oversight

A Plus Mortgage Inc., Tukwila, WA, Overcharged Borrowers and Allowed Independent Contractors and Unapproved Branches to Originate Loans

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-05-07.

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

                                                                 Issue Date
                                                                              May 7, 2008
                                                                 Audit Report Number
                                                                          2008-SE-1004




TO:         Brian D. Montgomery, Assistant Secretary for Housing – Federal Housing
               Commissioner, H



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region X, 0AGA

SUBJECT:A A Plus Mortgage, Inc., Tukwila, WA, Overcharged Borrowers and Allowed
             Independent Contractors and Unapproved Branches to Originate Loans


                                   HIGHLIGHTS

 What We Audited and Why


      We audited A Plus Mortgage, Inc. (A Plus), to determine whether (1) the fees charged to
      Federal Housing Administration (FHA) borrowers by A Plus were appropriate under U.S.
      Department of Housing and Urban Development (HUD), FHA, and Real Estate
      Settlement Procedures Act (RESPA) regulations and (2) the loan officers originating
      FHA-insured loans were employees of A Plus.

 What We Found


      A Plus disregarded HUD FHA requirements and provisions of RESPA and engaged in
      deceptive lending practices to maximize profits for itself and the independent contractors
      that used A Plus as a conduit for submission of loans for FHA insurance. Although it
      informed borrowers that they could receive a lower interest rate on their loans by paying
      up-front points and fees, A Plus charged loan discount fees to borrowers without reducing
      interest rates on the mortgages. This practice allowed A Plus to generate high interest
      rate loans for which A Plus’s sponsor lenders paid A Plus a yield spread premium when
      the loans closed escrow. As a result, borrowers paid excessive interest and fees for which
      they received no associated benefit.
     In addition, all 28 FHA-insured A Plus loans reviewed were originated by independent
     contractors, unapproved branches, or other non-FHA-approved mortgage broker firms.
     This condition occurred because A Plus ignored FHA origination requirements and
     submitted FHA loans originated by unapproved entities in exchange for a percentage of
     the loan origination fees, loan discount fees, and yield spread premiums generated by the
     loans.

What We Recommend


     We recommend that you require A Plus to (1) return unearned and excess yield spread
     premiums, loan discount fees, and other fees, totaling $153,110, to the borrowers; (2)
     review and analyze all other FHA-insured loans generated by A Plus with loan discount
     points when no interest rate reduction occurred, report the results to the Mortgagee
     Review Board, and issue refunds to the borrowers; (3) discontinue charging loan discount
     fees when it receives yield spread premiums on a loan; (4) cease changing the names of
     fees from the initial disclosure to the final HUD-1 settlement statement; (5) instruct its
     loan officers to ensure that the borrowers clearly understand the nature of all charges
     associated with their loans; (6) return all loan origination fees, totaling $32,036, to the
     borrowers on all loans that were originated by third-party independent contractors; (7)
     only submit loans for FHA insurance that were originated by A Plus employees; and (8)
     register all of its branch offices with FHA.

     We also recommend that you consider taking other appropriate administrative sanctions
     against A Plus.

     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 our discussion draft to A Plus on April 3, 2008, and held an exit conference
     on April 4, 2008. A Plus generally disagreed with our report findings.

     The complete text of the auditee’s response, along with our evaluation of that response,
     can be found in appendix B of this report.




                                              2
                             TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
   Finding 1: A Plus Charged Excessive Fees to Borrowers                          5
   Finding 2: A Plus Allowed Independent Contractors and Unapproved Branches to   12
              Originate Insured Loans

Scope and Methodology                                                             17

Internal Controls                                                                 18

Appendixes
   A.    Schedule of Questioned Costs                                             19
   B.    Auditee Comments and OIG’s Evaluation                                    20
   C.    Schedule of Excess and Unearned Fees                                     31
   D.    Schedule of Loan Origination Fees                                        32
   E.   Loans with Indications of Dual Employment of A Plus Loan Officers and     33
        Supervisors




                                             3
                    BACKGROUND AND OBJECTIVES

The U. S. Department of Housing and Urban Development (HUD) authorized A Plus Mortgage,
Inc. (A Plus), as a nonsupervised loan correspondent lender on August 11, 2004. Only A Plus’s
home office, located at 7200 South 180th Street, Suite #103, Tukwila, Washington, had been
approved by HUD to process and originate Federal Housing Administration (FHA) loans. Its
FHA mortgagee identification number is 21888-0000-2.

During our audit period, May 2005 through May 2007, A Plus originated 60 FHA loans totaling
almost $12 million. We reviewed 28 of the 60 FHA loans originated during our audit period.

Our objectives were to determine whether (1) the fees charged to FHA borrowers by A Plus were
appropriate under HUD, FHA, and Real Estate Settlement Procedures Act (RESPA) regulations
and (2) the loan officers for the loans reviewed were employees of A Plus.




                                              4
                                RESULTS OF AUDIT

Finding 1: A Plus Charged Excessive Fees to Borrowers
A Plus disregarded HUD FHA requirements and provisions of RESPA and engaged in deceptive
lending practices to maximize profits for itself and the independent contractors who used A Plus
as a conduit for submission of loans for FHA insurance. Although it informed borrowers that
they could receive a lower interest rate on their loans by paying up-front points and fees, A Plus
charged the loan discount fees to borrowers without reducing the interest rates on the mortgages.
This practice allowed A Plus to generate high interest rate loans for which A Plus’s sponsor
lenders paid A Plus a yield spread premium when the loans closed escrow. Further, A Plus did
not always disclose the yield spread premiums in its good faith estimates and sometimes
confused borrowers by changing the names of fees in the loan documents. As a result, borrowers
paid excessive interest and fees for which they received no associated benefit.



 HUD Requires Meaningful and
 Timely Disclosure of Mortgage
 Terms and Costs


       In Mortgagee Letter 2001-26, HUD noted that meaningful disclosure of yield spread
       premiums, as early as possible in the mortgage origination process, will avoid confusion
       and enable borrowers to make informed choices. The mortgage transaction is necessarily
       complicated, and most people engage in such transactions relatively infrequently. Timely
       disclosure of up-front costs and mortgage terms would permit them to shop intelligently.
       In its Statement of Policy 2001-1, HUD issued a clarification of the importance of
       disclosure with a description of best practices.

       Regulations at 24 CFR [Code of Federal Regulations] 201.2 define discount points as “a
       fee charged by the lender, separate from interest but part of the total finance charges on
       the loan that is part of the lender’s total yield on the loan needed to maintain a
       competitive position with other types of investments. One discount point equals one
       percent of the principal amount of the loan. As discount points on the loan increase, the
       interest rate can be expected to decrease in a fairly consistent relationship.”




                                                5
A Plus Used Mortgage Loan
Origination Agreements to
Explain Interest Rates and
Discount Fees


     Premium pricing occurs when the lender sells a loan to an investor with an above-par
     interest rate and receives a rebate (yield spread premium) from the investor. Disclosure
     of the relationship of loan discount fees and yield spread premiums was made to the
     borrowers on all 28 of the insured loans reviewed by way of a mortgage loan origination
     agreement (agreement) between A Plus and each borrower. These agreements were
     printed on A Plus letterhead and were signed by the borrowers and the loan officers. The
     agreements stated:

            “The lenders whose loan products we distribute generally provide their loan
            products to us at a wholesale rate. The retail price we offer you, the interest
            rate, total points and fees – will include our compensation. In some cases,
            we may be paid all of our compensation by either you or the lender.
            Alternatively, we may be paid a portion of our compensation by both you
            and the lender. For example, in some cases, if you would rather pay a lower
            rate, you may pay higher up-front points and fees. Also, in some cases, if
            you would rather pay less up-front, you may be able to pay some or all of
            our compensation indirectly through a higher interest rate, in which case,
            we will be paid indirectly by the lender….”

     This statement clearly indicated to borrowers that they would receive a lower interest rate
     by paying higher up-front points and fees and that they would pay lower up-front fees in
     exchange for accepting a higher interest rate loan.

A Plus Disregarded Its
Mortgage Loan Origination
Agreements


     A Plus did not always follow the provisions of the agreements. It received yield spread
     premiums from its sponsor lenders for all 28 of the loans reviewed, indicating that the
     loans had above-market interest rates. In accordance with the agreements, the borrowers
     should have expected that the yield spread premiums covered the compensation due to A
     Plus and that their interest rates would be lowered when they paid higher up-front points
     and fees. However, as shown in the following schedule, for 19 of these loans, A Plus
     received yield spread premiums from its sponsor lenders, and the borrowers also paid
     loan discount points and other fees to A Plus.




                                              6
                    Loan          Loan         Yield       Added       Net paid to A
                   origin.      discount      spread       broker          Plus/
   FHA case no.      fee           fee       premium         fee      % of loan amt.      Note
   561-8275604     $ 935        $3,043        $3,084       $3,545     $10,607 / 5.7%
   562-2046136     $1,457       $2,469        $3,513                  $ 7,439 / 5.1%
   561-8278635     $1,230       $2,360        $2,497                  $ 6,087 / 5.0%
   561-8292126     $1,995       $2,073        $5,960                  $10,028 / 4.9%
   562-2049727     $1,530       $2,074        $3,882                  $ 7,486 / 4.9%
   561-8308646     $1,665       $2,065        $4,014                  $ 7,744 / 4.6%
   561-8284753     $2,205       $1,119        $6,155                  $ 9,479 / 4.3%
   561-8282112     $1,400       $1,957        $3,915                  $ 7,272 / 3.8%
   561-8315965     $3,152       $1,090        $7,599                  $11,841 / 3.8%
   561-8161367                  $1,497        $6,691                  $ 7,442 / 3.7%          1
   561-8252480     $1,900       $2,520        $2,170        $495      $ 7,085 / 3.7%
   561-8315516     $1,405       $1,112        $2,317                  $ 4,755/ 3.4%           2
   561-8304752     $1,045        $1090        $ 795                   $ 2,930 / 2.8%
   561-8225722     $1,662       $ 831         $2,531                  $ 4,535 / 2.7%          3
   561-8298555     $1,040       $1,110        $3,431                  $ 5,581 / 2.7%
   561-8270990     $3,508       $1,780        $4,005                  $ 9,293 / 2.6%
   561-8295825                  $1,095        $ 483        $1,588     $ 3,166 / 2.5%
   561-8270484    $2,174        $1,090        $1,379                  $ 4,643/ 2.1%
   562-2043697    $1,016        $1,095        $1,016                  $ 3,127 / 1.6%
      Totals      $29,319       $27,548      $65,437      $5,628        $130,540

        Notes:
        1 $746 of the fees and other costs shown were applied to borrower costs at closing.
        2 $79 of the fees and other costs shown were applied to borrower costs at closing.
        3 $489 of the fees and other costs shown were applied to borrower costs at closing.



A Plus Did Not Always Disclose
Yield Spread Premiums and
Changed the Names of Fees in
the Loan Documents


     In 14 of the 28 loans reviewed, A Plus failed to disclose in its original good faith
     estimates that it would receive yield spread premiums from its sponsor lenders at the loan
     closings. Additionally, the nature and purpose of fees paid to A Plus became confusing
     to borrowers because A Plus sometimes used different names or descriptions of a fee in
     the good faith estimates or other disclosure documents than it used in the HUD-1
     settlement statement. The following table gives examples of how the names of fees
     varied from one document to another.




                                               7
FHA case no.      Original good faith estimate                Final HUD-1
                Loan discount 1.000%                Discount broker fee to A+
                                         $1,530     Mortgage                 $2,074
562-2049727
                Yield spread premium (0-4%)         Mrtg brkr Fee From NCB to A Plus
                                         $6,120     Mortgage              $3,882

                Loan Origination fee 1.600%         Broker Origination Fee – A Plus
                                         $2,664     Mortgage $               1,665
                Loan Discount +                     Broker Discount – A Plus
561-8308646
                                          $1,090    Mortgage                $2,065
                Yield Spread Premium 0-3% no        Mortgage Broker Fee pd by NCB
                dollar amount shown                 to A Plus Mortgage      $4,014

                Loan origination Fee +              Broker Origination Fee – A Plus
                                         $1,400     Mortgage                 $1,400
                Loan discount 1.000%                Discount Fee – A Plus Mortgage
561-8282112
                                        $1,957                               $1,957
                Yield Spread Premium 1.492%         Mortgage Broker Fee from NCB –
                                        $2,877      A Plus Mortgage          $3,915

                Loan Origination Fee 1.000%         Loan Origination Fee to A+
                                        $1,825      Mortgage Inc.            $1,900
561-8252480     Loan Discount 1.000% $1,825         Broker Fee               $2,520
                None disclosed                      Yield Spread Premium to A Plus
                                                    Mortgage Inc.           $2,170

                Loan Origination Fee 1.000%         Broker. origination fee    $1,405
561-8315516                            $1,590
                None disclosed                      Yield Spread Premium      $2,317

We interviewed the borrowers of three insured loans. For one A Plus loan, the borrowers
told us that they had never bought a house before and that it was frustrating to see some
of the name changes of the yield spread premium that occurred from one document to
another. The borrowers also said that the loan officer did not want to give them time to
read all of the loan application documents including the A Plus origination agreement
that they signed. After reading the agreement during our interview, the borrowers said
that it appeared as though if they wanted to have lower payments, they could pay a loan
discount and if they paid a higher interest rate, some of the money from that higher
interest rate could help them with their closing costs up front. However, in their case, the
loan discount that the seller paid did not lower their interest rate, and they did not receive
any reduction in their costs from the yield spread premium collected by A Plus at the loan
closing.

Regarding another A Plus loan, the borrowers said, “It looks like we paid twice for some
of these costs. When we paid a loan discount that should have lowered the interest rate
and then we paid a mortgage interest rate that was higher than the market rate, we paid
twice for the amount that we paid in the form of a loan discount, because it would offset
some of the cost associated with the higher interest rate over the long haul.” The



                                          8
     borrowers stated that the loan officer did not fully disclose the nature of the payments in a
     clear manner, which would have helped to make the loan process much less confusing for
     them. They also commented that the way in which these costs were presented to them
     and then misstated on the final HUD-1 made it impossible to follow. They further noted
     that they felt rushed in the loan application signing process and did not have enough time
     to digest the information on the forms signed.

     In another loan, the borrowers were charged a $1,665 broker origination fee and a $2,065
     broker discount, and the loan generated a $4,014 yield spread premium paid to A Plus.
     The borrowers told us that they felt that the disclosure of the dollar amounts and what
     they were paying for were “poorly represented as well as misrepresented” to them and in
     the case of the yield spread premium, that it had not been disclosed to them at all. They
     said that neither of them was well educated and they were disappointed that these costs
     had not been explained to them in language that they could understand. They noted that
     the loan officer was a “fast talker” and rushed them through the loan document signing
     process.

Fees to Borrowers Can Only Be
Charged for Actual and
Necessary Services


     Section 8(a) of RESPA prohibits the giving or accepting of any portion, split, or
     percentage of any charge made or received for the rendering of a real estate settlement
     service in connection with a transaction involving a federally related mortgage loan other
     than for services actually performed. Services must be actually performed by the entity
     that received the fee and must be necessary to the transaction and not duplicative of
     services performed by others involved in the transaction. Also, compensation must be
     reasonable.

     HUD’s 1999 Statement of Policy established a two-part test for determining the legality
     of lender payments to mortgage brokers for table-funded transactions and intermediary
     transactions under RESPA: (1) whether goods or facilities were actually furnished or
     services were actually performed for the compensation paid and (2) whether the
     payments are reasonably related to the value of the goods or facilities that were actually
     furnished or services that were actually performed. In applying this test, HUD believes
     that total compensation should be scrutinized to ensure that it is reasonably related to the
     goods, facilities, or services furnished or performed to determine whether it is legal under
     RESPA.

     It was unclear as to what role A Plus had in putting together the loan origination packages
     for submission for FHA insurance. Finding 2 describes how A Plus acted as a conduit for
     insured loans originated by independent contractors who were employed by other lenders,
     consultants, real estate firms or owned unapproved independent branches. Documents in
     the loan files indicated that the initial loan origination activity was done by these outside
     entities and not by A Plus. Thus some of the fees paid may have been for duplicate



                                              9
     services. Further, the fees generated were excessive since, in most cases, the borrowers
     not only paid the regular 1 percent loan origination fee, but also paid loan discount fees,
     broker fees, and yield spread premiums without receiving any value for these additional
     fees.

Lenders May Not Pay Mortgage
Broker Fees


     Paragraph 1-9 I of HUD Handbook 4155.1, REV-5, relates to the disclosure and payment
     of mortgage broker fees and states: “If the borrower must pay a fee directly to a
     mortgage broker, that expense must be included in the total of the borrower’s cash
     settlement requirements and appear on the HUD-1 Settlement Statement. (This
     requirement applies to instances in which the borrower independently engages a
     mortgage broker to seek financing and pays the broker directly. The payment may not
     come from the lending institution.)”

     All 28 loans reviewed were originated by independent contractors that were not
     employees of A Plus but were employed by other lenders, consultants, or real estate firms
     or owned unapproved independent branches (finding 2). Upon loan closing, A Plus
     received the loan origination fee, loan discount, and other fees and the yield spread
     premium from the escrow settlement service in the form of a check. Once the escrow
     check was received by A Plus, its bookkeeper split the total amount of those funds
     between itself and the independent contractor or unapproved branches that brokered the
     FHA loans through A Plus. On average, for the 28 FHA loans reviewed, A Plus retained
     nearly 16 percent of the funds with the remainder going to the independent contractor or
     unapproved branch as a brokering commission.

Conclusion


     A Plus did not fully disclose the nature of the fees charged to FHA borrowers and
     sometimes changed the names of fees from one loan document to another. As a result,
     the borrowers did not fully understand the fees paid, and loan proceeds were used to pay
     for items such as loan discounts and other fees for which the borrowers received no
     benefit. These excessive fees were generated to allow A Plus adequate funds to pay
     commissions to outside unapproved brokers for bringing in the FHA loans, while earning
     a percentage of the fees for acting as a conduit for submission of these loans for FHA
     insurance.




                                              10
Recommendations


    We recommend that the Assistant Secretary for Housing – Federal Housing
    Commissioner require A Plus to

    1A.    Return unearned and excess yield spread premiums, loan discount fees, and other
           fees, totaling $153,110, to the borrowers of the loans shown at appendix C.

    1B.    Review and analyze all other FHA-insured loans generated by A Plus with loan
           discount points when no interest rate reduction occurred and report the results to
           the Mortgagee Review Board. Refunds should be issued to the borrowers.

    1C.    Discontinue charging loan discount fees when it receives yield spread premiums
                on a loan.

    1D.    Cease changing the names of fees from the initial disclosure to the final HUD-1.

    1E.    Instruct its loan officers to ensure that the borrowers clearly understand the nature
                 of all charges associated with their loans.

    We also recommend that the Assistant Secretary for Housing – Federal Housing
    Commissioner:

    1F.    Refer A Plus Mortgage to the Mortgagee Review Board for consideration of
           administrative sanctions and/or civil money penalties for the violations of HUD
           requirements disclosed in this finding.




                                            11
Finding 2: A Plus Allowed Independent Contractors and Unapproved
Branches to Originate Insured Loans
Contrary to FHA requirements, A Plus acted as a conduit for insured loans originated by
independent contractors and unapproved branches. All 28 FHA-insured A Plus loans reviewed
were originated by independent contractors, unapproved branches, or other non-FHA-approved
mortgage broker firms. This condition occurred because A Plus ignored FHA origination
requirements and submitted FHA loans originated by unapproved lenders in exchange for a
percentage of the loan origination fees, loan discount fees, and yield spread premiums generated
by the loans (finding1). As a result, borrowers paid excessive loan fees, and FHA incurred the
risks associated with insuring loans originated by firms and individuals that were not approved or
qualified to do so.


 Loan Officers Must Be
 Employees of the Lender


       From the issuance of HUD Mortgagee Letter 94-39 on August 9, 1994, through the
       current requirements of HUD Handbook 4060.1, REV-2, HUD has required that loan
       officers originating FHA-insured mortgages be employees of the approved lender as well
       as under the lender’s exclusive control and supervision. HUD Handbook 4060.1, REV-2,
       chapter 2, paragraph 2-9(A), requires loan officers, also known as loan originators, of
       FHA-insured mortgages to be employees of the lender and be under the lender’s
       exclusive control and supervision. Managers, loan originators, and underwriters may not
       be independent contractors or contract employees. Compensation of employees may be
       on a salary, salary plus commission, or commission only basis and includes bonuses.

 A Plus Loan Officers Were
 Independent Contractors


       A Plus entered into a loan originator agreement with each of the loan officers involved in
       the 28 FHA loans reviewed. The agreement stated: “A+ Mortgage, Inc. is a Mortgage
       Broker and Loan Originator is an Independent Contractor pursuant to
       RCW19.146.010(7), and not an employee.” The A Plus loan officers were paid on a
       commission-only basis as independent contractors and their income was reported at year-
       end using IRS Form 1099.

       Under HUD regulations, a lender must exercise control and responsible management
       supervision over its home and branch office employees. HUD Handbook 4060.1, REV-2,
       paragraph 2-9(D), requires that control and supervision include, at a minimum, regular
       and ongoing reviews of employee performance and work performed. Since the loan
       officers were independent contractors and not employees, A Plus did not have


                                               12
    supervisory control over the loan officers and could not document that the performance
    of any of these loan officers had been reviewed.

A Plus Loan Officers Also
Worked for or Owned Other
Mortgage Firms


    A Plus’s loan files contained indicators that the loan documents came from other lenders,
    consultants, or real estate firms. For example, we found faxed loan documents containing
    the fax numbers and names of the other firms. Further, the listing of branch offices on
    the A Plus Web site contained e-mail addresses for “branches” that had other company
    domain names. Examples of these domain names included a large real estate firm in the
    Seattle, Washington, area and the names of other mortgage companies.

    We performed Internet searches on some of the loan officers and found the following
    instances of dual employment or ownership of other mortgage lenders:

    FHA Loan Number 561-8301920
    An Internet search on the loan officer’s name led to a Web page showing the loan officer
    representing another non-approved lender located in Shoreline, Washington.

    FHA Loan Numbers 561-8315516 and 562-2043697
    The loan officer for these loans had a Web page identifying him as the owner/manager of
    a non-FHA-approved mortgage company.

    FHA Loan Numbers 561-8270484, 561-8270990, and 561-8304752
    The loan officer for these loans was shown on a Web page identifying her as working for
    a consulting firm in Tacoma, Washington. This firm specializes in obtaining home loans
    for clients and helping clients build wealth.

    We found that 15 of the 28 loans reviewed were originated by loan officers that were
    employed by other mortgage or real estate firms (see appendix E). HUD Handbook
    4060.1, REV-1, paragraph 2-14, and HUD Handbook 4060.1, REV-2, paragraphs 2-9 and
    2-14, require that all loan officers be employed exclusively by only one lender at all times
    and conduct only the business affairs of that lender. The handbook also prohibits loan
    officers from working in any other capacity in the mortgage and/or real estate fields.
    This prohibition includes working for any other lender and from working in the real
    estate and/or escrow field.




                                            13
Borrowers Were Not Always
Aware That A Plus Was the
Originating Lender


     We interviewed the borrowers of three A Plus FHA loans and found that the loan
     application process was conducted at locations that were not offices of A Plus and that
     the borrowers were not always aware that A Plus was the originating lender.

     For one loan, the borrowers told us that the FHA loan application was taken at the office
     of a consulting and management firm in Tacoma, Washington that was not owned or
     operated by A Plus. The person who signed the loan documents as a “loan officer” for A
     Plus gave the borrowers a business card identifying her as an associate of the consulting
     and management firm. The borrowers told us that this “loan officer” did not conduct the
     initial loan application interview. The interview was conducted by the wife of the owner
     of the consulting and management firm who was not an A Plus employee.

     The borrowers of another A Plus loan told us that the entire loan application process was
     conducted by their real estate agent at that agent’s office in Renton, Washington. The
     borrowers also said that they did not realize that they were getting their loan through A
     Plus. When shown the signature and name of the A Plus loan officer on the loan
     documents, they stated that they did not meet with or know the person.

     For another loan, the borrowers told us that it was not clear to them what role A Plus
     played in their loan transaction because they did not go to any office of A Plus. They
     noted that all of their meetings with the loan officer, including the closing of the FHA
     loan, occurred either at their home or at the home of the loan officer.

Unauthorized Branches Are
Prohibited


     HUD Handbook 4060.1, REV-2, paragraph 2-14 (A), states that an approved lender is
     prohibited from engaging an existing, separate mortgage company or broker to function
     as a branch of the approved lender and allowing that separate entity to originate insured
     mortgages under the approved lender’s FHA number. Such an arrangement constitutes a
     prohibited branch arrangement. Separate entities may not operate as branches or dba’s of
     an FHA-approved lender. Paragraph 2-14 also prohibits certain employment agreements,
     including a branch compensation plan that includes the payment of operating expenses by
     the branch manager, any other employee, or a third party. This prohibition was
     established in Mortgagee Letter 00-15.




                                              14
A Plus Had Prohibited Branch
Arrangements


     When our audit began in July of 2007, A Plus listed 50 branch office locations and one
     home office on its Web site. It did not notify HUD of the existence of these branch
     offices and did not receive HUD approval for originating and processing insured loans at
     these branches. We were told by the president of A Plus that the contact person listed in
     each branch office’s location information was also the branch manager of that office.
     However, as noted above, the e-mail domain names for the branch managers sometimes
     were the domain names of other mortgage or realty firms. Thus, these “branch offices”
     appeared to be other entities not owned or operated by A Plus.

     In addition, the agreement between the loan officers and A Plus stated that any error or
     omission on the loan officer’s part, resulting in any monetary penalty to A Plus, was the
     responsibility of the “loan originator” (i.e., loan officer) and would be charged to that
     loan officer. The agreement further stated that the loan officer had no authority to
     encumber A Plus for any financial obligations. If the loan officer ordered any services
     without first obtaining the FHA borrower’s funds, that loan officer was responsible for
     payment for those services if the FHA borrower did not pay for them. In effect, the
     agreement created a prohibited branch arrangement between A Plus and the loan officer.

     HUD Handbook 4060.1, REV-2, paragraph 2-8, also requires all HUD-approved lenders
     to pay all operating expenses for its branch offices, including but not limited to
     equipment, furniture, office rent, overhead, and employee compensation. Nonetheless,
     the president of A Plus disclosed that his firm did not pay any of its branch office
     expenses, and that the loan officers and supervisors earning commissions from loans
     processed through A Plus paid their own expenses.

Conclusion


     A Plus disregarded HUD requirements by allowing unsupervised independent contractors
     and unapproved branches to originate FHA-insured loans. Without adequate control and
     supervision over the loan originators, A Plus could not provide adequate assurance to
     HUD that the loans were originated in accordance with applicable origination
     requirements.




                                             15
Recommendations


    We recommend that the Assistant Secretary for Housing – Federal Housing
    Commissioner require A Plus to

    2A.    Return all loan origination fees, totaling $32,036, to the borrowers on all loans
           that were originated by third-party independent contractors, as shown at appendix
           D.

    2B.    Only submit loans for FHA insurance that were originated by A Plus employees.
           These employees must not have employment elsewhere in the mortgage lending
           or real estate fields, must be under full supervisory control of A Plus, and must be
           issued IRS Forms W-2 for any salary or commission earned on an insured loan.

    2C.    Register all of its branch offices with FHA. Expenses for operating these branch
           offices must be paid by A Plus, not its employees or outside parties.

    We also recommend that the Assistant Secretary for Housing – Federal Housing
    Commissioner

    2D.    Refer A Plus Mortgage to the Mortgagee Review Board for consideration of
           administrative sanctions and/or civil money penalties for the violations of HUD
           requirements disclosed in this finding.




                                            16
                         SCOPE AND METHODOLOGY

Our objectives were to determine whether (1) the loan officers for the loans reviewed were
employees of A Plus and (2) the fees charged to FHA borrowers by A Plus were appropriate
under HUD, FHA, and RESPA regulations. The criteria for employees of a HUD-approved
lender and borrower costs that are acceptable to HUD FHA were found in 24 CFR Parts 202
through 206 and 3500; HUD Handbooks 4000.2, 4060.1, and 4155.1; HUD Policy Statements
1999-1 and 2001-1; and various HUD mortgagee letters.

During our audit period, A Plus originated 60 FHA loans. Of the 60 loans, 31 were active with
HUD paper case binders on file. We randomly selected 28 of these for review. Our audit was
limited to A Plus’s role in the origination of the 28 loans as an approved FHA loan
correspondent, and we did not perform a review of the underwriting of these loans.

Each case binder was examined to determine whether the documentation in the binder contained
indications that the loan officer involved was working for a business entity other than A Plus.
We also reviewed other documentation in the FHA case binders such as the HUD -1 settlement
statements to determine the amounts and distribution of any loan origination fees, loan discounts,
yield spread premiums, and other costs charged to the borrowers.

Our site work at A Plus’s main office in Tukwila, Washington, included a review of the loan and
employee documentation on file for the 28 loans. Documents reviewed included IRS Forms
1099, good faith estimates, final HUD-1 settlement statements, escrow instruction sheets, escrow
check copies, and A Plus disbursement checks that were issued from the proceeds of respective
escrow checks it received from the FHA loan transactions. While on site, we conducted
interviews with A Plus staff regarding the employment status of the loan officers and fees
collected by A Plus from the loan transactions.

For three of the loans reviewed, we conducted face-to-face interviews with the borrowers at the
borrowers’ residences. The purpose of these interviews was to determine how and where the
borrowers applied for their loans, whether they were aware of which mortgage company would
be originating their FHA loans, and whether they fully understood the costs involved in their
loans.

Our audit was conducted between July 18, 2007, and February 19, 2008. The audit period
covered was May 1, 2005, through May 31, 2007.

We performed our review in accordance with generally accepted government auditing standards.




                                               17
                             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, and
   •   Compliance with applicable laws and regulations.

Internal controls relate to management’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 objectives:

              •   Originating and processing FHA-insured loans in accordance with HUD
                  requirements.
              •   Safeguarding the FHA insurance fund from unnecessary risk.

       We assessed the relevant controls identified above.

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

 Significant Weaknesses


       Based upon our review, we believe the following items are significant weaknesses:

              •   A Plus did not have adequate controls to ensure that it followed HUD
                  requirements when it originated FHA loans (findings 1 and 2).
              •   A Plus exposed the FHA insurance fund to unnecessary risk because it
                  allowed unsupervised nonemployees to originate FHA loans (finding 2).




                                               18
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS


          Recommendation number                               Ineligible 1/
                  1A                                           $153,110
                  2A                                            $32,036

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.




                                            19
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments

Comment 1




Comment 1




Comment 2
Comment 3
Comment 4

Comment 5
Comment 3


Comment 6
Comment 3




                         20
Comment 7
Comment 3

Comment 8
Comment 3

Comment 9
Comment 3


Comment 10
Comment 3


Comment 11
Comment 3

Comment 12
Comment 3

Comment 13

Comment 14
Comment 3




             21
Comment 15
Comment 3

Comment 16
Comment 3

Comment 17
Comment 3


Comment 18
Comment 3

Comment 19
Comment 3

Comment 20
Comment 3

Comment 21
Comment 3




             22
Comment 22
Comment 3



Comment 23
Comment 24

Comment 23

Comment 24




Comment 24



Comment 24




             23
Comment 24



Comment 25




             24
                         OIG Evaluation of Auditee Comments

Comment 1   HUD does not require lenders to disclose the exact yield spread premium until the
            final HUD-1 is issued. It does require the lender to disclose estimates of costs,
            including the yield spread premium to the borrowers within three days of the
            receipt of the loan application. A Plus received yield spread premiums from its
            sponsor lender for all 28 of the loans reviewed. The sponsor lender was the same
            for 23 of the 28 loans reviewed and A Plus was receiving daily rate sheets from
            this sponsor lender. Thus A Plus had sufficient information on hand to calculate a
            reasonable estimate of the yield spread premium to disclose to the borrowers as
            soon as the loan application was received.

Comment 2   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $3,978 ($935 loan origination fee plus
            the $3,043 loan discount fee that was not passed through to the sponsor lender and
            did not generate a commensurate benefit for the borrower), and represent 2.13
            percent of the loan amount (net of the mortgage insurance premium). Regulations
            at 24 CFR 203.27(a)(i) limit mortgagees to collecting from borrowers one percent
            of the original principal amount, excluding the mortgage insurance premium, for
            originating a loan.

Comment 3   According to records obtained from A Plus Mortgage, the discount fee charged to
            the borrowers was not used to buy down the interest rate on the loan. A Plus
            obtained the interest rate on the loan without having to pay the sponsor lender a
            discount, and the borrower did not receive an interest reduction or other
            commensurate benefit from the discount fee paid. The mortgage interest rate was
            high enough to generate a yield spread premium paid to A Plus at the loan
            closing. As noted in Finding 1, upon loan closing, A Plus received the loan
            origination fee, loan discount, other fees and the yield spread premium from the
            escrow settlement service in the form of a check. Upon receipt of this check A
            Plus’ bookkeeper split the total amount of these funds between itself and the
            independent contractor or unapproved branch that brokered the loan through A
            Plus.

Comment 4   During the audit, A Plus was unable to explain what the $3,545 fee was for. Upon
            receiving its response to the draft audit report, we asked A Plus for a copy of the
            invoice to confirm that the fee was for the installation of the tie down system. A
            Plus did not provide the invoice as requested.

Comment 5   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $3,926 ($1,457 loan origination fee
            plus the $2,469 loan discount fee that was not passed through to the sponsor



                                            25
            lender and did not generate a commensurate benefit for the borrower), and
            represent 2.70 percent of the loan amount (net of the mortgage insurance
            premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
            from borrowers one percent of the original principal amount of the mortgage,
            excluding the mortgage insurance premium, for originating a loan.

Comment 6   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $3,590 ($1,230 loan origination fee
            plus the $2,360 loan discount fee that was not passed through to the sponsor
            lender and did not generate a commensurate benefit for the borrower), and
            represent 2.92 percent of the loan amount (net of the mortgage insurance
            premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
            from borrowers one percent of the original principal amount of the mortgage,
            excluding the mortgage insurance premium, for originating a loan.

Comment 7   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $4,068 ($1,995 loan origination fee
            plus the $2,073 loan discount fee that was not passed through to the sponsor
            lender and did not generate a commensurate benefit for the borrower), and
            represent 1.99 percent of the loan amount (net of the mortgage insurance
            premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
            from borrowers one percent of the original principal amount of the mortgage,
            excluding the mortgage insurance premium, for originating a loan.

Comment 8   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $3,604 ($1,530 loan origination fee
            plus the $2,074 loan discount fee that was not passed through to the sponsor
            lender and did not generate a commensurate benefit for the borrower), and
            represent 2.35 percent of the loan amount (net of the mortgage insurance
            premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
            from borrowers one percent of the original principal amount of the mortgage,
            excluding the mortgage insurance premium, for originating a loan.

Comment 9   We did not report that the loan origination fee was excessive. We added this fee
            to other fees (including the yield spread premium) collected by A Plus for
            originating the loan, and showed the total as a percentage of the loan amount.
            Fees paid to A Plus by the borrower totaled $3,730 ($1,665 loan origination fee
            plus the $2,065 loan discount fee that was not passed through to the sponsor
            lender and did not generate a commensurate benefit for the borrower), and
            represent 2.24 percent of the loan amount (net of the mortgage insurance



                                            26
              premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
              from borrowers one percent of the original principal amount of the mortgage,
              excluding the mortgage insurance premium, for originating a loan.

Comment 10 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $3,324 ($2,205 loan origination fee
           plus the $1,119 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.51 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 11 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $3,357 ($1,400 loan origination fee
           plus the $1,957 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.74 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 12 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $4,242 ($3,152 loan origination fee
           plus the $1,090 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.35 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 13 According to records obtained from A Plus Mortgage, the entire discount fee
           charged to the borrowers was not used to buy down the interest rate on the loan or
           provide a commensurate benefit for the borrower. As noted in the table in
           Finding 1 of this report showing loans with both loan discount fees and yield
           spread premiums, A Plus collected a loan discount fee of $1,497 from the
           borrower, but the borrower only received $746 of credits from A Plus. Upon loan
           closing, A Plus received the loan origination fee, loan discount, other fees and the
           yield spread premium (less the $746 of credits to the borrower) from the escrow
           settlement service in the form of a check. Upon receipt of this check A Plus’



                                              27
              bookkeeper split the total amount of these funds between itself and the
              independent contractor or unapproved branch that brokered the loan through A
              Plus.

Comment 14 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $4,915 ($1,900 loan origination fee
           plus the $495 broker processing fee plus the $2,520 loan discount fee that was not
           passed through to the sponsor lender and did not generate a commensurate benefit
           for the borrower), and represent 2.56 percent of the loan amount (net of the
           mortgage insurance premium). Regulations at 24 CFR 203.27(a)(i) limit
           mortgagees to collecting from borrowers one percent of the original principal
           amount of the mortgage, excluding the mortgage insurance premium, for
           originating a loan.

Comment 15 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $2,517 ($1,405 loan origination fee
           plus the $1,112 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower less a $79
           credit to the borrower), and represent 1.73 percent of the loan amount (net of the
           mortgage insurance premium). Regulations at 24 CFR 203.27(a)(i) limit
           mortgagees to collecting from borrowers one percent of the original principal
           amount of the mortgage, excluding the mortgage insurance premium, for
           originating a loan.

Comment 16 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $2,135 ($1,045 loan origination fee
           plus the $1,090 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 2.04 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 17 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $2,004 ($1,662 loan origination fee
           plus the $831 loan discount fee that was not passed through to the sponsor lender
           and did not generate a commensurate benefit for the borrower less a $489 credit to
           the borrower), and represent 1.2 percent of the loan amount (net of the mortgage



                                              28
              insurance premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to
              collecting from borrowers one percent of the original principal amount of the
              mortgage, excluding the mortgage insurance premium, for originating a loan.

Comment 18 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $2150 ($1,040 loan origination fee
           plus the $1,110 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.03 percent of the loan amount (net of the mortgage insurance
           premium.

Comment 19 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $5,288 ($3,508 loan origination fee
           plus the $1,780 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.51 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 20 Fees paid to A Plus by the borrower totaled $2,683 ($1,588 broker fee plus the
           $1,095 loan discount fee that was not passed through to the sponsor lender and
           did not generate a commensurate benefit for the borrower), and represent 2.11
           percent of the loan amount (net of the mortgage insurance premium). Regulations
           at 24 CFR 203.27(a)(i) limit mortgagees to collecting from borrowers one percent
           of the original principal amount of the mortgage, excluding the mortgage
           insurance premium, for originating a loan.

Comment 21 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.
           Fees paid to A Plus by the borrower totaled $3,264 ($2,174 loan origination fee
           plus the $1,090 loan discount fee that was not passed through to the sponsor
           lender and did not generate a commensurate benefit for the borrower), and
           represent 1.5 percent of the loan amount (net of the mortgage insurance
           premium). Regulations at 24 CFR 203.27(a)(i) limit mortgagees to collecting
           from borrowers one percent of the original principal amount of the mortgage,
           excluding the mortgage insurance premium, for originating a loan.

Comment 22 We did not report that the loan origination fee was excessive. We added this fee
           to other fees (including the yield spread premium) collected by A Plus for
           originating the loan, and showed the total as a percentage of the loan amount.



                                              29
              Fees paid to A Plus by the borrower totaled $2,111 ($1,016 loan origination fee
              plus the $1,095 loan discount fee that was not passed through to the sponsor
              lender and did not generate a commensurate benefit for the borrower), and
              represent 1.05 percent of the loan amount (net of the mortgage insurance
              premium.

Comment 23 HUD required the issuance of W-2 forms with the August 14, 2006 issuance of
           Handbook 4060.1 REV-2. Mortgagee Letter 2006-30 states that HUD would not
           begin monitoring the W-2 requirement until March 1, 2007. We removed the
           reference to this requirement in the report since most of the loans reviewed were
           originated before the W-2 requirement or during the transition period for
           implementation of this requirement. Nonetheless, from the issuance of HUD
           Mortgagee Letter 94-39 on August 9, 1994, through the current requirements of
           HUD Handbook 4060.1, REV-2, HUD has required that loan officers originating
           FHA-insured mortgages be employees of the approved lender as well as under the
           lender’s exclusive control and supervision.

Comment 24 As noted in the report, for all 28 loans all of the loan officers signed agreements
           with A Plus state that the loan officers were not employees of A Plus, but were
           independent contractors. Also as noted in the report, the loan files contained
           indications that the loan officers also represented other lenders, consultants, or
           real estate firms. A Plus gave us no indication that it followed up with the loan
           officers when these indications were present in the loan documentation.

Comment 25 As noted in Finding 2, borrowers told us that they did not realize that they were
           obtaining a loan from A Plus Mortgage since the loans applications were
           conducted at locations that were not A Plus Mortgage offices and the applications
           were taken by persons working for other firms.

.




                                               30
Appendix C

      SCHEDULE OF EXCESS AND UNEARNED FEES

                                         Yield       Additional
                          Loan          spread        broker
    FHA case no.      discount fee     premium          fee             Totals        Notes
    561-8275604          $3,043         $3,084        $3,545            $9,672
    562-2046136          $2,469         $3,513                          $5,982
    561-8278635          $2,360         $2,497                          $4,857
    561-8292126          $2,073         $5,960                          $8,033
    562-2049727          $2,074         $3,882                          $5,956
    561-8308646          $2,065         $4,014                          $6,079
    561-8284753          $1,119         $6,155                          $7,274
    561-8282112          $1,957         $3,915                          $5,872
    561-8315965          $1,090         $7,599                          $8,689
    561-8161367          $1,497         $6,691                          $8,188          1
    561-8252480          $2,520         $2,170         $ 495            $5,185
    561-8315516          $1,112         $2,317                          $3,429          2
    561-8304752          $1,090         $ 795                           $1,885
    561-8225722          $ 831          $2,531                          $3,362          3
    561-8298555          $1,110         $3,431                          $4,541
    561-8270990          $1,780         $4,005                          $5,785
    561-8295825          $1,095         $ 483          $1,588           $3,166
    561-8270484          $1,090         $1,379                          $2,469
    562-2043697          $1,095         $1,016                          $2,111
    561-8301920        Seller Paid      $5,136                          $5,136
    561-8208362          $ -0-          $5,228                          $5,228          4
    561-8241617          $ -0-          $5,052                          $5,052
    561-8286659        Seller Paid      $3,756                          $3,756
    561-8279845          $ -0-          $8,112         $1,120           $9,232
    561-8323302        Seller Paid      $3,471                          $3,471
    561-8252258          $ -0-          $5,583         $1,090           $6,673
    561-8303133        Seller Paid      $9,463       Seller Paid        $9,463
    561-8287082          $ -0-          $2,069         $ 495            $2,564
       Totals           $31,470        $113,307        $8,333          $153,110

      Notes
      1 $746 of the fees and other costs shown were applied to borrower costs at closing.
      2 $79 of the fees and other costs shown were applied to borrower costs at closing.
      3 $489 of the fees and other costs shown were applied to borrower costs at closing.
      4 $1,839 of the yield spread premium was applied to borrower costs at closing.




                                             31
Appendix D

        SCHEDULE OF LOAN ORIGINATION FEES
              FHA case no.    Loan origination fee
              561-8275604           $ 935
              561-8278635           $1,230
              561-8292126           $1,995
              562-2046136           $1,457
              562-2049727           $1,530
              561-8308646           $1,665
              561-8284753           $2,205
              561-8282112           $1,400
              561-8315965           $3,152
              561-8161367           $ -0-
              561-8252480           $1,900
              561-8252258           $ -0-
              561-8315516           $1,405
              561-8304752           $1,045
              561-8279845           $ -0-
              561-8303133         Seller paid
              561-8301920         Seller paid
              561-8225722           $1,662
              561-8298555           $1,040
              561-8270990           $3,507
              561-8286659         Seller paid
              561-8295825           $ -0-
              561-8208362           $ -0-
              561-8241617         Seller paid
              561-8270484           $2,174
              561-8287082           $2,718
              562-2043697           $1,016
              561-8323302           $ -0-
                 Total             $32,036




                             32
Appendix E

 LOANS WITH INDICATIONS OF DUAL EMPLOYMENT OF
     A PLUS LOAN OFFICERS AND SUPERVISORS

  FHA case no.   A Plus job title   Dual employment details
  561-8304752    Loan officer and   Representing and doing business as a consulting
  561-8270990    supervisor         and management firm. Supervisor also had
  561-8284753                       second company (along with spouse) - T.A.
  561-8270484                       Paige, Inc., in A Plus information.
  561-8315516    Loan officer and   Supervisor was owner of his own mortgage
  561-8278635    supervisor         company, evident in A Plus file and in the e-mail
  562-2043697                       address for “branch” contact where loan officer
                                    works.
  562-2049727    Supervisor         Owner of a company in the mortgage finance
  562-2046136                       industry.
  561-8308646    Loan officer and   Did not interview borrowers in A Plus office and
                 supervisor         closed loan in supervisor’s home.
  561-8301920    Loan officer       Loan officer with another non-approved lender
                                    per information in A Plus loan file and Internet
                                    site.
  561-8275604    Loan officer and   Loan officer/supervisor (same person) had her
                 supervisor         business card in the A Plus loan file from
                                    another non-approved lender.
  561-8295825    Loan officer and   Loan officer/supervisor (same person) worked
                 supervisor         for another non-approved lender, which is in A
                                    Plus “branch” information.
  561-8225722    Loan officer       Loan officer registered in Washington State with
                                    another non-approved lender, which was on
                                    borrower’s credit report in A Plus loan file.
  561-8303133    Loan officer and   Loan officer/supervisor (same person) did not
                 supervisor         work with the borrowers per our interview.
                                    Realtor did the bulk of processing on this loan.




                                       33