oversight

Wachovia Mortgage Corporation, Direct Endorsement Mortgagee, 4343 North Scottsdale Rd., Scottsdale, Arizona

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-11-22.

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

                                                                  Issue Date
                                                                   November 22, 2004
                                                                  Audit Case Number
                                                                   2005-LA-1803




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



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

SUBJECT:       Wachovia Mortgage Corporation
               Direct Endorsement Mortgagee
               4343 North Scottsdale Rd.
               Scottsdale, AZ 85251


We completed a limited review of Wachovia Mortgage Corporation (Wachovia), a Direct
Endorsement mortgagee. The review was performed on one of the mortgagee’s branch offices in
Scottsdale, Arizona. We selected this branch office for review based on the results of a previous
OIG audit that identified the use of false credit and employment documents by Keystone
Mortgage, a loan correspondent of Wachovia. The review objective was to determine whether
there were fraud indicators in the 27 Keystone Mortgage loan files underwritten by Wachovia,
and if so, whether these indicators were identified and resolved during Wachovia’s underwriting
process. We conducted the review in accordance with generally accepted government auditing
standards.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, a status report on: (1) the corrective action taken;
(2) the proposed corrective action and the date to be completed; or (3) why action is considered
unnecessary. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the review.

If you have any questions, please contact me at (213) 894-8016, or Charles Johnson, Assistant
Regional Inspector General for Audit, at (602) 379-7243.
                                           SUMMARY

We reviewed a sample of 27 FHA loans and found Wachovia failed to identify and/or follow up
on indicators of false credit and/or employment documents during the underwriting process for
all 27 cases. As a result, loans were approved based on false information, causing FHA/HUD to
assume unnecessary insurance risks. This report recommends that Wachovia indemnify HUD
for any past or future losses on 25 of these 27 loans.

We discussed the findings with Wachovia officials during the audit and at an exit conference
held on October 28, 2004. We also provided Wachovia with a copy of the final draft audit report
for comments on October 29, 2004. We received their written response on November 15, 2004.
Their response and our evaluation are discussed in the finding, and the full text of their response
is included as Appendix D.

                                        BACKGROUND

Wachovia is a HUD-approved, non-supervised Direct Endorsement lender. According to
information in HUD’s Neighborhood Watch system, Wachovia has 27 active branch offices
throughout the country, and is an approved sponsor for 1,671 loan correspondents. Our review
focused on one of Wachovia’s branch offices located at 4343 North Scottsdale Road, Scottsdale,
AZ 85251. For the two-year period including July 2002 through June 2004, this office originated
408 loans for mortgage amounts totaling approximately $50 million. According to Wachovia,
this branch office is a wholesale lender, and therefore does not originate loans, but acts as the
underwriter for loans originated by its loan correspondents.

During a previous HUD-OIG audit of Keystone Mortgage, a loan correspondent of Wachovia, we
identified the use of false credit and employment documents within 48 FHA loan files, including
falsified credit reports, false credit history letters from utility companies, and/or falsified
employment documents, such as pay stubs, W-2s, and verification of employment (VOE) forms.
Wachovia performed the underwriting on 27 of these 48 loans as the sponsoring Direct
Endorsement mortgagee. We analyzed the underwriting of these 27 loans during our review of
Wachovia.

We performed our review during the period July 2004 through August 2004. The objective of
our review was to determine whether there were fraud indicators in the 27 Keystone Mortgage
loan files underwritten by Wachovia, and if so, whether these indicators were identified and
resolved during Wachovia’s underwriting process.

To accomplish our review objectives, we:

•   Reviewed 27 FHA insured loans underwritten by Wachovia during the period January 2002
    through August 2003. This included review of both the available FHA official case files and
    Wachovia’s related loan processing files; and

•   Interviewed Wachovia managers.


                                              Page 2
FINDING

 WACHOVIA FAILED TO IDENTIFY AND/OR RESOLVE INDICATORS OF FALSE
CREDIT AND EMPLOYMENT DOCUMENTS WHEN UNDERWRITING FHA LOANS

All 27 of the loans reviewed, totaling approximately $2.9 million, contained indicators of false
credit and/or employment documents that were not appropriately identified and/or resolved by
Wachovia during the underwriting process. This occurred because Wachovia failed to exercise
due diligence when underwriting the loans, i.e., Wachovia did not identify and follow up on
indicators of irregularities that were present in the files. As a result, loans were approved based
on false information, causing FHA/HUD to assume unnecessary insurance risks. Three of these
27 loans have resulted in mortgage insurance claims to HUD/FHA totaling $341,479. The 24
other loans, totaling $2,549,250 remain insured and represent a continuing insurance risk to
FHA.


Section 203 (b) (1) of the National Housing Act, as amended, authorizes HUD to provide
mortgage insurance for single-family homes. A mortgagee that originates, purchases, holds or
sells FHA insured loans must be formally approved by HUD. Mortgagees must follow the
requirements of the National Housing Act and HUD instructions, guidelines, and regulations
when originating insured loans. Mortgagees that do not follow these requirements are subject to
administrative sanctions.

As part of the loan origination process, mortgagees are required to obtain a credit report for each
borrower. The credit report is used as a guide in the underwriting process to evaluate the
borrower’s attitude toward credit obligations. If the credit report shows the borrower has made
payments on previous or current obligations in a timely manner, the underwriter will find the
borrower represents a reduced risk. If the borrower has not yet established a credit history with
traditional credit accounts, such as credit cards, car loans or mortgages, the mortgagee can
develop an “alternative” credit history using utility payment records, rental payments,
automobile insurance payments, or other similar non-traditional credit sources. The mortgagee
itself may obtain this alternative credit information, or the mortgagee may elect to use a credit-
reporting agency to develop and provide a non-traditional mortgage credit report (reference HUD
Handbook 4155.1 REV-5, Mortgage Credit Analysis for Mortgage Insurance on One-to-Four
Family Properties).

The mortgagee must also obtain documentation evidencing the borrower’s history of
employment and income. The anticipated amount of income and likelihood of its continuance
must be established to determine the borrower's capacity to repay the mortgage debt.

The underwriter’s evaluation of a borrower’s credit and income history is used as a basis for
determining if the borrower represents an acceptable credit risk under HUD guidelines, and
accordingly, whether or not the loan should be approved.

HUD Handbook 4000.4, REV-1 (Single Family Direct Endorsement Program), requires
mortgagees to develop HUD/FHA insured loans in accordance with accepted sound mortgage

                                              Page 3
lending practices, ethics and standards. This handbook states that mortgagees and their
underwriters must maintain the ability to detect fraud and be aware of the warning signs that may
indicate irregularities.

Wachovia did not adhere to these requirements when it failed to identify and/or appropriately
resolve questionable credit and employment documents when underwriting FHA-insured loans.

We reviewed 27 FHA insured loans underwritten by Wachovia. These loans were found to contain
falsified borrower credit (26 loans) and/or employment (20 loans) documents during a previous
audit of Wachovia’s loan correspondent Keystone Mortgage. False credit and employment
documents included falsified credit reports, fabricated or altered IRS W-2 forms, borrower pay
stubs, and verification of employment forms. In many of the loan files involving false employment,
the borrower’s income or length of employment was overstated. In other cases, the borrower never
worked for the purported employer, or the borrower worked as a contract laborer rather than as a
full time employee as claimed. Also, in many cases, the Social Security numbers used to obtain a
credit report for the borrowers and process the loan were invalid or did not belong to the borrowers
(17 loans). The falsified documents in Wachovia’s files were apparently intended to enhance the
appearance of the borrower’s credit and employment history, and thereby unduly influence the loan
underwriting process in order to obtain loan approval.

All of the 27 loan files we reviewed contained indications of false borrower credit (26 loans) and/or
employment documents (20 loans), yet Wachovia did not follow up to ensure the documents were
legitimate. For example, the following indicators of false borrower credit and employment
documents were present in the loan files, but not identified and/or resolved by Wachovia.

   o Borrower pay statements and IRS W-2 forms did not reflect the standard Social Security
     and Medicare withholding percentages (20 loans).

   o Year-to-date pay and withholding amounts on borrowers’ consecutive pay stubs were
     incorrectly calculated (11 loans).

   o Employment documents appeared to have been “cut-and-pasted” together (10 loans).

   o Borrower credit reports in nearly all of the loan files contained references to alternative
     credit sources such as electric, gas, and cable television companies, yet the reports did not
     show any contact information to identify the credit sources, such as a telephone number
     or address as is typically included on a credit report (26 loans).

   o Credit reports did not indicate alternative credit accounts were actually verified by the
     credit reporting agency (23 Loans).

   o Credit reports listed alternative credit accounts, yet the creditor names were not shown on
     the reports. For example, the credit reports in these cases listed only “cable bill” or
     “CXDSCLR” (9 Loans).




                                              Page 4
   o Alternative credit accounts for utilities at the borrower’s prior residence showed dates
     that were clearly not consistent with the dates the borrower purportedly lived at the
     residence indicating these accounts were likely not valid (19 loans).

   o Other miscellaneous discrepancies indicating credit and/or employment documents were
     potentially false (25 Loans) (see Appendix C for a discussion of these discrepancies).

The indicators of false borrower credit and employment documents found in the 27 loan files are
summarized in Appendix B of this report. Each of the indicators noted represent significant
discrepancies and taken as a whole within each of the loan files, the indicators presented a
pattern of discrepancies that Wachovia should have identified and resolved. Because Wachovia
failed to exercise due diligence and follow up on these indicators, loans were approved based on
false information, causing FHA/HUD to assume unnecessary insurance risks on the 27 loans
totaling approximately $2.9 million.

AUDITEE COMMENTS

Wachovia provided a written response to the draft report dated November 12, 2004. Wachovia
acknowledged it failed to identify fraud indicators in 25 of the 27 loans identified in Appendix B
of the audit report and agreed to indemnification for these cases. For the remaining two loans
(identified as #19 and #10 in Appendix B), Wachovia requested that OIG drop its
recommendation for indemnification noting that these loans have never been in default and the
cited deficiencies related to them were debatable. Wachovia also noted HUD guidelines at the
time the 27 subject loans were originated did not require re-verification of borrowers alternative
credit information and thus they relied on the accuracy and validity of the information provided
by the credit reporting agency. Therefore, they felt that the three credit report related fraud
indicators listed in the report should not be cited as indicators of false documents Wachovia
failed to identify.

OIG EVALUATION OF AUDITEE COMMENTS

Since Wachovia agreed to indemnification for 25 of the 27 loans we concur this is an appropriate
resolution to the audit report finding and have revised our recommendation accordingly.

Wachovia’s response stated HUD guidelines at the time the subject loans were originated did not
require re-verification of borrowers’ alternative credit information. However, the audit report
did not state mortgagees were required to re-verify alternative credit accounts in all cases, but
rather that Wachovia should have identified and resolved the specific (credit related) fraud
indicators noted in the audit report that were present in the loan files. This should have been
done whether or not specific alternative credit re-verification requirements existed.




                                             Page 5
RECOMMENDATIONS

We recommend the Assistant Secretary for Housing require Wachovia to:

1A.    Indemnify HUD/FHA for any losses already incurred, and future losses on the 25 loans
       identified in Appendix B.




                                          Page 6
                              FOLLOW-UP ON PRIOR AUDITS

This is the first Office of Inspector General review of the Wachovia branch office.




                                             Page 7
                                                                                  Appendix A



     SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO BETTER USE



Recommendation                    Type of Questioned Cost               Funds Put to
   Number                  Ineligible 1/         Unsupported 2/          Better Use 3/
     1A                    $38,172               $112,092               $2,331,795



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 future 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 8
                                                                                                                                Appendix B



                         FRAUD INDICATORS NOT RESOLVED BY WACHOVIA




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    Loan # Amount        Number
      1       104,362     023-1212351       X        X        X              X                         X     X                  X
      2       114,326     023-1135867                X        X                                        X     X     X      X     X
      3       104,362     023-1158658       X        X                       X               X         X     X
      4       102,393     023-1422221       X        X        X              X               X    X    X     X            X     X
      5         88,609    023-1449511       X        X        X              X               X         X     X            X     X
      6         86,640    023-1162407       X        X                       X                         X     X     X      X     X
      7         97,470    023-1394193       X        X        X              X                    X    X     X            X     X
      8       105,346     023-0986059       X        X        X              X               X         X     X                  X
                                        1
      9       105,346     023-1166018       X        X                       X                    X    X     X     X            X
                                        5
      10        99,113    023-1198339                X        X                                        X     X     X      X     X
      11      120,115     023-0846990       X        X                       X               X    X    X     X            X     X
      12      128,612     023-0925095       X        X        X              X               X         X     X     X      X     X
      13      107,539     023-1244013       X        X                       X                    X    X     X            X     X
      14      122,459     023-1189366       X        X        X              X                         X     X     X      X     X
                                        2
      15      103,870     023-1262597       X        X                       X               X    X    X     X     X            X
      16        97,470    023-1270801       X        X                       X               X         X     X     X      X     X
      17        87,132    023-1449382       X        X                       X               X    X    X     X            X     X
      18      106,915     023-1126416                X        X                                        X     X     X            X
                                        5
      19      118,342     023-1711787                X                                                 X                  X
      20      120,115     023-1721472       X        X        X              X                    X    X                  X     X
      21      100,424     023-1557814       X        X        X              X               X         X     X            X     X
      22      112,140     023-1730711                X        X                                        X     X            X     X
      23      114,527     023-1611235       X        X        X              X               X    X    X     X            X     X
      24        99,439    023-1620555                X        X                                        X     X            X     X
      25        93,335    023-1731609       X        X        X              X                         X                  X     X
      26      118,065     023-0924984                X        X                                        X     X                  X
                                        2
      27      113,739     023-0927038       X                                X                    X                             X
    TOTAL: 2,872,205                        20      26       17             20               11   10   26   23     9     19     25


1 Foreclosure claim totaling $112,092 was paid by HUD. The property has not yet been resold.
2    Properties foreclosed, conveyed to HUD, and resold by HUD. Loss amounts for these 2 loans totaled $38,172.
3    Indicates false employment, credit, or Social Security numbers were found during the previous HUD OIG audit of Wachovia’s loan
     correspondent Keystone Mortgage.
4    Other indicators of false credit and employment documents are explained in Appendix C.
5    Loans excluded from the audit report recommendation for indemnification (two cases). Wachovia agreed to indemnify the remaining 25 loans.



                                                                                     Page 9
                                                                                   Appendix C



                   SCHEDULE OF “OTHER” FRAUD INDICATORS

Loan Number 1

  Credit Credit reports in the loan file indicated the borrowers might own a retail business;
  however, this was not addressed in the loan file. This is an indication the borrowers’
  employment was false, or that the borrowers were inappropriately using Social Security
  numbers assigned to others (i.e., the business owner). A credit report in Wachovia’s loan file
  for the co-borrower listed a landlord account; however, the credit reports found in the FHA
  loan file showed this account was removed from the co-borrower’s credit report and added to
  the borrower’s credit report without explanation. The credit reports indicated the borrowers
  Social Security numbers were issued between 1987 and 1989 and between 1991 and 1993,
  approximately 10 to 14 years prior to the loan. However, the borrowers apparently did not
  have any driver licenses or ID cards issued in the United States, because Mexican
  government identification cards were included in the loan file. Unexplained name variations
  for the borrowers were shown on the credit reports and on an identification card in the file
  from the Mexican government. The loan application indicated the co-borrower was 24 years
  old, yet a credit report shows a birth date in 1958, indicating that he would have been over 40
  years old at the time of the loan application. The signature shown on the borrower’s Social
  Security card does not even resemble the borrower’s signature shown throughout the loan
  file. Also, the co-borrower’s Social Security card was not signed.

Loan Number 2

  Credit The credit report listed multiple last names for both the borrower and co-borrower,
  indicating possible use of false Social Security numbers, yet this was not explained in the
  loan file. Wachovia’s loan file included an IRS form W-9 (taxpayer ID number request);
  however, the borrower’s full signature was not included on the form.

Loan Number 4

  Credit The borrower’s credit report indicated the borrower might own a retail business.
  However, this was not addressed in the loan file. The borrower’s credit report was run using
  an incorrect residence address for the borrower. Instead, the address of Keystone Mortgage
  (Wachovia’s loan correspondent) was shown in place of the borrower’s address. The credit
  report for the co-borrower indicated eleven inquiries were made related to his Social Security
  number. However, no inquires were made related to his address, indicating the co-borrower
  may have inappropriately used a Social Security number belonging to an individual living at
  a different address. A separate credit report in Wachovia’s loan file from a different credit
  reporting service contained a warning stating "INPUT SOCIAL SECURITY NUMBER NOT
  ISSUED AS OF 09/02” indicating the borrower was using a false Social Security number.




                                           Page 10
                                                                                    Appendix C


Loan Number 5

  Employment     The written verification of employment in the file was an extremely poor
  copy and information on the form was not legible. The sections on the verification of
  employment form for the borrower’s current year-to-date and prior years earnings were
  blank. Although the verification of employment form was not clear, it appeared to show the
  borrower was paid monthly, yet the pay stubs indicate the borrower was paid on a weekly
  basis.

  Credit The “date reported” and “date of last activity” shown on the credit report for the
  alternative credit accounts was December 2002, yet this date is after the date the credit report
  was ordered and completed, October 17, 2002.

Loan Number 6

  Employment       The “rate” and “hours” sections of the pay stubs showed inconsistent and
  apparently extraneous amounts that do not compute to the total pay amounts shown. The text
  on two of the three pay stubs in the file was significantly blurred and it appears some of the
  numbers on the stubs may have been altered using a pen or pencil.

  Credit The address shown for the borrower on the credit report does not match the address
  shown on the W-2 forms for the prior two years, or the address shown on the borrower’s
  State of Arizona identification card.

Loan Number 7

  Credit      The loan application indicated the borrower was 32 years old; however, the
  borrower’s birth date shown on the credit report indicated the borrower was 28-29 years old.
  This is an indication the Social Security number used may not belong to the borrower.

Loan Number 8

  Credit       The credit report indicated seven inquires were made related to the borrower’s
  Social Security number; however, zero inquiries were made related to the borrower’s
  address, indicating the borrower may be inappropriately using the Social Security number of
  someone living at a different address. A Social Security card for the borrower in the loan file
  appeared questionable. The borrower’s full name and Social Security number on the card were
  not legible.

Loan Number 9

  Employment          The file contained several inconsistencies related to the employer’s name.
  For example, a loan application in Wachovia’s file, the loan application in the FHA file, and
  a verbal verification of employment form each showed a different company name for the
  borrower’s employer. The written verification of employment did not list the employer’s
  name but rather was addressed to “operations”.


                                           Page 11
                                                                                     Appendix C

  Credit       The borrower’s address was not shown on the credit report. Instead, the address
  of Keystone Mortgage (Wachovia’s loan correspondent) was shown in place of the
  borrower’s address. The Social Security number shown on the credit report in the FHA loan
  file did not match the Social Security number shown on the loan application.

Loan Number 10

  Credit      The loan application indicated the borrower had lived at his current address for
  the prior seven years. However, data from the three credit bureaus (Experian, TransUnion,
  and Equifax) shown on the report indicated a completely different address for the borrower.
  This is an indication the Social Security number used for the borrower may actually have
  belonged to someone living at a different address. A resident alien card in the loan file
  indicated the borrower’s name was spelled differently than the name used throughout the
  loan file.

Loan Number 11

  Credit      The credit report states "none" for inquiries and lists no credit trade lines open;
  however, the list of creditor contact information at the end of the report includes 44 creditor
  addresses. This is an indication information about prior inquiries or accounts may have been
  excluded from the report. Due to the large number of creditors listed, this should have been
  resolved and explained in the loan file.

Loan Number 12

  Employment         A loan application in Wachovia's file dated May 17, 2001, only listed one
  employer for the borrower, yet a subsequent application dated January 23, 2002, in the FHA
  file showed a second current employer (start date April 16, 2000) and one prior employer. A
  year 2000 W-2 form and pay stubs for November 2001 listed the property being purchased as
  the borrower’s address; however, the loan applications in Wachovia’s file and the FHA file
  indicated the borrower had never lived at this address.

  Credit      The credit report did not list the borrower’s current address. Instead, it listed the
  property being purchased as the borrower’s address.

Loan Number 13

  Employment         The file did not contain a written verification of employment for the co-
  borrower’s prior employer, and accordingly, a full 2 years of employment was not verified.
  The pay stubs did not show the co-borrower's name (or any name).

  Credit       The address listed on the borrower’s bank statement was different than the
  address listed on the final and preliminary loan application and credit report. The credit
  report contained an alert stating the borrower’s address and surname did not match those on
  file.




                                            Page 12
                                                                                    Appendix C


Loan Number 14

  Credit    The borrower's address shown on the credit report did not match the address listed
  on the loan application. The credit report indicated six inquiries were made related to the
  borrower’s Social Security number; however, only one inquiry was made related to the
  borrower’s address, indicating the borrower may have been inappropriately using the Social
  Security number of someone living at a different address. The loan file indicated the
  borrower was living at his current address for the prior four years, and the credit report
  indicated the borrower’s Social Security number was issued five to six years earlier.
  However, the only form of identification used for the borrower in the file was an ID card
  apparently issued by the Mexican government. Also, the report indicated the borrower used
  two other slightly different Social Security numbers. The ID card found in the file for the
  borrower was such a poor copy that most of it was not legible. The credit report indicated
  the borrower was associated with a retail business, yet this was not explained in the loan file.

Loan Number 15

  Employment           The borrower’s claimed employer appeared to be a local restaurant;
  however, the check numbers on the borrower’s consecutive pay stubs dated November 27
  and November 15 contain an unusually large gap of 57,101 checks. The loan application in
  Wachovia's files dated October 18, 2002, showed the borrower’s monthly income as $1,300,
  yet the loan application in the FHA file dated December 20, 2002, showed the borrower's
  monthly income as $2,457.

Loan Number 16

  Employment         The pay stub for the period ending September 14, 2002, noted the
  borrower’s address had been changed, yet the same address was shown as on the previous
  stub.

  Credit      The credit report showed a paid collection account for a “Southwest Gas”
  account opened in January 2001, yet it also listed a Southwest Gas alternative credit account
  opened in March 1999, running through September 2002, with no late payments reported.

Loan Number 17

  Employment         The last pay stub for 2002 was a heavily blurred copy, while the
  subsequent paycheck in the following year was not. This appears to be intentional since the
  year-to-date amount shown on the last pay stub for 2002 did not match the amount shown on
  the 2002 W-2 from this same employer.




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Loan Number 18

  Credit      The credit report noted six inquiries were made related to the borrower’s Social
  Security number, yet none were made for the borrower’s address, indicating the borrower
  could have been using a Social Security number that belonged to someone living at a
  different address.

Loan Number 20

  Credit       One credit report in the loan file dated April 9, 2003, with a print date of July 8,
  2003, indicated alternative credit accounts were “verified” by the credit reporting agency.
  However, a second credit report with a later date of July 16, 2003, and a print date of July 16,
  2003, showed the “verified” comment for the alternative credit accounts was removed from
  the report. The credit reports did not show the borrower’s correct address, but rather listed
  the business address of Keystone Mortgage, the loan correspondent who originated the loan.
  Also, the borrower’s name was misspelled on both credit reports in the file. The second
  credit report did not list three inquiries dated March – April 2003 that appeared on the earlier
  copy of the credit report.

Loan Number 21

  Employment       The pay stubs contained multiple identical ink markings, indicating they
  may have been created using a template, and the stubs did not include the borrower’s Social
  Security number.

  Credit      The Social Security card in the file appeared questionable. The numbers on this
  card were significantly blurred and appeared to have possibly been altered using a pen or
  pencil.

Loan Number 22

  Credit       The Social Security number used for the borrower’s credit report did not match
  the number shown on the loan application and mortgage credit analysis worksheet in the
  FHA loan file. Several variations of the borrower’s address were shown on the borrowers tax
  returns, loan application, HUD-1 and credit report.

Loan Number 23

  Employment          The employer’s address was not listed on the written verification of
  employment. The Social Security number listed on the loan application did not match the
  Social Security number listed on the verification of employment and pay stubs. A loan
  application found in Wachovia’s file dated April 8, 2003, showed the borrower was
  employed only one year, while the loan application in the FHA file dated June 10, 2003,
  showed 2.3 years. Also, the loan application in Wachovia’s file showed a different Social
  Security number for the borrower, and listed the borrower’s current housing expense as $350;
  yet the FHA loan file loan application and credit report showed $670. Another updated

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  version of the loan application found in Wachovia’s file listed the borrower’s length of
  employment as 1.3 years and included a reference to a prior employer. The FHA file
  contained a verification of employment for the prior employer, yet this was not listed on the
  FHA loan application.

  Credit      The Social security number listed on the loan application in the FHA file does
  not match the number shown on the credit report.

Loan Number 24

  Credit       The borrower’s last name was not spelled correctly on the credit report. Also,
  the credit report did not show the borrower’s correct address, but rather listed the business
  address of Keystone Mortgage, the loan correspondent who originated the loan.

Loan Number 25

  Employment           The 2001 W-2 form and pay stubs showed the borrower’s last name
  spelled incorrectly. The borrower’s first name shown on the 2001 W-2 was also inconsistent
  with other documents in the file.

  Credit         The credit reports for all three credit bureaus (Equifax, Transunion, and
  Experian) reported the borrower as having a different first name than the name used for the
  loan. The borrower’s Social Security number was changed slightly from the initial loan
  application to the final loan application. Credit reports were run under both Social Security
  numbers, and since both reports listed the borrower’s alternative credit accounts, it appears
  the borrower was using multiple Social Security numbers, and multiple names, yet this was
  not resolved by Wachovia during the underwriting process. A credit report dated June 30,
  2003, indicated eight inquiries were made related to the borrower’s Social Security number,
  yet, zero inquiries were made related to the borrower's address, indicating the Social Security
  number used may have belonged to someone living at a different address.

Loan Number 26

  Credit       One of two credit reports (dated January 7, 2002) in the FHA file contained a
  note stating the "INPUT SOCIAL SECURITY NUMBER NOT ISSUED AS OF 12/01”,
  indicating that the co-borrower’s Social Security number was false. However, another nearly
  identical (same "date ordered" and "report date”) credit report found in the FHA file had this
  comment removed without any explanation. In addition, a CREDCO credit report dated a
  week later (January 15, 2002) found in Wachovia’s loan file noted the same comment,
  “INPUT SOCIAL SECURITY NUMBER NOT ISSUED AS OF 12/01”. The credit reports
  in the FHA file both noted the borrower’s Social Security number was issued between 1953
  and 1955, meaning the borrower was approximately 46-48 years old at the time of the credit
  report, dated January 7, 2002, yet the loan application indicated the borrower was only 28
  years old.



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Loan Number 27

  Employment           The home address of the borrower listed on the 2002 pay stubs did not
  match the address shown on the borrower’s W-2 from this same employer. The address on
  the pay stubs also did not match either the prior or current addresses shown on the loan
  application covering the prior four years. The credit report also showed the borrower was
  associated with a trade or business, yet this was not addressed in the file.




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                   Appendix D



AUDITEE COMMENTS




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          Appendix D




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          Appendix D




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          Appendix D




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