oversight

Flagstar Bank FSB, Supervised Direct Endorsement Lender; Troy, MI; Procedures and Controls Over Late Requests for Endorsement and Upfront Mortgage Insurance Premium Payments Were Improved

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-03-07.

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

          AUDIT REPORT




            FLAGSTAR BANK FSB
  SUPERVISED DIRECT ENDORSEMENT LENDER

             TROY, MICHIGAN

               2005-CH-1006

              MARCH 7, 2005



          OFFICE OF AUDIT, REGION V
              CHICAGO, ILLINOIS


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                                                               Issue Date
                                                                        March 7, 2005
                                                               Audit Report Number
                                                                            2005-CH-1006




TO:        John C. Weicher, Assistant Secretary for Housing-Federal Housing
              Commissioner and Chairman of Mortgagee Review Board, H
           John W. Herold, Associate General Counsel for Program Enforcement, CE


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: Flagstar Bank FSB, Supervised Direct Endorsement Lender; Troy, MI;
            Procedures and Controls Over Late Requests for Endorsement and Upfront
            Mortgage Insurance Premium Payments Were Improved

                                  HIGHLIGHTS

 What We Audited and Why

            We reviewed Flagstar Bank FSB (Flagstar), a supervised lender approved to
            originate Federal Housing Administration mortgage loans under the U.S.
            Department of Housing and Urban Development’s (HUD) Single Family Direct
            Endorsement program. The review was part of the activities in our fiscal year
            2004 Annual Audit Plan. We selected Flagstar for audit because of its high late
            endorsement rate in fiscal years 2002 and 2003. Our review objectives were to
            determine whether Flagstar complied with HUD’s regulations, procedures, and
            instructions in the submission of insurance endorsement requests and payment of
            upfront mortgage insurance premiums to HUD.

 What We Found


            Flagstar implemented improvements to its procedures and controls in January
            2004 to fully comply with HUD’s requirements regarding late requests for
            endorsement and upfront mortgage insurance premiums. However, before the
            controls were strengthened, of 50 loans tested, Flagstar improperly submitted 2
            for late endorsement. These two loans increased the risk to the Federal Housing
            Administration insurance fund by $251,103 because the borrowers had not made


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           six consecutive timely monthly payments at the time their loans were submitted to
           HUD and/or were behind on their mortgage payments. Flagstar also paid
           penalties for not submitting upfront mortgage insurance premiums in a timely
           manner for 10 of 42 loans in our review sample. Flagstar’s employees incorrectly
           certified that one of the two loans’ escrow accounts for taxes, hazard insurance,
           and mortgage premiums were current when they were not. Flagstar’s staff was
           not adequately trained or was not aware of the late endorsement processing
           requirements, and procedures and controls were insufficient to ensure timely
           payment of upfront mortgage insurance premiums.

What We Recommend

           We recommend that HUD’s Assistant Secretary for Housing-Federal Housing
           Commissioner and Chairman of the Mortgagee Review Board require Flagstar to
           indemnify HUD for any future losses on the two loans with a total mortgage value of
           $251,103.

           We recommend that HUD’s Associate General Counsel for Program Enforcement
           determine legal sufficiency, and, if legally sufficient, pursue remedies under the
           Program Fraud Civil Remedies Act against Flagstar and/or its principals for
           incorrectly certifying that the escrow accounts for taxes, hazard insurance, and
           mortgage premiums were current for one loan submitted for Federal Housing
           Administration insurance endorsement when, in fact, the escrow accounts were
           not current.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please
           furnish us copies of any correspondence or directives issued because of the audit.


Auditee’s Response


           We provided the results of our late endorsement and loan file reviews to Flagstar
           during the review. We also provided our discussion draft audit report to
           Flagstar’s President/Chief Executive Officer and HUD’s staff on February 8,
           2005. We conducted an exit conference with Flagstar Bank’s First Vice President
           of Internal Audit, Exe cutive Vice President of Marketing, and Senior Vice
           President of Loan Delivery on February 16, 2005.

           We requested Flagstar to provide comments on our discussion draft audit report
           by February 23, 2005. Flagstar’s Senior Vice President provided written
           comments dated February 22, 2005. The Senior Vice President agreed that
           Flagstar improperly submitted two loans for late endorsement. We included the




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       complete text of the Senior Vice President’s comments, along with our evaluation
       of that response, in appendix B of this report.




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                              TABLE OF CONTENTS

Background and Objectives                                                           5

Results of Audit

        Finding: Flagstar Improved Procedures and Controls Over Late Requests for   6
                 Endorsement and Upfront Mortgage Insurance Premium Payments

Scope and Methodology                                                               10

Internal Controls                                                                   11

Follow-up on Prior Audits                                                           13

Appendixes
   A. Schedule of Funds To Be Put to Better Use                                     14
   B. Auditee Comments and OIG’s Evaluation                                         15
   C. Federal Requirements                                                          18
   D. Late Submissions for Endorsement Between September 1, 2002, and August 31,    20
      2004
   E. Late Payments of Upfront Mortgage Insurance Premiums Between September 1,     21
      2002, and August 31, 2004




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                     BACKGROUND AND OBJECTIVES

The U.S. Department of Housing and Urban Development (HUD) insures Single Family
mortgages under various sections of the National Housing Act. HUD’s mortgage programs
provide mortgage insurance on loans for new or existing homes, condominiums, manufactured
housing, and housing rehabilitation and for reverse mortgages to elderly homeowners.

One of HUD’s mortgage programs is the Direct Endorsement program. The program is designed
to simplify and expedite the process by which lenders can obtain mortgage insurance
endorsements from HUD and to give the lender sufficient certainty of HUD’s endorsement
requirements to justify the assumption of the responsibilities involved in originating and closing
mortgage loans without prior HUD review. However, lenders are responsible for complying
with all applicable HUD regulations and handbook instructions. If the mortgage loan meets the
pre-endorsement review criteria, HUD will endorse the mortgage for insurance.

HUD’s regulations at 24 Code of Federal Regulations, part 203.255, and HUD Handbook
4165.1, section 2-1, require lenders to submit processing and closing documents in a uniform
case binder to HUD within 60 days after closing for mortgage insurance endorsement. Section
3-1 of the Handbook requires that for any binders submitted to HUD after the 60-day period, the
loans may not be in default when submitted for insurance. For late submissions to HUD, the
lender must provide a payment ledger covering the period from the first payment due date to the
date of submission to HUD. If any payment was made after the month due, the lender may not
submit the loan to HUD until six consecutive payments have been made in the month in which
they were due.

Parts 203.280 and 206.111 of 24 Code of Federal Regulations and HUD Handbook 4000.2,
REV-2, section 1-12, require lenders to pay the initial (upfront) mortgage insurance premiums to
HUD in a lump sum within 15 days of the mortgage closing. Part 203.282 of 24 Code of Federal
Regulations requires lenders to pay HUD a 4-percent late charge if the payment is made after the
15-day period. If the payment is made later than 30 days after closing, lenders are also required
to pay interest at U.S. Department of Treasury rates in addition to the late fee.

In August 1987, HUD approved Flagstar under its previous name (First Security Savings Bank,
FSB) as a supervised direct endorsement lender. Flagstar is a federally chartered savings bank
with its home office located at 5151 Corporate Drive in Troy, MI. As of December 28, 2004,
Flagstar had 114 active branch offices and sponsored 1,024 loan correspondents.

From September 1, 2002, through August 31, 2004, Flagstar sponsored 12,573 Federal Housing
Administration- insured mortgages totaling more than $1.3 billion.

We selected Flagstar for review because of its high late endorsement rate and late payments of
upfront mortgage insurance premiums during fiscal years 2002 and 2003. Our review objectives
were to determine whether Flagstar complied with HUD’s regulations, procedures, and
instructions in the submission of insurance endorsement requests and payment of upfront
mortgage insurance premiums to HUD.


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                                 RESULTS OF AUDIT


Finding: Flagstar Improved Procedures and Controls Over Late Requests for
     Endorsement and Upfront Mortgage Insurance Premium Payments
Flagstar implemented improvements to its procedures and controls in January 2004 to fully
comply with HUD’s requirements regarding late requests for endorsement and upfront mortgage
insurance premiums. However, before the procedures and controls were strengthened, of 50
loans tested, Flagstar improperly submitted 2 for late endorsement. These two loans increased
the risk to the Federal Housing Administration insurance fund by $251,103 because the
borrowers had not made six consecutive timely monthly payments at the time their loans were
submitted to HUD and/or were behind on their mortgage payments. Flagstar also paid penalties
for not submitting upfront mortgage insurance premiums in a timely manner for 10 of 42 loans in
our review sample. Flagstar’s employees incorrectly certified that one of the two loans’ escrow
accounts for taxes, hazard insurance, and mortgage premiums were current when they were not.
Flagstar staff was not adequately trained or was not aware of the late endorsement processing
requirements and procedures, and controls were insufficient to ensure timely payment of upfront
mortgage insurance premiums.


 Flagstar Took Corrective
 Action


              In January 2004, Flagstar improved its procedures and controls over late requests
              for endorsement and upfront mortgage insurance premiums. As a result, Flagstar
              decreased the rates of its submission of loans for late endorsement and late
              payment of upfront mortgage insurance premiums (see appendixes D and E in this
              report).

              Flagstar implemented the following improvements to its procedures and controls
              over the submission of loans for late endorsement and payment of upfront
              mortgage insurance premiums:

                  •   Color-coding of insurable loans for priority and control,

                  •   Using scanning machines for paperless filing as opposed to manual filing
                      (the scanned documents provide easier and quicker access by staff
                      involved in the loan endorsement and insurance premium payment
                      processes),

                  •   Implementing a loan tracking system for management to carry out
                      immediate actions to correct deficient loan files so they can be submitted
                      in a timely manner for loan endorsements,



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              •   Charging its loan correspondents and brokers late fees for loan packages
                  not provided to Flagstar within 15 days of closing, and

              •   Implementing a new procedure for payment of upfront mortgage insurance
                  premiums. To avoid late payments, Flagstar pays the upfront mortgage
                  insurance premiums to HUD when it receive s the loan packages from its
                  loan originators or brokers instead of paying the premiums when it
                  transfers the loan funds.

              In addition to the procedures and controls previously mentioned, Flagstar
              added an element to its quality control policy in June 2004 that requires
              testing of loan endorsement submissions and payment of upfront mortgage
              insurance premiums. The testing will be a part of Flagstar’s internal quarterly
              reviews that its internal audit staff will perform. Flagstar’s management will
              use the testing as well as the insurance endorsement rejection notices it
              receives from HUD to identify any problems in the loan files. If problems
              exist, Flagstar can take immediate corrective actions to ensure the
              completeness of loan documents.


Flagstar Improperly Submitted
Two Late Requests for
Endorsement

           Our analysis of the mortgage payment histories provided by Flagstar, HUD’s case
           binders, and the endorsement data from HUD’s systems showed that for the 50
           loans tested, Flagstar submitted 2 loans (case numbers 261-8469089 and 201-
           3316472) for endorsement in January and February 2004, even though the
           borrowers had not made 6 consecutive timely monthly payments and/or were
           behind on their mortgage payments. The two loans with a total mortgage value of
           $251,103 are still insured. As of January 27, 2005, the mortgage for one of the
           two loans was in a delinquent status.

           Appendix C of this report provides details of Federal requirements regarding late
           requests for insurance endorsement.


Flagstar Failed to Pay
Insurance Premiums in a
Timely Manner


           Of the 50 loans reviewed, 42 were subject to HUD’s requirements rega rding
           payment of upfront mortgage insurance premiums. Of the 42 loans, Flagstar did
           not pay the upfront mortgage insurance premiums on time for 10 loans. Flagstar
           paid HUD the insurance premiums 20 to 63 days after closing. We did not



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            question these loans because Flagstar has already paid the upfront mortgage
            insurance premiums, late charges, and interests on six of the loans and the upfront
            mortgage insurance premiums plus late charges on the remaining four loans.
            HUD requires lenders to pay the upfront mortgage insurance premiums 15 days
            after closing a loan. It also requires lenders to pay a 4-percent late charge if the
            payment of upfront mortgage insurance premiums is made later than 15 days after
            closing plus interest if the payment is made later than 30 days after closing.

            In May 2002, HUD's Quality Assurance Division performed a review of Flagstar
            and cited among other deficiencies the late submission of loans for endorsement
            and late payment of upfront mortgage insurance premiums. Flagstar entered into
            a settlement agreement with HUD on March 26, 2004, for indemnification and
            penalties because of the 2002 review.

            We determined that Flagstar did improve its processing of closed loans for
            endorsement and payment of upfront mortgage insurance premiums as of January
            2004; however, in our testing, we determined that the two loans cited in this
            report were submitted late for endorsement when they were not eligible for
            endorsement based on the payment histories at the time they were submitted. The
            loans we cited in this report occurred subsequently to HUD's May 2002 review.


Flagstar’s Incorrect
Certifications


            Flagstar’s employee incorrectly signed a certification letter for one loan (case
            number 261-8469089) and submitted it to HUD as a late request for endorsement.
            The certification stated that the loan’s escrow accounts for taxes, hazard
            insurance, and mortgage insurance premiums were current. However, the loan
            Flagstar’s employee submitted to HUD for late endorsement had delinquent
            escrow accounts.


 Recommendations


            We recommend that HUD’s Assistant Secretary for Housing-Federal Hous ing
            Commissioner and Chairman of the Mortgagee Review Board

            1A.    Require Flagstar to indemnify HUD for any future losses on two loans with a
                   total mortgage value of $251,103.

            We recommend that HUD’s Associate General Counsel for Program Enforcement




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       1B.   Determine legal sufficiency, and, if legally sufficient, pursue remedies
             under the Program Fraud Civil Remedies Act against Flagstar and/or its
             principals for incorrectly certifying that the escrow accounts for taxes,
             hazard insurance, and mortgage premiums were current for one loan
             submitted for Federal Housing Administration insurance endorsement
             when, in fact, the escrow accounts were not current.




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                         SCOPE AND METHODOLOGY

We conducted the review at HUD’s Detroit Field Office and Flagstar’s Troy, MI, office. We
performed our review work between September 28 and December 30, 2004. To accomplish our
review objectives, we interviewed HUD’s staff and Flagstar’s management and employees. We
analyzed loan data in HUD’s Single-Family Data Warehouse system. We reviewed and tested
Flagstar’s policies, procedures, and controls regarding submission of loans for late endorsement
and payment of upfront mortgage insurance premiums. We also reviewed Flagstar’s
management reports used to control the processing of closed loans for submission to HUD for
late endorsements. We further reviewed HUD’s case binders for 50 Federal Housing
Administration- insured loans statistically selected at random out of a universe of 6,482 loans
Flagstar closed between September 2002 and August 2004 and submitted to HUD more than 65
days after closing.

We chose the 50 loans using computer assisted audit techniques, including the ACL computer
program. In addition, we relied in part on data maintained in HUD’s Single Family Data
Warehouse and Neighborhood Watch systems. We did not perform a detailed analysis of the
reliability of HUD’s Single Family Data Warehouse or Neighborhood Watch data.

The review covered the period from September 2002, through August 2004. We conducted the
review in accordance with generally accepted government auditing standards.




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                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

Internal controls relate to mana gement’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.




 Relevant Internal Controls


              We determined the following internal controls were relevant to our audit objective:

              •       Program Operations - Policies and procedures that management
                      implemented to reasonably ensure that the delayed loan endorsement and
                      mortgage insurance premium payment processes comply with HUD’s
                      requirements and meet the objectives of the Direct Endorsement program.

              •       Validity and Reliability of Data - Policies and procedures that
                      management implemented to reasonably ensure that valid and reliable data
                      are obtained, maintained, and fairly disclosed in reports.

              •       Compliance with Laws and Regulations - Policies and procedures that
                      management implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                  •   Safeguarding Resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

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



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Significant Weaknesses


           Based on our review results, Flagstar corrected the following significant
           weaknesses:

           •      Program Operations – Although before January 2004, Flagstar did not
                  always submit loans for late endorsement and pay upfront mortgage
                  insurance premiums in accordance with HUD’s requirements, it modified its
                  procedures and controls in January 2004 to ensure its program operations
                  complied with HUD’s requirements (see finding).

           •      Validity and Reliability of Data – In June 2004, Flagstar changed its
                  policy to require testing of loan endorsement sub missions and payment of
                  upfront mortgage insurance premiums as part of its internal quarterly
                  reviews by its internal audit staff. Flagstar’s management can use such
                  audit reviews as well as the insurance endorsement rejection notices it
                  receives from HUD to identify any problems in the loan files. If problems
                  exist, Flagstar can take immediate corrective actions to ensure the validity,
                  reliability, and completeness of loan documents before submission for
                  endorsement (see finding).

           •      Compliance with Laws and Regulations – Although before January 2004,
                  Flagstar did not submit loans for late endorsement and pay upfront mortgage
                  insurance premiums in accordance with HUD’s requirements, it modified its
                  procedures and controls in January 2004 to ensure it complied with laws and
                  HUD’s regulations (see finding).

           •      Safeguarding Resources - Flagstar improperly submitted two loans with
                  mortgages totaling more than $251,000 for insurance endorsement when
                  the borrowers had not made six consecutive timely monthly payments at
                  the time their loans were submitted to HUD and/or were behind on their
                  mortgage payments that increased the risk to the Federal Housing
                  Administration insurance fund (see finding).




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                      FOLLOW-UP ON PRIOR AUDITS

This was the first audit of Flagstar by HUD’s Office of Inspector General (OIG).

The last two independent auditor’s reports for Flagstar covered the years ending December 31,
2002, and December 31, 2003. The December 31, 2003, report cited 1 finding pertaining to a
$50 reconciling difference in 1 of 30 Government National Mortgage Association pools
reviewed.

HUD’s Office of Lender Activities, Quality Assurance Division, conducted a review of
Flagstar’s Federal Housing Administration loan processing between May 20 and May 24, 2002.
HUD issued its notice of violations to Flagstar on August 8, 2003. Among the issues cited in the
notice were Flagstar’s failure to submit 1,035 loans for endorsement within 60 days of closing
and failure to remit the upfront mortgage insurance premiums to HUD within 15 days of closing
for 1,310 loans.

In its response to HUD in September 2003, Flagstar informed HUD that it revised its procedures
and controls to decrease the time elapsing between closing and endorsement application and to
pay the upfront mortgage insurance premiums in a timely manner. Consequently, Flagstar
agreed to pay HUD $102,778 for losses incurred on 4 loans and $197,775 as an administrative
penalty and the indemnification for future losses on 10 other loans cited for origination
deficiencies. HUD closed the notice of violations after receiving Flagstar’s payments and
indemnification agreement.




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                                      APPENDIXES

Appendix A

          SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                              Recommendation         Funds To Be Put
                                  Number             to Better Use 1/

                                      1A                $251,103
                                     Total              $251,103


1/     “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
       OIG recommendation is implemented, resulting in reduced expenditures at a later time
       for the activities in question. This includes costs not incurred, deobligation of funds,
       withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
       loans and guarantees not made, and other savings.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




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Ref to OIG Evaluation   Auditee Comments




Comment 2




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                        OIG Evaluation of Auditee Comments

Comment 1   Flagstar claimed that one (case number 262-1399110) of the three loans
            cited in our discussion draft audit report had current payments at all
            times, including when the loan was submitted for late endorsement and
            this loan should be removed from the audit report. Flagstar provided
            additional documentation to support its claim that this one loan was
            properly submitted. Based upon Flagstar’s documentation, we adjusted
            our audit report to show that two loans totaling $251,103 were
            improperly submitted to HUD.

Comment 2   Flagstar took exception to the use of the word fraud in our audit report
            and asserted that fraud implied intent to deceive. Flagstar claims it did
            not intend to deceive, but merely made errors in the submission of the
            two delinquent loans. In our audit report, we did not cite fraud in our
            finding on two loans (case numbers 261-8469089 and 262-1399110).
            We cited, instead, that Flagstar’s employees incorrectly certified that the
            escrow accounts for taxes, hazard insurance, and mortgage premiums
            were current for the loans even though the escrow accounts were not
            current. Since Flagstar provided additional documentation to support
            that one of the two loans had current payments at all times, we adjusted
            our audit report to show that Flagstar’s employee incorrectly signed a
            certification letter for one loan.




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Appendix C
                                  Federal Requirements

Part 203.255(b) of 24 Code of Federal Regulation states that for applications for insurance
involving mortgages originated under the Direct Endorsement program, the lender shall submit
to the Secretary of Housing and Urban Development, within 60 days after the date of closing of
the loan or such additional time as permitted by the Secretary, properly completed
documentation and certifications.

HUD Handbook 4165.1, REV-1, “Endorsement for Insurance for Home Mortgage Programs
(Single Family),” dated November 30, 1995, chapter 3, section 3-1(A), states that late requests
for endorsement procedures apply if

   1. The loan is closed after the firm commitment,
   2. Direct endorsement underwriter’s approval expires, and/or
   3. The mortgage is submitted to HUD for endorsement more than 60 days after closing.

Section 3-1(B) states that a loan request for endorsement from the lender must include

   (1) An explanation for the delay in submitting for endorsement and actions taken to prevent
       future delayed submissions.

   (2) A certification that the escrow account for taxes, hazard insurance, and mortgage
       insurance premiums are current and intact except for disbursements which may have been
       made from the escrow accounts to cover payments for which the accounts were
       specifically established.

   (3) A payment ledger that reflects the payments received, including the payment due for the
       month in which the case is submitted if the case is submitted after the 15th of the month.
       For example, if the case closed February 3 and the case is submitted April 16, the
       payment ledger must reflect receipt of the April payment even though the payment is not
       considered delinquent until May 1. Payments under the mortgage must not be delinquent
       when submitted for endorsement.

                    (a) The lender must submit a payment ledger for the entire period from the
                        first payment due date to the date of the submission for endorsement.
                        Each payment must be made in the calendar month due.
                    (b) If a payment is made outside the calendar month due, the lender cannot
                        submit the case for endorsement until six consecutive payments have
                        been made within the calendar month due.

   (4) A certification that the lender did not provide the funds to bring the loan up-to-date or to
       affect the appearance of an acceptable payment history.

Mortgagee Letter 2004-14, “Late Request for Endorsement Procedures,” clarifies procedures for
mortgage lenders when submitting mortgage insurance case binders to the Federal Housing
Administration for endorsement beyond the 60-day limit following closing. It replaces the



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instructions found in the section “Late Request for Endorsement,” contained in chapter 3 of
HUD Handbook 4165.1, REV-3.

A request for insurance is considered “late” and triggers additional documentation whenever the
binder is received by HUD more than 60 days after the mortgage loan settlement or funds
disbursement, whichever is later.

If HUD returns the case binder to the lender by issuing a notice of rejection (or a later notice of
rejection), HUD’s Homeownership Center must receive the reconsideration request for insurance
endorsement within the original 60-day window or 30 days from the issue date of the original
notice of rejection, whiche ver is greater.

When submitting a late request for endorsement, in addition to including a payment history or
ledger, the mortgage lender is required to include a certification, signed by the representative of
that lender on company letterhead, which includes the lender’s complete address and telephone
number. This certification must be specific to the case being submitted (i.e., identify the Federal
Housing Administration case number and the name(s) of the borrower(s) and state that

   1) All mortgage payments due have been made by the mortgagor before or within the month
      due. If any payments have been made after the month due, the loan is not eligible for
      endorsement until six consecutive payments have been made before or within the
      calendar month due.

   2) All escrow accounts for taxes, hazard insurance, and mortgage insurance premiums are
      current and intact, except for disbursements that may have been made to cover payments
      for which the accounts were specifically established.

   3) The mortgage lender did not provide the funds to bring the loan up-to-date or keep the
      loan current or to bring about the appearance of an acceptable payment history.

Title 31, United States Code, section 3801, “Program Fraud Civil Remedies Act of 1986,”
provides Federal agencies, which are the victims of false, fictitious, and fraudulent claims and
statements, with an administrative remedy to recompense such agencies for losses resulting from
such claims and statements; to permit administrative proceedings to be brought against persons
who make, present, or submit such claims and statements; and to deter the making, presenting,
and submitting of such claims and statements in the future.




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Appendix D

               Late Submissions for Endorsement
         Between September 1, 2002, and August 31, 2004


                                                          Percentage of
                              Number of Late   Number         Late
                  Month        Submissions     of Loans   Submissions

             September 2002        198          353          56.09%
             October 2002          328          418          78.47%
             November 2002         355          396          89.65%
             December 2002         329          385          85.45%
             January 2003          272          340          80.00%
             February 2003         310          370          83.78%
             March 2003            372          443          83.97%
             April 2003            457          538          84.94%
             May 2003              595          725          82.07%
             June 2003             666          792          84.09%
             July 2003             559          762          73.36%
             August 2003           624          750          83.20%
             September 2003        459          761          60.32%
             October 2003          360          649          55.47%
             November 2003         220          512          42.97%
             December 2003         153          604          25.33%
             January 2004           64          476          13.45%
             February 2004          35          466           7.51%
             March 2004             41          557           7.36%
             April 2004             42          564           7.45%
             May 2004               21          446           4.71%
             June 2004              13          462           2.81%
             July 2004              9           479           1.88%
             August 2004            0           325           0.00%
                    Totals        6,482        12,573        51.55%




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Appendix E

      Late Payments of Upfront Mortgage Insurance Premiums
          Between September 1, 2002, and August 31, 2004


                               Number of              Percentage
                                  Late   Number of       of Late
                                 Upfront Loans with      Upfront
                                Mortgage  Upfront      Mortgage
                               Insurance Mortgage      Insurance
                                Premium  Insurance      Premium
                     Month     Payments Premiums       Payments
              September 2002        37      325           0.114
              October 2002          43      396           0.109
              November 2002         69      380           0.182
              December 2002         94      370           0.254
              January 2003          89      317           0.281
              February 2003         68      344           0.198
              March 2003            88      412           0.214
              April 2003           118      504           0.234
              May 2003             196      688           0.285
              June 2003            294      742           0.396
              July 2003            282      714           0.395
              August 2003          182      698           0.261
              September 2003       104      717           0.145
              October 2003          67      606           0.111
              November 2003         91      479           0.190
              December 2003        154      555           0.277
              January 2004          27      439           0.062
              February 2004         14      437           0.032
              March 2004            6       521           0.012
              April 2004            9       522           0.017
              May 2004              6       427           0.014
              June 2004             5       443           0.011
              July 2004             5       454           0.011
              August 2004           6       310           0.019
                     Totals       2,054    11,800         0.174




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