Review of Compliance With the Real Estate Settlement Procedures Act by DHI Mortgage, LTD, and Its Closing Agents

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-02-09.

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

                                                      U.S. Department of Housing and Urban Development
                                                                    Office of Inspector General
                                                                                                 Region IX
                                                                         611 West Sixth Street, Suite 1160
                                                                            Los Angeles, CA 90017-3101
                                                                                    Voice (213) 894-8016
                                                                                      Fax (213) 894-8115

                                                                  Issue Date

                                                                          February 9, 2011
                                                                  Audit Report Number


MEMORANDUM FOR:              Teresa B. Payne, Associate Deputy Assistant Secretary, Office of
                             Regulatory Affairs and Manufactured Housing, HE

                             Vicki B. Bott, Deputy Assistant Secretary for Single Family
                             Housing, HU

FROM:                        Tanya E. Schulze, Regional Inspector General for Audit, Region
                             IX, 9DGA

SUBJECT:                     Review of Compliance With the Real Estate Settlement Procedures
                             Act by DHI Mortgage, LTD, and Its Closing Agents


We reviewed Federal Housing Administration (FHA)-insured loan settlement documents from
two branches of DHI Mortgage Company, LTD (DHI Mortgage), in Arizona. During a previous
audit of loan origination by the same branches (audit report number 2009-LA-1018), there was
information indicating that the Real Estate Settlement Procedures Act (Act) might have been
violated; however, we were unable to report on the issue at the time. Our review followed up
with the objective to determine whether DHI Mortgage FHA branch numbers 0524200180 and
0542400332 charged borrowers for services and disclosed settlement charges in accordance with
the Act‘s and the U.S. Department of Housing and Urban Development‘s (HUD) requirements.
We issued a discussion draft report on August 5, 2010, and solicited comments from the auditee
as well as HUD officials. As a result of those comments, we made significant changes to our
draft report and omitted the referrals. The report conveys our concerns regarding the potential
noncompliance with certain sections of the Act, irrespective of the responsible parties.
                                     SCOPE AND METHODOLOGY

We reviewed title files corresponding to 4681 FHA-insured loans with beginning amortization
dates from October 1, 2006, to September 30, 2008, originated by DHI Mortgage FHA branch
numbers 0542400180 and 0542400332, both now closed. Generally, the review was limited to
examination of the settlement statement (HUD-1); file balance sheet or disbursements summary;
and schedule A to purchase contract, declaration of covenant restricting rental or resale of
property, or equivalent documents. We also reviewed underwriting documentation in the
lender/FHA loan files for 34 of these FHA-insured loans, which was a nonrepresentative sample
based on the existence of loan defaults and claims. We reported the results of the underwriting
review for these loans in HUD Office of Inspector General (OIG) audit report number 2009-LA-

To accomplish our objective, we

         Reviewed the Act.
         Reviewed HUD regulations and reference materials related to the Act and FHA single-
         family mortgage insurance program requirements.
         Reviewed DHI Mortgage‘s processing, underwriting, and settlement policies and
         Reviewed 34 DHI Mortgage loan files.
         Reviewed 468 title files corresponding to the 481 loans originated in our audit period.
         Documents reviewed were generally limited to the (1) HUD-1; (2) file balance sheet or
         disbursements summary; and (3) schedule A to purchase contract, declaration of covenant
         restricting rental or resale of property, or equivalent.
         Considered written and oral comments on the discussion draft report provided by the
         auditee, HUD officials responsible for oversight and enforcement of the Act, and counsel
         in HUD Office of General Counsel and OIG‘s Office of Legal Counsel.

We conducted our fieldwork at DHI Mortgage‘s Tucson and Scottsdale, AZ, branch offices
between December 2008 and March 2009.


DHI Mortgage is a nonsupervised lender2 approved June 8, 1981, to originate FHA loans. It
currently originates FHA loans under the lender insurance program.3 The company is a wholly
owned subsidiary of D.R. Horton, Inc., a national residential home builder, and provides
mortgage financing services principally to purchasers of homes built by D.R. Horton, Inc. DHI
  Although we attempted to review all 481 loans originated during our review period, we did not receive 13 title files
and, therefore, did not conduct a review of those loans. This limitation did not affect the results of our review.
  A nonsupervised lender is a HUD/FHA-approved lending institution that has as its principal activity the lending or
investment of funds in real estate mortgages and is not a supervised lender, a loan correspondent, a governmental
institution, a government-sponsored enterprise, or a public or State housing agency and has not applied for approval
for the limited purpose of being an investing lender.
  HUD‘s lender insurance program allows lenders to self-insure FHA loans and submit only those case binders
(paper or electronic) requested for review by HUD. HUD requests approximately 6 percent of insured loans for

mortgage generally closed its loans using the services of various settlement agents; however, for
the majority of loans in this review, DHI Mortgage primarily used an affiliated title company and
one other independent title company. DHI Mortgage headquarters is at 12357 Riata Trace
Parkway, Suite C-150, Austin, TX, and the company has branches in 19 States.

                                          RESULTS OF REVIEW

1. Home Buyers May Have Been Charged Ineligible Settlement Fees or Service Charges

The Act is a HUD consumer protection statute enacted by Congress in 1974 to protect the
American home-buying public from unreasonably and unnecessarily inflated prices in the home-
buying process and is enforced by HUD through regulations promulgated at 24 CFR (Code of
Federal Regulations) Part 3500. The Act requires that consumers receive disclosures at
settlement in a prescribed manner and that settlement charges be only for goods and services
actually furnished. Accordingly, regulations at 12 CFR 3500.14(c) do not allow charges for
which no or nominal services are performed or which are duplicative. Fees that violate HUD
regulations are ineligible to be charged to borrowers of FHA-insured mortgages. HUD
Mortgagee Letter 2006-04 allows lenders to charge and collect customary and reasonable costs
necessary to close the mortgage. It restricts the fees, in general, to the actual cost for the service
and limits the origination fee to 1 percent of the loan balance at settlement for forward
mortgages.4 This mortgagee letter also notes that ―all fees and charges must comply with
Federal and State disclosure laws and other applicable laws and regulations.‖

        Excess Origination Fees
        DHI Mortgage charged FHA borrowers for services that appeared to duplicate services
        covered by the origination fees. We questioned whether charging apparent duplicative
        fees effectively caused the originations fees to exceed the 1 percent limit applicable at the
        time. 5 The origination fee (also called an underwriting fee, administrative fee, or
        processing fee) is charged by the lender for evaluating and preparing the mortgage loan.
        In a number of instances, DHI charged borrowers fees labeled as document preparation,
        underwriting, administrative, processing, and/or application fees (or a variation thereof)
        in addition to an origination fee charge, resulting in an aggregate total that exceeded 1
        percent of the loan value.

        The auditee‘s response disagreed with our interpretation of the 1 percent limit and noted
        that Mortgagee Letter 2006-04 specifically permits a lender to charge and collect from
        the borrower those customary and reasonable costs necessary to close the mortgage. The
        response also noted that ―the services covered by the Application and Administration Fee
        arguably could be considered services covered as part of the administration process.
        Therefore, DHIM is in the process of refunding the Application and Administration Fee
        charged to the borrowers‖ on 11 loans. Although we do not consider the matter settled

  All of the loans reviewed were forward mortgages. A forward mortgage is a mortgage in which the balance of the
mortgage decreases over time.
  For the years in our review period and until January 1, 2010, 24 CFR 203.27 allowed an origination charge of up to
1 percent of the loan value.

         and are uncertain of how the auditee distinguished between charges that were duplicative
         and those that were not, we accept DHI Mortgage‘s voluntary effort to address the issue.
         We have decided to not refer the issue and note that HUD revised regulations in
         November 20086 to remove the 1 percent limit on origination fees and allow a single
         ―origination charge‖ that ―must include any amounts received for origination services,
         including administrative and processing services, performed by or on behalf of the loan

         Escrow Charges
         Almost 20 percent of the settlement statements contained charges to borrowers for
         recording fees and/or e-mail document and delivery (courier, messenger, overnight, and
         special) fees. Because the (mostly even dollar) amounts varied widely in some cases and
         appeared excessive for services such as e-mails, we questioned whether the amounts
         charged represented actual costs for the services in accordance with Mortgagee Letter
         2006-04. The auditee‘s response stated that the closing agents charged these fees in
         accordance with escrow rate schedules filed with the State of Arizona to comply with
         Arizona Revised Statutes, section 6-846.01. The response also stated that the filed rates
         were evidence that ―it is customary to charge a flat escrow service fee for the couriering
         of documents.‖

         Our follow-up review of the escrow rate schedules filed by the title companies with the
         Arizona Department of Financial Institutions generally supported that the charges we had
         questioned agreed with the rates on file. The Arizona Revised Statutes, title 6, section
         846, required escrow agents to file their rate schedule with the Arizona Department of
         Financial Institutions and further stated that an escrow agent may not deviate from his
         escrow rates that are in effect. State officials confirmed that penalties would be applied
         for undercharges as well as overcharges. Although in many cases the closing files we
         reviewed contained no charges for these services, State officials noted that this practice
         was acceptable if the title company had filed a bundled rate schedule.7

         We continue to question charges that did not agree with the applicable rate schedules.
         We also question whether the rates filed under the Arizona statute would be found
         allowable as customary and reasonable costs (see OIG‘s response to auditee‘s comments
         in appendix A) or whether this criterion should have been applied when an outside party
         provided the services. Because HUD‘s revised regulations6 generally changed the criteria
         for allowable charges, we have determined that further pursuit of the matter would not be

  ―Real Estate Settlement Procedures Act: Rule to Simplify and Improve the Process of Obtaining Mortgages and
Reduce Consumer Settlement Costs; Final Rule.‖ Federal Register 73 (17 November 2008): 68227, 68239, 68244,
and 68276
  During our review, it appeared that there was no straightforward way to tell whether a particular fee had been
bundled as of a specific date. Further, enforcement of the rates for the related services was complicated by years of
disorganized rate filings on the part of one title company.

       Lender’s Inspection Fees
       DHI Mortgage charged eight FHA borrowers lender‘s inspection fees that appeared to
       duplicate appraisal fees, costing home buyers an additional $595 to close on their homes.
       For FHA-insured loans, an appraisal must be completed, but a lender inspection is not
       required. FHA appraisals generally evaluate everything and more than a lender‘s
       inspection would cover. In all eight cases, an appraisal fee was charged in addition to the
       lender‘s inspection fee, which appeared to be for the same service. Further, since DHI
       Mortgage officials did not consistently charge lenders‘ inspection fees to borrowers (8 of
       468 borrowers were charged), the fees were not customary as required by the Mortgagee
       Letter 2006-04 fee requirements. DHI Mortgage reviewed the documentation for these
       loans and provided support for three of the lender inspection fees. It volunteered to
       refund to the borrowers amounts for the fees that should not have been charged for the
       other five loans.

2. We Questioned Whether Fees Net Funded by the Lender Were Properly Disclosed
The regulations for the Act listed at 24 CFR Part 3500, appendix A, require that, ―The settlement
agent shall complete the HUD-1 to itemize all charges imposed upon the Borrower and the Seller
by the Lender, and all sales commissions, whether paid at settlement or outside of settlement,
and any other charges which either the Borrower or the Seller will pay for at settlement. Charges
to be paid outside of settlement…shall be included on the HUD-1 but marked ‗P.O.C.‘ for ‗Paid
Outside of Closing‘ (settlement) and shall not be included in computing totals. P.O.C. items
should not be placed in the Borrower or Seller columns, but rather on the appropriate line next to
the columns.‖ We questioned a number of instances in which HUD-1s included amounts for
items such as appraisals and credit reports in the settlement totals but the disbursement records
showed no disbursement to the service provider (indicating that the items might have been paid
outside of closing).

DHI Mortgage stated in its response that it net funded certain borrower charges at closing and,
therefore, properly included the charges in the HUD-1totals without a corresponding settlement
disbursement. This situation occurred because DHI Mortgage had already paid the charges for
items such as appraisals and credit reports through its standard corporate accounts payable
system and the borrowers paid the third party ―through DHIM [DHI Mortgage] the amount
charged for the service at the time of settlement‖ (see Auditee Response, appendix A).

We agree that, in cases that were net funded, the borrower actually paid for the services at the
time of closing and, therefore, the charges should not be marked ―P.O.C.‖ or omitted from the
computed totals. However, we question whether in all cases reviewed, the charges were properly
itemized as required by the regulations. Under section L, Settlement Charges, the regulations
also state that ―for all items except those paid to and retained by the Lender, the name of the
person or firm ultimately receiving the payment should be shown.‖ Therefore, for cases with
facts consistent with net funding as described in the auditee‘s response, omission of the outside
service provider‘s name appeared to be noncompliant with the regulations. The settlement
documents were too inconsistent to allow a determination in each instance regarding whether
DHI received and retained payment for items (because there was no outside service provider to

As a result of the net funding practice and inconsistent identification of third-party service
providers, we could not conclude whether all of the transactions were net funded and/or were
reported in compliance with regulations. Further, unless we examined the auditee‘s corporate
accounts payable, we would not be able to determine compliance with FHA regulations at 24
CFR 203.27 that do not allow lenders to collect more than the amount actually paid for an
outside appraisal.8 We believed that the pattern of many questionable disclosures warranted
referral to HUD for further review of compliance with the Act and related regulations. However,
our preliminary discussions of the matter with HUD officials knowledgeable in the field did not
provide a consensus regarding this issue. Further, the Act‘s statute of limitations has expired for
many cases; therefore, we do not plan to pursue this matter further. It should be noted that the
challenges we encountered while applying the Act and its regulations raised concerns regarding
how well the Act served its purpose to inform and protect the consumer or whether instances of
noncompliance could be detected and prosecuted. It remains to be seen whether the revised
regulations issued in November 2008 successfully addressed these challenges.

3. Names of Individuals Who Ultimately Received Payments for Apparent Real Estate
Commissions Were Not Disclosed on the HUD-1
Real estate commissions disbursed at settlement were not all disclosed on the HUD-1 in 35
instances. Regulations at 24 CFR Part 3500, appendix A, required that, ―For all items except for
those paid to and retained by the Lender, the name of the person or firm ultimately receiving the
payment should be shown‖ and ―Lines 701–702 (of the HUD-1) are to be used to state the split
of the commission where the settlement agent disburses portions of the commission to two or
more sales agents or brokers.‖ In these cases, the total real estate commission paid for the
transaction was listed on the HUD-1 in the 700 series as payable to one entity, generally the real
estate broker. However, at settlement, separate checks were issued to up to five different entities
and/or individuals.

In its response to our discussion draft report, the auditee stated that the settlement agents had
followed instructions set forth in the commission disbursement authorizations received from the
real estate brokers regarding how to disburse the real estate proceeds and, further, in no case was
the amount of commission disbursed in accordance with the instructions different from the [total]
amount of commission owed to the real estate broker as evidenced on the HUD-1. The auditee‘s
response stated that the settlement company issued separate checks as a courtesy to the real
estate brokerage firms and that this was a customary practice to avoid the need for and cost of
additional processing internally by the brokerage company once the commission was received.
The response further asserted that the HUD-1only needed to disclose the names of the real estate
brokers who were due the commissions earned for services performed. However, we believe it
could be argued that the regulations meant for all settlement disbursements of commissions to be
disclosed to the borrower on the HUD-1, so that the borrower was informed of who [ultimately]
profited from the sales transaction. HUD officials did not provide a consensus on this matter
and, therefore, we are not recommending corrective action.
  HUD‘s regulations for the FHA single-family insurance program at 24 CFR 203.27(a) state that, ―The mortgagee
may collect from the mortgagor the following charges, fees or discounts… (3) Reasonable and customary amounts,
but not more than the amount actually paid by the mortgagee, for any of the following items: …(v) Fees paid to an
appraiser or inspector approved by the Commissioner for the appraisal and inspection, if required, of the property.‖
(Reasonable amounts are allowed for mortgagee staff appraisers.)


The affected home buyers were potentially overcharged fees—which may have increased the
cost of home ownership—and/or were uninformed about who received payments related to
settlement or when payments for settlement charges were made to service providers. We
concluded that the disclosures in the HUD-1s we reviewed were inadequate to fully inform the
borrowers regarding these settlement charges and that the many loans with questionable
settlement charges amounted to a pattern of questionable disclosures. Therefore, a review of the
supporting documentation by HUD officials was warranted to determine whether requirements
of the Act and other regulations had been satisfied. Although we discussed the draft report and
auditee‘s comments with various HUD officials, we did not obtain a consensus and could not
establish the likelihood of enforcement if noncompliance were determined. Further, since our
audit period, HUD has revised the applicable regulations in an effort to improve some of the
disclosure issues we questioned. Lastly, with future plans to transfer the responsibility to
administer the Act outside HUD, we are not making recommendations for further corrective
action. We are hopeful that the Act‘s current and future regulations and new administration9 will
improve its effectiveness and enforceability in respect to the consumer.


There are no recommendations with this report.

  The responsibility to administer the Act will be moved to the Bureau of Consumer Financial Protection established
under the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) with the transfer effective July 21,

Appendix A


Ref to OIG Evaluation      Auditee Comments

Comment 1

Comment 2
Comment 8

Comment 3

Comment 1

Comment 4
Comment 7

Comment 5

Comment 6

Comment 6

Comment 1

Comment 7

Comment 1

Comment 7

Comment 8

Comment 8

Comment 9

Comment 10

Comment 9

Comment 9

Comment 1

                         OIG Evaluation of Auditee Comments

Comment 1   The auditee‘s response noted that in many instances, the draft report referred to
            charges imposed by DHI Mortgage when, in fact, the charges were imposed by
            third parties. We agreed that many of the charges were imposed by the closing
            agents and revised the report to deemphasize responsibility for compliance. We
            note that HUD officials we asked to review the discussion draft would not provide
            definitive guidance (based solely on the information reviewed for this report)
            regarding the lender‘s and/or closing agents‘ responsibilities to ensure that the
            settlement statements in these cases complied with the Act and related

Comment 2   The auditee‘s response asserted that in cases in which the borrowers paid for the
            credit report and appraisal services at closing, designating the charges as ―P.O.C.‖
            would have been a misrepresentation. We agreed, while noting that the settlement
            documents we reviewed displayed these charges inconsistently. Also see
            comment 8.

Comment 3   The auditee‘s response asserted that the ―ABC‖ and ―MTV‖ fees were not
            inappropriate. We agreed that if the borrower signed a contractual agreement that
            allowed such charges, these commission payments were appropriately included in
            the settlements. We revised the report to exclude this issue.

Comment 4   We revised the report to incorporate the auditee‘s comments and acknowledged
            that most of the e-mail loan document fees agreed with the escrow charge
            schedules filed with the State by the title companies. Also see comment 7.

Comment 5   We agreed that documentation provided in exhibit C (provided by DHI Mortgage)
            supported the lender inspection fee for three FHA cases. We revised the report to
            reflect this fact and to acknowledge DHI Mortgage‘s expressed intent to refund
            the ineligible inspection fees charged for the remaining five FHA cases.

Comment 6   We agreed with the auditee‘s response that Mortgagee Letter 2006-04 permits
            lenders to ―charge and collect from mortgagors those customary and reasonable
            costs necessary to close the mortgage….[borrowers] may not be charged an
            origination fee greater than one percent on forward mortgages...‖ We also agree
            with DHI Mortgage that Mortgagee Letter 2006-04 does not state that reasonable
            and customary fees charged by the lender plus the origination fee may not exceed
            an aggregate total that exceeds 1 percent of the loan total. However, our draft
            finding also asserted that the document preparation, underwriting, administrative,
            processing, and/or application fees (or a variation thereof) duplicated services
            covered by the origination fee.

            We revised the report to acknowledge that the auditee agreed that certain fees
            were arguably duplicative and planned to refund $2,734 in Application and
            Administration Fees charged to borrowers on 11 loans (see page 6 of the

                 Auditee‘s Response, appendix A). However, the auditee‘s planned action did not
                 address the $14,405 in other potentially duplicative fees charged to 42 borrowers.

                 We disagree with the auditee‘s response which stated ―fees charged for
                 underwriting, processing and document preparation are services which are
                 distinctly separate from the costs incorporated in the loan origination fee.‖
                 Contrary to this assertion, HUD‘s revised guidelines (regulations) did not
                 acknowledge these services were distinctly separate from the loan origination fee.
                 Rather, its revised regulations issued in 200810 stated that the ―improvements to
                 the disclosure requirements…should make total loan charges more transparent
                 and allow market forces to lower these charges for all borrowers, including FHA

                 Further, in its final regulatory flexibility analysis of the final rule, HUD noted that
                 fees like those we questioned were often referred to as junk fees. Specifically,
                 under the discussion of costs of implementing the new good faith estimate (GFE)
                 form (which matches up the categories of settlement charges with those on the
                 new HUD-1), HUD stated, ―The reduction in the itemization of fees will lead to
                 fewer unrecognizable items on the new GFE.‖37 Footnote 37 further states that
                 ―[t]he fees in the lender-required and selected services section will still be
                 itemized (e.g., appraisal, credit report, flood certificate, or tax service) as will
                 those in the lender-required and borrower selected section (e.g., survey or pest
                 inspection). There will, however be no itemization or long lists of various sub-
                 tasks of lender fees or title fees, often referred to as junk fees.‖ (underlined by

                 Accordingly, we do not consider the finding regarding the remaining fees of
                 $14,405 to be cleared, but have decided not to refer the issue. Under the new
                 requirements, lenders are not permitted to add on such junk fees and argue that
                 services such as underwriting are not included under loan origination.

Comment 7        We revised the report to incorporate the auditee‘s comments and acknowledged
                 that most of the courier and recording fees agreed with the escrow charge
                 schedules filed with the State by the title companies. However, for the following
                 reasons, we were not persuaded that the filing of fee schedules according to the
                 State requirements constituted an accepted practice that was, therefore, compliant
                 with FHA requirements. First, the courier and recording fees appeared to be for
                 third-party vender services, and the mortgagee letter (2006-04) clearly stated,
                 ―FHA will not allow ‗mark-ups,‘ i.e., charging a fee to the mortgagor for an
                 amount greater than that charged the mortgagee by the service provider; only the
                 actual cost for the service may be charged the mortgagor.‖ Therefore, to the
                 extent to which any scheduled fee exceeded an actual charge, the fee would be
                 noncompliant. Second, we disagree with the assertion in the auditee‘s response
                 that in its revised rules for the Act (which do not apply to our audit period), HUD

 ―Real Estate Settlement Procedures Act: Rule to Simplify and Improve the Process of Obtaining Mortgages and
Reduce Consumer Settlement Costs; Final Rule.‖ Federal Register 73 (17 November 2008)

                 was, in effect, following the practice and direction previously put in place by the
                 State of Arizona. Although the State does provide for a rate review at the time of
                 filing, the required support/justification for a proposed rate is not similar to the
                 average cost pricing prescribed in HUD‘s revised rule and is less protective to the
                 consumer. Specifically, the Arizona statute allows the following rate

                          1. The experience or judgment of the escrow agent making the filing.
                          2. The escrow agent‘s interpretation of any statistical data on which the
                          agent relied.
                          3. The experience of other escrow agents.
                          4. Any other factors that the escrow agent deems relevant.

                 In contrast, HUD‘s revised regulations specify that ―[t]he amount stated on the
                 HUD-1 or HUD-1A for any itemized service cannot exceed the amount actually
                 received by the settlement service provider for that itemized service, unless the
                 charge is an average charge in accordance with paragraph (b)(2) of this section.‖
                 Paragraph (2), Use of Average Charge, goes on to list specific requirements for
                 the calculation of the average charge, including items such as specification of a
                 particular class of transactions, a period of not less than 30 calendar days and not
                 more than 6 months, a geographic area, loan type, etc. Paragraph (2) also
                 specifies that the settlement service provider must use the same average charge in
                 every transaction within that class for which a GFE was provided and maintain
                 documentation for 3 years and that a violation of any of the requirements will be
                 deemed to be a violation of section 4 of the Act.

Comment 8        See comment 2. While we agreed that if charges were net funded as described in
                 the auditee‘s response, these charges were appropriately included in the
                 settlement totals, we note that the auditee‘s response did not submit
                 documentation to support this assertion. In particular, the manner in which
                 service charges were displayed on the HUD-1 and the disbursement sheets was
                 inconsistent from one loan to the next. Further, the disclosures in specific case
                 files frequently omitted information such as the amount of the charge and the
                 service provider.11 We revised the report to incorporate this point and note that
                 without, for example, an appraisal amount, we could not determine whether the
                 amount charged for the appraisal appeared excessive. In addition, we revised the
                 report to question whether the service providers and related fees were
                 appropriately itemized. Because of the many instances in which the disclosures
                 were questionable, we continue to believe that this area warrants review by legal
                 or regulatory officials.

Comment 9        We revised the report to acknowledge the auditee‘ response that asserted real
                 estate commissions were properly disclosed on the HUD-1s and that settlement
                 disbursements that split these commissions among additional parties were a

  Depending on the circumstances, the requirement could vary from loan to loan. For example, if the lender itself
provided the service, the requirements may be different.

              customary practice unrelated to the real estate transactions. However, we
              continue to question the auditee‘s interpretation of the pertinent regulations as
              well as the appropriateness of making such ―customary‖ distributions as part of
              the settlement process. The HUD officials we asked to informally comment on
              the draft report did not explain why they agreed or disagreed with the auditee‘s
              response, and therefore we did not recommend corrective action.

Comment 10 The auditee‘s response stated that for 2 of the 35 FHA cases cited in the report,
           only one commission disbursement was made. However, the closing documents
           we received from the corresponding title company showed multiple
           disbursements for both of these cases; therefore, the report was not revised to omit