American Financial Network, Boca Raton, Florida

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-29.

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

                                                     U.S. Department of Housing and Urban Development
                                                     Office of the Inspector General for Audit, Region 4
                                                     Richard B. Russell Federal Building
                                                     75 Spring Street, SW, Room 330
                                                     Atlanta, GA 30303-3388
                                                     (404) 331-3369

September 29, 2005                                                              MEMORANDUM NO.

MEMORANDUM FOR:            Brian D. Montgomery, Assistant Secretary for Housing-Federal
                              Housing Commissioner, H

FROM:           James D. McKay
                Regional Inspector General for Audit, 4AGA

SUBJECT:        American Financial Network
                Direct Endorsement Lender
                2423 North Federal Highway, Suite 400
                Boca Raton, FL 33431


We completed an audit survey of American Financial Network (American Financial), operating
from its home office in Boca Raton, Florida. American Financial is a nonsupervised direct
endorsement lender approved by the United States Department of Housing and Urban
Development (HUD) to originate and sponsor Federal Housing Administration-insured
single-family mortgages. We selected American Financial due to its high default rate.

The objective was to assess American Financial’s operations to determine whether a full Office
of Inspector General audit was warranted.

                               METHODOLOGY AND SCOPE

The review considered American Financial’s single-family housing loans located in Georgia that
closed from July 1, 2003, through June 30, 2005. We interviewed officials at HUD’s Atlanta
Homeownership Center and discussed the review with American Financial. We also reviewed
records maintained by HUD. We conducted the review during August and September 2005.
                                    RESULTS OF REVIEW

American Financial functioned primarily as a sponsor for loan correspondents, and it primarily
used one underwriter to underwrite its loans. It has one active branch office in Augusta,
Georgia, and it has approval to operate in five states. American Financial underwrote 583 loans
with mortgages totaling $54 million from July 1, 2003, through June 30, 2005. Of these loans,
140 went into default within two years, including 92 loans for Georgia properties. We selected
American Financial for review based on its high default rate and the high default rate for its
primary underwriter and its Georgia loan correspondents.

HUD’s Neighborhood Watch system shows nationally that American Financial’s primary
underwriter had a 314 percent compare ratio and a 15.26 percent default rate for loans with
beginning amortization dates between September 1, 2003, and August 31, 2005. We learned that
the Quality Assurance Division conducted a review of one of American Financial’s primary loan
correspondents. It is still performing analysis and verification work on the loans selected for
review. Therefore, we decided to suspend further work to avoid duplication.

If you have any questions, please contact me or Narcell Stamps, assistant regional inspector
general for audit, at (404) 331-3369.