp Springs Offices
The following are loans originated at Marlow Heights/Camp Springs Offices, some of which
involve Murrell, Incorporated, Realtors:

                                                        Loan
                    Case Number    Originating Office Amount
                    249-4471936      Camp Springs    $100,207.00     M
                    081-0710298      Camp Springs    $ 92,766.00
                    249-4210423      Camp Springs    $129,972.00
                    249-4445170      Camp Springs    $139,894.00     M
                    249-4274668      Camp Springs    $103,377.00
                    249-4244377      Camp Springs    $126,308.00
                    249-4382189      Camp Springs    $163,195.00
                    249-4493039      Camp Springs    $187,468.00
                    249-4445187      Camp Springs    $173,627.00
                    249-4467153      Camp Springs    $148,824.00     M
                    081-0701658      Camp Springs    $104,562.00
                    249-4781170     Marlow Heights $103,603.00      M,K
                    249-4779472     Marlow Heights $148,824.00      M,K
                    249-4818445     Marlow Heights $205,680.00
                    249-4803122     Marlow Heights $148,824.00       M

M - Murrell, Incorporated, Realtors was the real estate broker on these loans.
K - The Marlow Heights branch manager served as the real estate broker on these loans.




                                       Page 33                                   2004-PH-1012
Appendix E




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 34
                                                                                      Appendix F

  Chart of Unearned and
  Unallowable Fees
  Chart 1 - shows the 13 loans for which unearned discount fees were charged:
        FHA Case Number Loan Amount Origination             Discount % of Loan Amount
          249-4471936    $100,207.00    $ 987.27            $1,252.59      1.25%
          249-4445170    $139,894.00    $1,378.27           $1,049.20      0.75%
          249-4274668    $103,377.00    $1,018.50           $2,067.54      2.00%
          081-0710298     $ 92,766.00   $ 913.96            $ 927.66       1.00%
          081-0717369    $150,727.00    $1,485.00           $4,521.81      3.00%
          249-4244377    $126,308.00    $1,263.08           $2,084.08      1.65%
          249-4382189    $163,195.00    $1,631.95           $1,327.79      0.81%
          249-4210423    $129,972.00    $1,280.52           $2,599.44      2.00%
          081-0701658    $104,562.00    $1,030.17           $2,091.24      2.00%
          249-4803122    $148,824.00    $1,466.25           $ 744.12       0.50%
          241-6581097    $124,019.00    $1,221.87           $1,240.19      1.00%
          249-4648938    $166,320.00    $1,638.63           $2,494.80      1.50%
          249-4766144    $121,800.00    $1,200.00           $1,440.89      1.18%
                      Total Unearned Discount Fees         $23,841.35

  Chart 2 - shows the 14 loans with unearned yield spread premiums (YSP):
                                                           Fees Charged
                                    Origination
FHA Case Number Loan Amount             (A)     Discount (B) Total of A+B        1st YSP 2nd YSP
  249-4471936     $ 100,207.00      $ 987.27     $ 1,252.59 $ 2,239.86          $ 2,254.66
  249-4445170     $ 139,894.00      $ 1,378.27   $ 1,049.20 $ 2,427.47          $ 1,031.02
  081-0710298     $ 92,766.00       $ 913.96     $ 927.66 $ 1,841.62            $ 2,736.60
  081-0717369     $ 150,727.00      $ 1,485.00   $ 4,521.81 $ 6,006.81          $ 1,101.81
  249-4244377     $ 126,308.00      $ 1,263.08   $ 2,084.08 $ 3,347.16          $ 3,631.36
  249-4382189     $ 163,195.00      $ 1,631.95   $ 1,327.79 $ 2,959.74          $ 5,457.24
  249-4493039     $ 187,468.00      $ 1,846.98   $ 3,749.36 $ 5,596.34          $ 6,092.71 $3,241.32
  249-4210423     $ 129,972.00      $ 1,280.52   $ 2,599.44 $ 3,879.96          $ 3,545.64
  081-0701658     $ 104,562.00      $ 1,030.17   $ 2,091.24 $ 3,121.41          $ 3,245.60
  249-4803122     $ 148,824.00      $ 1,466.25   $ 744.12 $ 2,210.37            $ 5,580.40
  249-4648938     $ 166,320.00      $ 1,638.63   $ 2,494.80 $ 4,133.43          $ 3,953.43
  249-4766144     $ 121,800.00      $ 1,200.00   $ 1,440.89 $ 2,640.89          $ 2,805.05
  249-4774857     $ 153,020.00      $ 1,530.20   $ 1,147.65 $ 2,677.85          $ 3,352.67
  081-0724563     $ 144,732.00      $ 1,425.94   $ 519.59 $ 1,945.53            $ 4,858.65
           Totals $1,929,795.00     $19,078.22   $25,950.22 $45,028.44          $49,646.84 $3,241.32
  Total Unearned Yield Spread Premiums (rounded to the nearest dollar):
  $ 49,647 - 1st unearned yield spread premium
  $ 3,241 - 2nd unearned yield spread premium
  $ 52,888 - Total unearned yield spread premiums
                                          Page 35                                    2004-PH-1012
Appendix F




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-PH-1012    Page 36
                             Appendix G

Auditee Comments




                   Page 37   2004-PH-1012
Appendix G




2004-PH-1012   Page 38
          Appendix G




Page 39   2004-PH-1012
Appendix G




2004-PH-1012   Page 40
          Appendix G




Page 41   2004-PH-1012
Appendix G




2004-PH-1012   Page 42