oversight

The Lending Company, Inc., Phoenix, AZ, Did Not Always Comply With FHA Underwriting and Quality Control Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-08-20.

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

OFFICE OF AUDIT
REGION 9
LOS ANGELES, CA




                  The Lending Company, Inc.
                         Phoenix, AZ

        Single Family Housing Mortgage Insurance
                        Program




2013-LA-1008                                  AUGUST 20, 2013
                                                        Issue Date: August 20, 2013

                                                        Audit Report Number: 2013-LA-1008




TO:            Charles S. Coulter
               Deputy Assistant Secretary for Single Family Housing, HU

               Dane Narode
               Associate General Counsel for Program Enforcement, CACC




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


SUBJECT:       The Lending Company, Inc., Phoenix, AZ, Did Not Always Comply With FHA
               Underwriting and Quality Control Program Requirements


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of The Lending Company, Inc.’s loan
origination, underwriting, and quality control program policies and procedures.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
213-894-8016.
                                          August 20, 2013
                                          The Lending Company, Inc., Phoenix, AZ, Did Not
                                          Always Comply With FHA Underwriting and Quality
                                          Control Program Requirements



Highlights
Audit Report 2013-LA-1008


 What We Audited and Why                    What We Found

We audited The Lending Company,           The hotline complaint alleged various lending
Inc., based on a hotline complaint,       violations. Our review substantiated the portion of the
previous U.S. Department of Housing       hotline complaint concerning violations of the Housing
and Urban Development (HUD)               and Economic Recovery Act of 2008. The Lending
reviews, and our goal to improve the      Company used gift programs through two nonprofit
integrity of the Federal Housing          organizations that did not comply with HUD’s
Administration (FHA) single-family        requirements. It approved 789 FHA-insured loans that
insurance programs. Our objectives        contained unallowable gifts. This occurred because
were to determine whether The Lending     The Lending Company was initially unaware of the
Company complied with HUD                 HUD requirements, was notified of the requirements,
requirements when it used gift            and then structured a second gift program that
programs, originated and underwrote       disregarded those same HUD requirements. As a
FHA loans, and implemented its quality    result, 725 loans put the FHA mortgage insurance fund
control functions.                        at risk for losses of $55.4 million, and has already
                                          incurred losses of $284,412 for 7 loans.
 What We Recommend
                                          Further, The Lending Company did not always
                                          originate and approve FHA-insured loans in
We recommend that HUD determine           accordance with HUD requirements. Specifically, 28
legal sufficiency to pursue civil         of the 31 loans reviewed contained underwriting
remedies, civil money penalties, or both deficiencies, with 9 containing material underwriting
against The Lending Company for           deficiencies that impacted the insurability of the loans.
incorrectly certifying that mortgages     This occurred because The Lending Company did not
were eligible for FHA mortgage            exercise due diligence in underwriting the loans and
insurance. We also recommend that         disregarded HUD’s underwriting requirements. As a
HUD require the lender to (1)             result, HUD incurred losses of $421,630 for five loans.
indemnify HUD against losses for 725 The remaining four loans with material underwriting
FHA-insured loans with unallowable        deficiencies also had an unallowable gift.
gifts, (2) reimburse the FHA insurance
fund for $706,042 in actual losses, (3)   Lastly, The Lending Company did not always follow
support or repay loss mitigation claims HUD quality control requirements. This occurred
paid, (4) pay down the principal balance because The Lending Company disregarded HUD
for 1 overinsured loan, (5) implement     requirements, although a prior HUD review identified
its quality control plan, and (6) provide similar deficiencies. As a result, the FHA mortgage
training to its staff on HUD quality      insurance fund was placed at an increased risk for
control requirements.                     losses.
                           TABLE OF CONTENTS

Background and Objectives                                                       3

Results of Audit
      Finding 1: The Lending Company Used Two Gift Programs That Did Not Comply
                 With HUD Requirements                                         5
      Finding 2: The Lending Company Did Not Always Approve FHA-Insured
                 Loans in Accordance With HUD Requirements                      13
      Finding 3: The Lending Company Did Not Always Comply With HUD Quality
                 Control Requirements                                       18

Scope and Methodology                                                           21

Internal Controls                                                               24

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use            26
B.    Auditee Comments and OIG’s Evaluation                                     27
C.    Criteria                                                                  44
D.    List of Loans With an Unallowable Gift From Family Housing Resources      48
E.    List of Loans With an Unallowable Gift From Affordable Housing Partners   54
F.    Schedule of Losses for Loans With Material Underwriting Deficiencies      64
G.    Loan Summaries for Material Underwriting Deficiencies                     65




                                            2
                         BACKGROUND AND OBJECTIVES

The Federal Housing Administration (FHA) was created by Congress in 1934 and provides
mortgage insurance on loans made by FHA-approved lenders throughout the United States and
its territories. FHA is the largest insurer of mortgages in the world, having insured more than 34
million properties since its inception. The U.S. Department of Housing and Urban
Development’s (HUD) direct endorsement program simplified the process for obtaining FHA
mortgage insurance by allowing lenders to underwrite and close mortgage loans without prior
HUD review or approval. FHA’s Mutual Mortgage Insurance Fund provides lenders with
protection against losses as a result of homeowners defaulting on their mortgage loans. Lenders
bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default.
Loans must meet certain requirements established by FHA to qualify for insurance. FHA
operates entirely from self-generated income and is not funded by taxpayers. The proceeds from
the mortgage insurance premiums paid by homeowners are maintained in an account that is used
to operate and sustain the program.

All FHA lenders must follow all applicable statutes, regulations, and HUD’s written instructions,
including program handbooks and mortgagee letters. Various sanctions exist that allow the HUD
Homeownership Centers 1 and FHA the flexibility to respond appropriately to any noncompliant
action by a direct endorsement lender or other program participant. The Homeownership
Centers and the Mortgagee Review Board may impose the following sanctions: lender
probation, withdrawal of direct endorsement status, withdrawal of FHA approval,
indemnification agreements, civil money penalties, and sanctions against individual program
participants.

The Lending Company, Inc. is a nonsupervised lender that was approved on July 22, 1996 to
originate FHA-insured loans and received direct endorsement authority on March 10, 2008. The
Lending Company’s home office address is 6910 East Chauncey Lane, Phoenix, AZ, and it has
14 FHA-approved active branches in Arizona, California, and Connecticut. From September 1,
2008, to August 31, 2012, The Lending Company originated or underwrote 4,297 FHA-insured
loans.

We selected The Lending Company for review based on a hotline complaint and previous
reviews conducted by HUD’s Quality Assurance Division (QAD). The hotline complaint
alleged that The Lending Company (1) violated Section 2113 of the Housing and Economic
Recovery Act of 2008, (2) violated loan originator compensation laws, (3) manipulated
appraisals, (4) provided false and misleading information on quarterly and annual
recertifications, and (5) abused its lender insuring privileges. We were able to substantiate the
allegations related to violations of Section 2113 of the Housing and Economic Recovery Act of
2008 (see finding 1). The audit was also part of our goal to improve the integrity of the FHA
single-family insurance programs. Our objectives were to determine whether The Lending
Company used two unallowable nonprofit gift programs, complied with HUD’s requirements in

1
 The Homeownership Center’s objectives include (1) reducing the risk of defaults and claims to FHA, (2)
improving lender performance, and (3) removing noncomplying lenders from the program.


                                                       3
the underwriting of FHA-insured loans, and implemented its quality control functions in
accordance with HUD’s requirements.




                                               4
                                          RESULTS OF AUDIT


Finding 1: The Lending Company Used Two Gift Programs That Did
           Not Comply With HUD Requirements
The Lending Company used gift programs through two nonprofit organizations that did not
comply with HUD requirements. These gift programs did not comply with HUD requirements
because The Lending Company reimbursed the nonprofit organizations, directly and indirectly,
the amount of the gifts that were provided. We identified 789 FHA-insured loans that closed
from April 1, 2009, to May 18, 2012, that contained unallowable gifts. This occurred because
for the first gift program, The Lending Company was unaware of the HUD requirements
regarding allowable sources of gift funds. With the second gift program, The Lending Company,
already aware of the applicable HUD requirements, structured the program in a similar manner
that disregarded the same HUD requirements. As a result, 2 the 789 loans with unallowable gifts
placed the FHA insurance fund at greater risk and caused HUD to incur losses.


    Prohibited Seller-Funded
    Downpayment Assistance
    Programs

                    Before October 1, 2008, sellers and lenders could fund the buyer’s downpayment
                    assistance that was provided by nonprofit organizations. However, Section 2113
                    of the Housing and Economic Recovery Act of 2008 3 prohibited seller-funded
                    downpayment assistance for loans insured by FHA. This law was effective on
                    October 1, 2008. The Recovery Act and 12 U.S.C (United States Code) 1709
                    state that in no case may the funds required for the cash investment consist of
                    funds provided by

                         •    The seller or any other person that financially benefits from the transaction
                              or

                         •    Any third party or entity that is reimbursed, directly or indirectly, by any
                              of the parties above.

                    HUD Handbook 4155.1, Chapter 5, Section B, provides HUD’s requirements
                    regarding gifts. It states that a gift donor may not be a person or entity with an
                    interest in the sale of the property. It further states that, as a general rule, FHA is
                    not concerned with how a donor obtains gift funds, provided that the funds are not
                    derived in any manner from a party to the sales transaction.


2
    See the table in the conclusion of this finding for the summary table.
3
    See appendix C for all criteria references found in the audit report.


                                                             5
First Prohibited Gift Program:
Family Housing Resources

            On January 28, 2009, The Lending Company entered into an agreement with
            Family Housing Resources (FHR), a nonprofit organization, in which FHR
            provided downpayment assistance in the form of gifts to FHA borrowers. We
            identified 323 FHA-insured loans that closed from April 1, 2009, to September
            22, 2010, that were originated by The Lending Company and received gifts from
            FHR. However, 320 of these gifts did not comply with HUD requirements
            because FHR submitted invoices to The Lending Company and was directly
            reimbursed for the amount of each of the gifts in addition to a fee.

            Written Agreement

            According to the written agreement, qualified borrowers would receive a gift from
            FHR for 2.5 percent of the sales price, reducing the borrowers’ required
            downpayment to 1 percent of the sales price to meet the 3.5 percent downpayment
            required by HUD Handbook 4155.1, paragraph 2.A.2.a. This gift program was
            marketed as a 1 percent down purchase loan. The Lending Company would then
            pay fees to FHR that were specified in the agreement and consisted of the
            following:

               •   1 percent of the loan amount as a marketing fee for the services performed
                   in promotion of the program,

               •   1.5 percent of the loan amount as an administration fee for overhead
                   expenses incurred in support of the program, and

               •   45 basis points (0.45 percent) of the loan amount as a processing and
                   underwriting fee in support of the program.

            These fees totaled 2.95 percent of the loan amount; however, The Lending
            Company reimbursed FHR based on the sales price for the marketing and
            administration fee and not the loan amount stated in the written agreement. The
            marketing and administration fee did not always total the percentage stated in the
            agreement (2.5 percent) but was based on the amount of the gift that was
            provided. The table below lists two examples of loans in which the gifts provided
            by FHR were 2.5 and 2.0 percent of the sales price and the amount reimbursed by
            The Lending Company was based on the gift amount and not the marketing and
            administration fees stated in the written agreement.




                                             6
                                                                  023-3356651           023-3536461
                   Sales price                                      $170,000              $132,945
                   Amount of gift from FHR                           $4,250                $2,659
                   Percentage of gift to sales price                 2.50%                 2.00%

                   FHR invoice – “gift amount” 4                     $4,250                $2,659
                   FHR invoice – “fees”                               $751                  $587

                 Invoices

                 After gifts were provided to borrowers, FHR submitted invoices to The Lending
                 Company that detailed the names of the borrowers who received a gift, the
                 amount of the gift, and the amount of the associated fees. The invoices were
                 dated from May 2009 to October 2010 and totaled $1.23 million. We traced and
                 matched the names of the borrowers for the 320 unallowable gifts to the FHR
                 invoices. 5 A review of The Lending Company’s general ledger indicated that it
                 paid FHR for all of the invoices. The total payments to FHR were $1.23 million
                 from June 1, 2009, to October 19, 2010.

    The Lending Company Was
    Informed That the First Gift
    Program Was Prohibited

                 On October 4, 2010, a large lender informed The Lending Company that approval
                 for the gift program with FHR was withdrawn because the funds for the program
                 were ultimately paid by The Lending Company and was not an allowable source
                 of funds (see excerpt below). Subsequently, HUD’s QAD conducted a review of
                 The Lending Company on October 13, 2010 and determined that it had entered
                 into an unallowable contract with FHR. The Lending Company responded to
                 HUD’s finding and stated that it had already discontinued the program in
                 September 2010.




4
  The invoices from FHR to the lender did not break out the marketing and administration fees. They listed only the
following: gift amount, fees, and amount [total]. It appeared that the “fee” listed was the processing and
underwriting fee.
5
  The invoices for the payments on September 18 and December 16, 2009, were not received; however, we were
able to determine the names of the borrowers who received gifts from a spreadsheet provided by FHR. There was
also one name of a borrower that was not listed on the invoices, but the November 16, 2009, invoice was revised to
include the amount of the gift and fee for the borrower. We were able to determine the name of the borrower from
the spreadsheet provided by FHR.


                                                         7
    Second Prohibited Gift
    Program: Affordable Housing
    Partners

                    One month before The Lending Company decided to terminate its gift program
                    with FHR, it entered into an agreement with Affordable Housing Partners (AHP)
                    on August 20, 2010. The agreement was similar to the agreement with FHR, in
                    that downpayment assistance would be provided to borrowers in the form of a
                    gift, but did not specify fees that The Lending Company would pay to AHP. The
                    Lending Company’s chief executive officer stated that donations were provided to
                    Mission of Grace as a way of thanking AHP for providing the gifts. AHP is a
                    subordinate organization under the umbrella of Partners in Action and although
                    Mission of Grace is a separate organization, it is under Partners in Action’s
                    administrative umbrella.

                    The Lending Company started closing loans under the gift program with AHP on
                    September 10, 2010, which was prior to the review by HUD’s QAD. Initially, the
                    AHP gift program was structured in the same manner as the FHR program. The
                    Lending Company directly funded the gifts provided by AHP 6 by wiring funds to
                    Partners in Action. The first wire from The Lending Company to Partners in
                    Action occurred on September 28, 2010 for $100,000. It appeared that after The
                    Lending Company was made aware for the first gift program by FHR that it, as
                    the lender, could not be the source of gift funds, it restructured the gift program.
                    The Lending Company then started providing funds to Mission of Grace. The
                    first deposit of funds to Mission of Grace occurred on October 11, 2010, just prior
                    to the review by HUD’s QAD.

                    In its response to the audit report 7, The Lending Company stated it conferred with
                    a HUD QAD official regarding the AHP gift program in October of 2010.
                    However, this discussion occurred after the AHP gift program was implemented
6
    As stated earlier in the report, AHP is a subordinate organization of Partners in Action.
7
    See appendix B.


                                                             8
                 and restructured. Also, the details of the conversation were not documented, so
                 there is no assurance that what the Lending Company told the HUD QAD official
                 was a complete and accurate reflection of how the gift program was structured
                 and implemented. Regardless of the singular conversation, The Lending
                 Company had a number of regulatory resources 8 available to it that specifically
                 stated the source of funds requirements and it also had an obligation to conduct
                 due diligence to ensure its program was compliant with HUD regulations.

                 The Lending Company informed the HUD QAD official that, in addition to
                 receiving gifts from AHP, it would donate funds to a charity; however, the funds
                 paid to Mission of Grace were classified on its general ledger as advertising and
                 marketing expenses and not donations. This was the same classification as the
                 payments made to FHR for the first gift program. Although The Lending
                 Company considered the funds provided to Mission of Grace to be donations, The
                 Lending Company maintained a spreadsheet that tracked all of the gifts provided
                 by AHP, the associated fees, 9 and the amounts of donations. It appeared that the
                 spreadsheet was maintained to ensure that The Lending Company donated enough
                 funds to cover the amount of the gifts, as there was a running balance subtracting
                 the two amounts. Below is an excerpt from the spreadsheet to illustrate the
                 running balance.




                 We identified 469 FHA-insured loans that closed from September 10, 2010, to
                 May 18, 2012, that were approved by The Lending Company and received an
                 unallowable gift from AHP. The Lending Company’s general ledger indicated
                 that it donated $1.86 million to Mission of Grace 10 from September 28, 2010, to
                 April 2, 2012. These donations were typically made in increments of $50,000,
                 and the timeframe during which these donations were made coincided with the
                 dates of the gift program. The spreadsheet that tracked the gifts indicated that the
                 amount of the gifts in addition to the fee totaled $1.83 million. The remaining
                 balance (approximately $23,000) was not returned to The Lending Company.


8
  The Housing and Economic Recovery Act of 2008, 12 U.S.C. 1709(b)(9)(c), and HUD Handbook 4155.1, chapter
5, section B.
9
  The spreadsheet showed that the fee paid to Mission of Grace was 0.35 percent of the loan amount, and an official
from Partners in Action stated that the fee was for the education course provided to the home buyers.
10
   Of this amount, $100,000 was provided to Partners in Action and not Mission of Grace.


                                                         9
                  The Lending Company stated that it thought there was no problem with the gift
                  program because it made donations to a company other than the nonprofit
                  organization providing the gift. Also, officials from Partners in Action stated that
                  the donations provided by The Lending Company to Mission of Grace were not
                  commingled with the gifts provided by AHP. However, the official stated that the
                  gift account was tracked closely and a request for more donations would be made
                  if funds were running low and that AHP would not have been able to provide the
                  amount of gifts that were given without the donations provided by The Lending
                  Company. Therefore, without the donations from The Lending Company to
                  Mission of Grace, AHP would not have provided gifts to borrower and the AHP
                  gift program would not have existed. The Lending Company was only providing
                  funds to Mission of Grace because it was receiving a benefit in return, in the form
                  of gifts provided by AHP to borrowers. Ultimately, this resulted in The Lending
                  Company indirectly being the source of funds for each gift.

     Conclusion

                  Because The Lending Company was unaware of HUD requirements regarding
                  allowable sources of gift funds for the first gift program and disregarded HUD
                  requirements for the second gift program, it inappropriately approved 789 FHA-
                  insured loans (320 FHR + 469 AHP) that had unallowable gifts, exposing HUD to
                  unnecessary insurance risks, and caused HUD to incur losses. Of the 789 loans,
                  57 were refinanced (not a streamline refinance) 11 or paid in full, resulting in 732
                  loans remaining that suffered or could suffer losses to HUD. Of the 732 loans,
                  725 had a total unpaid mortgage balance of $97.3 million with an estimated loss
                  to HUD of $55.4 million, 12 with 26 of these loans 3 or more months delinquent. 13
                  HUD also paid claims of $612,114 for seven loans with an actual loss 14 of
                  $284,412. In addition, HUD paid loss mitigation claims 15 of $5,450 for seven
                  loans.




11
   We are not seeking indemnification or reimbursement for loans that were refinanced (not a streamline refinance).
12
   The estimated loss amount is based on FHA’s 57 percent loss severity rate, multiplied by the unpaid principal
balance. The 57 percent loss rate was the average loss on FHA-insured foreclosed-upon properties based on HUD’s
Single Family Acquired Asset Management System’s “case management profit and loss by acquisition” as of
December 2012.
13
   See appendixes D and E.
14
   The losses resulted when the properties that secured these loans were sold and the insurance claims and other
expenses incurred by HUD exceeded the sales proceeds.
15
   FHA offers a number of loss mitigation programs to assist FHA-insured homeowners facing financial hardship,
and whose mortgage is either in default or at risk of default. Such programs result in claims paid to lenders for
participation.


                                                        10
                                      Loss summary for loans with unallowable gifts
                                                                                                             Estimated
                                              Number          Unpaid         Claim            Loss to
                          Nonprofit                                                                         loss to HUD
                                              of loans        balance       amount             HUD
                                                                                                               (57%)
                                                                                                                        $
                     FHR – active loans 16       292      $ 38,669,742      $         -   $             -
                                                                                                             22,041,754 17
                                         16
                     FHR – claim loans            6                     -       602,379       274,677                    -
                     AHP – active loans 18       433          58,593,224
                                                                                                             33,398,142 19
                                         18
                     AHP – claim loans            1                  -          9,735         9,735                      -
                           Totals                732      $ 97,262,966      $ 612,114     $ 284,412         $ 55,439,896



     Recommendations

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

                 1A.      Determine legal sufficiency and if legally sufficient, pursue civil and
                          administrative remedies (31 U.S.C. 3801-3812, 3729, or both), civil
                          money penalties (24 CFR (Code of Federal Regulations) 30.35), or both
                          against The Lending Company, its principals, or both for incorrectly
                          certifying to the integrity of the data, the mortgage eligibility for FHA
                          mortgage insurance, or that due diligence was exercised during the
                          origination of 732 loans that resulted in actual losses of $284,412 on 7
                          loans and potential losses of $55.4 million on 725 loans for a total loss of
                          $55.7 million, which could result in affirmative civil enforcement action
                          of approximately $116.9 million.20

                 We recommend that HUD’s Deputy Assistant Secretary for Single Family
                 Housing require The Lending Company, after completion of action under
                 recommendation 1A, to

                 1B.      Indemnify HUD against losses for the 725 FHA-insured loans with an
                          unallowable gift in the amount of $97.3 million, thereby putting an
                          estimated loss to HUD of $55.4 million to better use. 21



16
   See appendix D.
17
   The amount does not equal the unpaid balance multiplied by the estimated loss because of rounding. See
appendix D for the estimated loss for the 292 loans that total this amount.
18
   See appendix E.
19
   The amount does not equal the unpaid balance multiplied by the estimated loss because of rounding. See
appendix E for the estimated loss for the 433 loans that total this amount.
20
   Double damages for actual loss amounts related to 7 loans and potential losses to 725 loans ($284,412 +
$55,439,896) plus a fine of $7,500 each for the 725 loans with unallowable gifts (($55,724,308 x 2) + ($7,500 x
732) = $116,938,616)
21
   See appendixes D and E.


                                                         11
                1C.     Reimburse the FHA insurance fund for the $284,412 in actual losses
                        resulting from the amount of claims and associated expenses paid on
                        seven loans that contained an unallowable gift. 22

                1D.     Support or repay the FHA insurance fund $5,450 for the loss mitigation
                        claims15 paid as of April 30, 2013, on seven loans 23 that contained an
                        unallowable gift. 24




22
   See appendixes D and E.
23
   022-2192845, 023-3720644, 023-3766993, 023-4010358, 023-4081269, 023-4135502, and 023-4485740
24
   See appendix E.


                                                  12
Finding 2: The Lending Company Did Not Always Approve FHA-
           Insured Loans in Accordance With HUD Requirements
The Lending Company did not always originate and underwrite FHA-insured loans in
accordance with HUD requirements. Specifically, 28 of the 31 loans reviewed contained
underwriting deficiencies, with 9 containing material underwriting deficiencies that impacted the
insurability of the loan and 19 containing technical underwriting deficiencies. Also, The
Lending Company did not properly assess the funds a seller contributed to close one loan. This
noncompliance occurred because The Lending Company did not exercise due diligence in
underwriting FHA loans and disregarded HUD’s underwriting requirements. As a result, The
Lending Company exposed HUD to unnecessary insurance risks and caused HUD to pay
$500,058 in claims and incur losses14 of more than $421,630 for five loans that contained
material underwriting deficiencies. The remaining four loans with material underwriting
deficiencies either had an unallowable gift (three loans) and the impact is included under finding
1 or was terminated and paid in full (one loan).


     Nine FHA Loans With Material
     Underwriting Deficiencies

                    Our detailed review of 31 FHA-insured loans identified 9 with material
                    underwriting deficiencies that included inadequate determination or
                    documentation of income, determination or documentation of credit, and review
                    of an appraisal report. HUD Handbook 4155.1 provides the requirements for
                    underwriting FHA-insured loans, including the evaluation of the borrower’s
                    capacity to repay the loan (income), credit history, and assets available to close
                    the loan (see appendix C). The Lending Company inappropriately approved nine
                    loans 25 based on inadequate determination and documentation of these factors.
                    The table below summarizes the loan deficiencies identified.




25
     Appendix G contains detailed loan summaries for the nine loans with material underwriting deficiencies.


                                                          13
  FHA loan            Underwriting deficiencies               Deficiency type
   number      Income     Credit    Assets    Other    None   Technical     Material
 022-2192845      –          –          –              –         –             
 023-2914717      –                                  –                      –
 023-2971333                –                        –         –             
 023-3046385                –                        –         –             
 023-3077216      –          –          –              –                      –
 023-3096448                –          –              –                      –
 023-3110658                –                        –                      –
 023-3149318      –                                  –                      –
 023-3167827                –          –              –         –             
 023-3184101      –          –          –              –                      –
 023-3219159      –                    –         –     –                      –
 023-3283224                –          –              –                      –
 023-3288489      –          –                   –     –                      –
 023-3295473                –          –         –     –         –             
 023-3440596      –                                  –                      –
 023-3502416                –          –              –         –             
 023-3518179      –          –                        –                      –
 023-3555323      –          –          –              –                      –
 023-3610521      –          –          –              –                      –
 023-3629846      –          –          –              –                      –
 023-3661762      –                    –         –     –         –             
 023-3681607      –          –          –         –              –             –
 023-4002794                          –         –     –         –             
 023-4075444                –          –              –                      –
 023-4096995                –          –         –     –                      –
 023-4168762                –          –              –                      –
 023-4296610      –          –          –         –              –             –
 023-4443133      –          –          –         –              –             –
 023-4449250      –          –                   –     –                      –
 023-4485740      –                    –         –     –         –             
 023-4507773      –          –                        –                      –
    Totals       12          7          10        20    3         19            9


Income

Six of the nine loans with material underwriting deficiencies included The
Lending Company (1) improperly calculating monthly income, (2) not obtaining
the most recent 2 years’ tax returns to support commission income, (3) not
verifying employment for 2 years, (4) not conducting a verification of
employment before the loan closed, (5) not justifying the use of bonus income


                                   14
                   that was earned for less than 2 years, and (6) not documenting or supporting
                   “other” income that was used in qualifying the borrower.

                   Credit

                   Three of the nine loans with material underwriting deficiencies included The
                   Lending Company improperly omitting liability accounts that were listed on the
                   credit report and not documenting the monthly payment amount for a student loan
                   that had a balance but no monthly payment amount on the credit report.

                   Other

                   One 26 of the nine loans with material underwriting deficiencies included The
                   Lending Company not adequately reviewing the appraisal report. The Lending
                   Company did not ensure that the appraisal report followed FHA’s antiflipping
                   waiver because the second appraisal did not verify or explain the increase in value
                   required by the waiver.

     19 FHA Loans With Technical
     Underwriting Deficiencies

                   In addition to the nine loans that contained material underwriting deficiencies, we
                   identified 19 FHA loans that contained technical underwriting deficiencies that
                   did not comply with HUD requirements. The technical underwriting deficiencies
                   were minor underwriting deficiencies that, even if corrected, would not result in a
                   significant increase in mortgage risk and did not impact the insurability of the
                   loan. We did not recommend indemnification or reimbursement for loans that
                   contained only technical underwriting deficiencies. Examples of these technical
                   underwriting deficiencies included loan files that did not contain the deposit slips
                   or wire transfers for gifts as required by HUD Handbook 4155.1, paragraph
                   5.B.5.b, and explanation of credit inquiries that were within 90 days of the
                   completed credit report as required by HUD Handbook 4155.1, paragraph
                   4C(2)(c). Other examples included income and liabilities that were improperly
                   determined; however, the revised total fixed payment-to-income ratios did not
                   increase to a level that impacted the insurability of the loan. The table in the
                   previous section identifies the 19 loans that contained only technical underwriting
                   deficiencies.




26
     FHA loan number 022-2192845. See appendix G for the loan summary.


                                                      15
More Than 6 Percent of the
Sales Price Contributed by
Seller

             The Lending Company did not properly assess the funds a seller contributed to
             close one loan. As a result, it allowed the seller to contribute more than the 6
             percent allowed by HUD Handbook 4155.1, REV-5, paragraph 1-7A. For FHA
             case number 023-3149318, the sales price of the property was $130,000 so the
             maximum amount the seller could contribute was $7,800. However, the HUD-1
             settlement statement indicated that the seller contributed $8,901, which exceeded
             the 6 percent limit by $1,101.

HUD Exposed to Unnecessary
Risks and Losses

             Because The Lending Company did not follow HUD requirements when
             underwriting FHA loans for mortgage insurance, it inappropriately approved nine
             loans that had material underwriting deficiencies. The Lending Company did not
             exercise sound judgment and due diligence when it submitted these loans for FHA
             insurance. The Lending Company’s underwriters were aware of HUD’s
             requirements; however, they did not follow the requirements when they approved
             the nine loans that had material underwriting deficiencies. The underwriters
             incorrectly certified that nine loans were eligible for HUD mortgage insurance
             under the direct endorsement program. Regulations at 24 CFR 203.255 require a
             direct endorsement lender to certify that the proposed loan complies with HUD’s
             underwriting requirements.

Conclusion

             Because The Lending Company did not comply with HUD requirements, it
             originated nine loans with material underwriting deficiencies and 19 loans with
             technical underwriting deficiencies. As a result, the nine loans exposed HUD to
             unnecessary insurance risks and caused HUD to pay $500,058 in claims and incur
             losses of $421,630 for five loans that contained material underwriting
             deficiencies. The remaining four loans that contained material underwriting
             deficiencies also contained an unallowable gift, and the losses are included under
             finding 1.




                                             16
     Recommendations

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

                  2A.      Determine legal sufficiency and if legally sufficient, pursue civil and
                           administrative remedies (31 U.S.C. 3801-3812, 3729, or both), civil
                           money penalties (24 CFR 30.35), or both against The Lending Company,
                           its principals, or both for incorrectly certifying to the integrity of the data
                           or that due diligence was exercised during the origination of five loans that
                           resulted in actual losses of $421,630, which could result in affirmative
                           civil enforcement action of approximately $880,760. 27

                  We recommend that HUD’s Deputy Assistant Secretary for Single Family
                  Housing require The Lending Company, after completion of action under
                  recommendation 2A, to

                  2B.      Reimburse the FHA insurance fund for the $421,630 28 in actual losses
                           resulting from the amount of claims and associated expenses paid on five
                           loans with material underwriting deficiencies.

                  2C.      Pay down the principal balance by $1,101 for the one overinsured loan as
                           a result of an excessive seller contribution.




27
   Double damages for actual loss amounts related to five loans ($421,630) plus a fine of $7,500 each for the five
loans with material underwriting deficiencies (($421,630 x 2) + ($7,500 x 5) = $880,760)
28
   See appendix F.


                                                         17
Finding 3: The Lending Company Did Not Always Comply With HUD
           Quality Control Requirements
The Lending Company did not always follow HUD quality control requirements when reviewing
FHA-insured loan files. Specifically, The Lending Company did not always review at least 10
percent of the loans it originated, did not adequately perform the quality control review of loans,
and did not always review all of its loans that went into default within the first six payments.
These deficiencies occurred because The Lending Company disregarded HUD’s quality control
requirements, although a prior review by HUD’s QAD identified similar deficiencies in The
Lending Company’s quality control functions. As a result, the FHA insurance fund was placed
at an unnecessarily increased risk of loss. Also, without an adequate quality control function,
there was an increased risk of waste, fraud, and abuse.


 Minimum Number of Loans
 Not Always Reviewed

               HUD Handbook 4060.1, REV-2, paragraph 7-6C, requires the lender to review 10
               percent of the FHA loans it originated. However, The Lending Company did not
               review at least 10 percent of the loans originated for 3 months from September 1,
               2008, to August 31, 2012. The table below illustrates the 3 months without the
               minimum required reviews.

                                   Number of FHA        10 percent      Loans
                  Month-year                                                         Difference
                                    loans closed         of loans      reviewed
                   Nov. 2009             109                11              4             7
                   Jan. 2011              86                 9              6             3
                   Aug. 2011              80                 8              5             3

 Early Payment Defaults Not
 Always Reviewed

               HUD Handbook 4060.1, REV-2, paragraph 7-6D, requires the lender to review all
               loans going into default within the first six payments (early payment defaults) in
               addition to the loans selected for routine quality control reviews. HUD’s QAD
               conducted a review of The Lending Company in December 2009 and determined
               that it failed to conduct quality control reviews of early payment defaults. The
               Lending Company responded that the quality control review of all early payment
               defaults was incorporated into its quality control plan. Although The Lending
               Company incorporated early payment defaults into its quality control plan, from




                                                18
                  November 1, 2010, to August 31, 2012, 29 it did not review 5 of 12 loans that were
                  early payment defaults.

     Quality Control Reviews Not
     Adequate

                  HUD Handbook 4060.1, REV-2, paragraph 7-6E, requires that a new credit report
                  be obtained for each borrower whose loan is included in a quality control review.
                  It further requires that documents contained in the loan file be checked for
                  sufficiency and be subject to written verification. Examples of items that must be
                  reverified include the borrower’s employment or other income, deposits, gift
                  letters, alternate credit sources, and other sources of funds. If the written
                  verification is not returned to the lender, a documented attempt must be made to
                  conduct a telephone verification. The Lending Company did not adequately
                  perform quality control reviews for 11 of the 15 loans reviewed. Specifically,

                       •   Three did not have a reverification of employment (one had no response
                           to the written attempt and no documented attempt at a telephone
                           verification, and one had a telephone verification but no written attempt),

                       •   Nine did not have a new credit report,

                       •   Two did not have a reverification of assets,

                       •   Three of the four loans that had a gift did not have a reverification of
                           those gifts, and

                       •   One did not have an appraisal desk review.

     Conclusion

                  The Lending Company did not always follow HUD quality control requirements
                  when reviewing FHA-insured loan files because it disregarded HUD quality
                  control requirements, although a prior review by HUD identified deficiencies in
                  The Lending Company’s quality control functions. As a result, the FHA
                  insurance fund was placed at an unnecessarily increased risk of loss and increased
                  risk of waste, fraud, and abuse.




29
  The early payment defaults were not reviewed for the entire audit scope because the lender did not maintain the
records beyond the required 2-year timeframe.


                                                        19
Recommendations

          We recommend that the Deputy Assistant Secretary for Single Family Housing
          require The Lending Company to

          3A.     Fully implement its quality control plan and provide HUD with periodic
                  reports for 12 months to ensure that its quality control reviews, to include
                  early payment defaults, are conducted in accordance with HUD
                  requirements.

          3B.     Provide training to ensure that its quality control staff is aware of HUD’s
                  quality control program requirements.




                                           20
                             SCOPE AND METHODOLOGY

We selected The Lending Company based on a hotline complaint and previous reviews
conducted by HUD’s QAD. Our audit period covered loans with beginning amortization dates
from September 1, 2008, to August 31, 2012. We conducted our fieldwork at The Lending
Company’s office located in Phoenix, AZ, between October 2012 and May 2013.

We used HUD’s Single Family Data Warehouse 30 to identify all FHA-insured loans that were
originated or underwritten by The Lending Company. During the audit period, The Lending
Company originated or underwrote 4,297 FHA-insured loans. For our review of The Lending
Company’s underwriting, we selected a sample of 31 FHA-insured loans selected nonstatistically
based on the following factors:

     •   Loans that were in claim status (16 loans),

     •   Loans that were seriously delinquent 31 (14 loans),

     •   Loans that were terminated and streamline refinanced and then went into claim status (1
         loan),

     •   Properties located in Arizona, and

     •   Loans that had not been reviewed by HUD’s QAD or selected for a post-endorsement
         review.

For our review of The Lending Company’s use of nonprofit gift programs, we reviewed all loans
that had a gift from FHR or AHP. The loans were identified by the tax identification number in
Single Family Data Warehouse for the two nonprofit organizations, the invoices from FHR, and
the spreadsheet maintained by The Lending Company of gifts from AHP.

To perform our quality control file review, we requested a listing from The Lending Company of
all quality control reviews performed during our audit period. There were a total of 432 quality
control reviews of FHA-insured loans during this period. We selected a nonstatistical sample of
15 quality control reviews to examine. We selected the quality control reviews that were part of
our audit sample, which resulted in one quality control review. We then selected 14 quality
control reviews based on auditor judgment that covered the entire audit scope (2 to 4 files from
each year).




30
   Single Family Data Warehouse is a large collection of database tables organized and dedicated to support
analysis, verification, and publication of FHA single-family housing data.
31
   Seriously delinquent loans are loans that are 90 days or more delinquent.


                                                        21
To accomplish our objective, we

       •   Reviewed applicable HUD and FHA regulations, requirements, mortgagee letters, and
           reference materials;

       •   Interviewed appropriate management and staff;

       •   Interviewed staff from the nonprofit organizations that were involved in the gift
           programs;

       •   Obtained documentation from the nonprofit organizations for the gift programs;

       •   Reviewed all of the loans that had an unallowable gift (789 loans);

       •   Reviewed 31 of The Lending Company’s FHA-insured loan files;

       •   Interviewed borrowers;

       •   Performed employment reverifications;

       •   Reviewed the quality control plan; and

       •   Reviewed 15 of The Lending Company’s quality control reviews.

We used the source documents in the loan origination files to determine whether a gift was
provided by one of the nonprofit organizations and to review the income, assets, and liabilities of
the borrower(s). For our review of the gift programs, we also reviewed the FHR invoices, the
spreadsheet of gifts maintained by FHR, the spreadsheet of AHP gifts maintained by The
Lending Company, The Lending Company’s general ledger, bank statements from Partners in
Action, and documents obtained through title companies. For our appraisal review, a HUD
Office of Inspector General (OIG) appraiser performed a detailed review of a nonstatistical
sample of 16 appraisals. We selected the appraisals based on data maintained by HUD in Single
Family Data Warehouse. However, due to the subjectivity involved in the appraisal process, we
did not report on potential deficiencies.

We used the data maintained by HUD in Single Family Data Warehouse to obtain the unpaid
mortgage balances and claims paid for each of the loans (as of May 29, 2013). HUD paid claims
on 12 of the loans that we determined had an unallowable gift or material underwriting
deficiencies and incurred actual losses on all of those loans. 32

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit


32
     See appendixes D, E, and F.


                                                    22
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                               23
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

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

                  •   Controls intended to ensure that the lender uses gift programs in accordance
                      with HUD’s requirements (finding 1).
                  •   Controls intended to ensure that the lender underwrites (approves) FHA-
                      insured loans in accordance with HUD’s requirements (finding 2).
                  •   Controls intended to ensure that the lender implements a quality control
                      program that complies with HUD’s requirements (finding 3).

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiencies

               Based on our review, we believe that the following items are significant deficiencies:

                  •   The Lending Company did not have adequate controls to ensure that gifts
                      from nonprofit organizations complied with HUD requirements (finding 1).



                                                 24
•   The Lending Company did not have adequate controls to reasonably ensure
    that loans were originated and underwritten in accordance with HUD
    requirements (finding 2).
•   The Lending Company did not have adequate controls to ensure that its
    quality control program was implemented and complied with HUD quality
    control requirements (finding 3).




                            25
                                      APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS
               AND FUNDS TO BE PUT TO BETTER USE

     Recommendation                                                       Funds to be put to
                           Ineligible 1/         Unsupported 2/
         number                                                             better use 3/
           1B                                                               $55,439,896
           1C                 $284,412
           1D                                        $5,450
           2B                  421,630
           2C                    1,101
                              $707,143               $5,450                  $55,439,896

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. In this instance, the ineligible costs are HUD’s actual losses for
       seven loans that contained an unallowable gift (see appendixes D and E) and five loans
       that had material underwriting deficiencies (see appendix F). The losses resulted when
       the properties that secured these loans were sold and the insurance claims and other
       expenses incurred by HUD exceeded the sales proceeds.

2/     Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
       or activity when we cannot determine eligibility at the time of the audit. Unsupported
       costs require a decision by HUD program officials. This decision, in addition to
       obtaining supporting documentation, might involve a legal interpretation or clarification
       of departmental policies and procedures. In this instance, the unsupported costs are the
       loss mitigation claims15 paid by HUD for seven loans that contained an unallowable gift.

3/     Recommendations that funds be put to better use are estimates of amounts that could be
       used more efficiently if an OIG recommendation is implemented. These amounts include
       reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
       implementing recommended improvements, avoidance of unnecessary expenditures
       noted in preaward reviews, and any other savings that are specifically identified. In this
       instance, implementation of recommendation 1B to indemnify loans not approved in
       accordance with HUD’s requirements will reduce FHA’s risk of loss to the insurance
       fund. The amount noted reflects HUD’s calculation that FHA loses an average of 57
       percent of the unpaid principal balance when it sells a foreclosed-upon property (see the
       estimated loss to HUD in appendixes D and E). The 57 percent loss rate is based on
       HUD’s Single Family Acquired Asset Management System’s “case management profit
       and loss by acquisition” computation for the first quarter of fiscal year 2013 based on
       actual sales.


                                               26
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                Auditee Comments




                        OIG Evaluation of Auditee Comments



                                       27
Comment 1




Comment 2




            * Names redacted for privacy reasons.




                             28
Comment 3




            29
Comment 3




            30
Comment 2


Comment 2




Comment 3




Comment 4




            31
Comment 5



Comment 6




Comment 7


Comment 1
Comment 4




Comment 8


Comment 4
Comment 7




            32
Comment 2

Comment 8




Comment 8




            33
Comment 8




            34
Comment 8




Comment 9




            35
Comment 9




Comment 9




Comment 10




             36
Comment 11

Comment 12




Comment 2

Comment 9



Comment 10




             *Names redacted for privacy reasons.




                             37
Comment 1   We acknowledge that HUD reviewed The Lending Company in October 2010 and
            determined that the gift program agreement with Family Housing Resources
            (FHR) was unallowable, and closed their finding after The Lending Company
            stated it discontinued the agreement. However, this does not preclude the OIG
            from reporting on and making appropriate recommendations to HUD. OIG
            reviews are independent of HUD reviews and generally involve a larger scope. In
            this case, we determined the extent in which The Lending Company utilized two
            prohibited nonprofit downpayment assistance programs. The findings and
            recommendations of this audit report were made based on the independent
            analysis conducted by the OIG.

            With regard to the FHR program, The Lending Company was unaware that lender
            funded downpayment assistance was not allowable. As an FHA direct
            endorsement lender, The Lending Company has the significant responsibility to
            be aware of HUD requirements and changes in those requirements. The Housing
            and Economic Recovery Act of 2008 (Recovery Act) ended all seller and
            interested third party funded down payment assistance programs on October 1,
            2008. The Recovery Act received national attention as it strengthened restrictions
            on mortgage practices to alleviate the mortgage crisis at the time. However,
            presentation material from a loan officer of The Lending Company clearly
            identifies that seller funded downpayment assistance was taken away in 2008, a
            reference to the Recovery Act. The presentation material indicated that The
            Lending Company was aware of the HUD regulations concerning the allowable
            source of funds for downpayment assistance.

Comment 2   Regarding finding 1, The Lending Company placed a strong emphasis on its
            statement that it conferred with one HUD QAD official regarding the second gift
            program with Affordable Housing Partners (AHP). However, this emphasis is
            subordinate to the more significant issue that The Lending Company executed
            two prohibited nonprofit gift programs. The Lending Company requested that
            finding 1 be dismissed and removed from the final report based on information it
            provided in its response. For the reasons cited in audit report and these
            comments, the report remains unchanged.

            Our own review of the AHP gift program, independent of any prior review
            conducted by HUD, determined that it was structured in a manner that did not
            adhere to HUD regulations and was therefore, unallowable. We determined, by
            nature of the structure of the AHP gift program, that The Lending Company
            indirectly provided the gift funds to FHA borrowers. As stated in the audit report,
            The Lending Company maintained a spreadsheet to ensure that enough funds
            were provided to Mission of Grace to cover the amount of the gifts provided by
            AHP. The spreadsheet tracked the funds provided to Mission of Grace in relation
            to the gifts provided by AHP and the associated fee (0.35 percent of the loan
            amount), indicating a quid pro quo relationship. Without the donations to Mission
            of Grace, AHP would not have provided gifts to borrowers and the AHP gift
            program would not have existed. The Lending Company was only providing



                                            38
                    funds to Mission of Grace because it was receiving a benefit in return, in the form
                    of gifts provided by AHP to FHA borrowers.

                    We do acknowledge that The Lending Company conferred with a HUD QAD
                    official, around October 2010, on the AHP down payment assistance gift
                    program. However, The Lending Company was not able to provide any written
                    documentation evidencing the details of the discussion and what was presented to
                    the HUD QAD official. Our interview with the HUD QAD official indicated The
                    Lending Company may not have provided all the significant details when it
                    explained its second gift program with AHP. Specifically, it appeared the HUD
                    QAD official was not aware that the funds provided by The Lending Company to
                    Mission of Grace were a direct result of the gifts provided by AHP and that the
                    amount of funds to be donated were directly linked to the amount of the gifts
                    provided by AHP. The Lending Company informed the HUD QAD official that it
                    would donate funds to Mission of Grace; however, the funds paid to Mission of
                    Grace were classified on its general ledger as advertising and marketing expenses
                    and not donations. Also, according to the HUD QAD official, of particular
                    significance, The Lending Company failed to mention that they were directed to
                    check with HUD’s lender approval division to ensure the program, as it was set
                    up, was in compliance with HUD’s regulations.

                    Regardless of any discussion with a single HUD QAD official, it is the lender’s
                    responsibility to be knowledgeable of all HUD requirements and to ensure that the
                    FHA loans it approves adheres to those requirements. The Lending Company had
                    access to the same information and resources as all FHA lenders. The regulations
                    concerning the source of funds were available in a number of citations: the
                    Housing and Economic Recovery Act of 2008, 12 U.S.C. 1709(b)(9)(C), and
                    HUD Handbook 4155.1, chapter 5, section B. Additionally, HUD has made
                    available to all FHA lenders a number of resources, including the FHA Resource
                    Center 33 and the lender section 34 of the HUD.gov website. Given that The
                    Lending Company was already made aware that its first gift program was
                    unallowable, it should have conducted better due diligence to ensure, without any
                    ambiguity, that its second gift program was in compliance with HUD regulations.
                    At no time did The Lending Company present the OIG any written evidence that
                    it received approval from HUD, other than its assertion that it relied on a single
                    conversation with this single HUD QAD official who gave verbal approval. An
                    internal email on April 1, 2011, from a minority owner of The Lending Company
                    to the chief executive officer, indicated that The Lending Company was aware
                    that the AHP gift program was in violation of HUD requirements. The email
                    stated “Technically we fall into the ‘or any party that financially benefits from the
                    transactions.’ Maybe we should consider getting rid of the gift program after
                    all…”



33
     http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/fharesourcectr
34
     http://portal.hud.gov/hudportal/HUD?src=/groups/lenders


                                                         39
Comment 3   We acknowledge the signed statement from the AHP chief operating officer
            obtained by The Lending Company. While most of the signed statement appears
            to be accurate in comparison with the other information we gathered during our
            audit fieldwork, key components were missing, and thus, indicates that it was not
            explained to the HUD QAD official. Not present in the signed statement is
            information explaining that the gift program was set up as a quid pro quo
            relationship. Also missing was guidance provided by the HUD QAD official to
            The Lending Company to obtain additional direction from HUD to determine
            whether the second gift program was in compliance with HUD regulations.
            During an interview conducted by OIG on February 5, 2013, the AHP chief
            operating officer stated that the AHP gift account was tracked closely, with a
            request for more donations from The Lending Company if gift funds were running
            low. He also stated that the start and end dates of the AHP gift program and the
            donations to Mission of Grace were tied together, indicating a cause and effect
            relationship. He stated, in his opinion, the donations were related to the gift
            program. He also stated that AHP would not have been able to provide the
            amount of gifts that were given without the donations provided by The Lending
            Company. Without providing these full details to HUD at the time of the
            discussion that The Lending Company had, it was not possible for HUD to
            provide an accurate and reasonable determination of program compliance.

Comment 4   We strongly disagree with The Lending Company’s references to counsel,
            instruction, or direction by a HUD QAD official as these references appear to
            overstate the amount of information that was provided by HUD. At no time did
            the HUD QAD official provide detailed counsel, instruction, or direction on how
            to set up the program or what elements the prohibited gift program should
            contain, other than stating that gift funds and donations should not be
            commingled. The HUD QAD official also provided additional guidance to The
            Lending Company advising it to obtain additional direction from HUD’s lender
            approval division to determine whether the second gift program was in
            compliance with HUD regulations. To our knowledge The Lending Company did
            not do that.

Comment 5   We disagree with The Lending Company’s assertion that the audit report is
            inaccurate in stating that Mission of Grace is under Partners in Action’s
            administrative umbrella. The chief executive officer of Partners in Action also
            stated that “Partners in Action helped [Mission of Grace] get back on their feet
            both financially and administratively when they had no financial support and no
            proper leadership. Partners in Action temporarily provided financial support and
            administrative support to help them get back on their feet. They are still under
            our administrative umbrella…” Also, while Partners in Action and Mission of
            Grace have separate accounts and funds, they have a group banking arrangement
            with Bank of America so both of its names appear on the Mission of Grace’s bank
            statements.




                                           40
                    We agree that Partners in Action is not the parent organization of AHP and
                    Mission of Grace is a separate entity from Partners in Action; however, there is an
                    affiliation between Partners in Action, Mission of Grace, and AHP as
                    demonstrated by their Web sites and officers listed for each organization.

                        •   The Web sites for AHP and Mission of Grace state that AHP is a
                            subordinate organization under the umbrella of Partners in Action and
                            Mission of Grace is an affiliate of Partners in Action.

                        •   The chief operating officer of AHP is also the president of both Partners in
                            Action and Mission of Grace 35.

                        •   Both AHP and the statutory agent for Mission of Grace have the same
                            mailing address as Partners in Action35.

Comment 6           We disagree with The Lending Company’s statement that the audit report makes
                    suggestions that AHP owns or controls Mission of Grace. There are no
                    statements in the audit report with such suggestions. Rather, the audit report
                    states that Partners in Action was the parent organization of AHP and Mission of
                    Grace was under Partners in Action’s administrative umbrella. However, the
                    audit report has been updated to reflect that AHP is a subordinate organization
                    under the umbrella of Partners in Action. See also comment 5.

Comment 7           The Lending Company took exception to the audit report statement that it took
                    steps to circumvent HUD requirements. As stated in comment 2, OIG
                    acknowledges that The Lending Company conferred with a HUD QAD official
                    regarding the AHP gift program. However, the details of the conversation are in
                    question as there is no documented evidence of the complete details of that
                    conversation. As discussed in comment 2, there is no way to determine if The
                    Lending Company presented all the facts and relevant details of its second gift
                    program when it discussed the issue with HUD. At the very least, it appears The
                    Lending Company structured its second gift program in a manner to work around
                    HUD regulations. We obtained a letter dated October 4, 2010 from a lender to
                    The Lending Company stating the gift program with FHR was not appropriate.
                    We believe The Lending Company restructured its second gift program with AHP
                    based on this correspondence and not because of discussion with a HUD QAD
                    official. Finding 1 of the audit report has been revised to reflect this information.
                    In consideration of The Lending Company’s comments, the audit report has also
                    been updated and the statement that The Lending Company took steps to
                    circumvent HUD requirements was revised.

Comment 8           The Lending Company’s response states that a HUD QAD official communicated
                    with both The Lending Company and its investors regarding the AHP gift
                    program and its compliance with HUD regulations. However, The Lending

35
     According to public filings with the Arizona Corporation Commission.


                                                         41
              Company did not provide any documentation, email communication, or other
              evidence during the audit fieldwork to support this statement. The seven emails
              provided as part of its response to the draft audit report between The Lending
              Company CEO and the HUD QAD official, appear to be mostly out of context, do
              not relate to the AHP gift program and do not evidence any type of HUD
              approval. Specifically:

                     •   The emails dated November 12, 2010 related to the first gift program
                         with FHR and do not reference the second gift program with AHP.
                         According to the HUD QAD official, the emails reference to a “2nd
                         program” refers to a secondary financing Native American program.

                     •   The emails dated March 8 and March 9, 2010 occurred well before
                         HUD’s review in October 2010, when it notified The Lending
                         Company of the unallowable FHR gift program.

                     •   The email dated March 28, 2012 informed The Lending Company that
                         gifts from a nonprofit organization do not require HUD approval.
                         However, this is in regard to an outright gift and not one where the
                         lender reimburses (plus a fee) the nonprofit or related entity.

Comment 9     The Lending Company provided explanations for four of the nine loans identified
              in the audit report with material underwriting deficiencies. However, The
              Lending Company’s response does not directly address any of the underwriting
              deficiencies that were detailed in the audit report. Therefore, the report remains
              unchanged. The underwriting deficiencies that were considered to be technical
              were not detailed in the audit report because they did not result in a significant
              increase in mortgage risk and did not impact the insurability of the loan.
              However, such technical deficiencies in conjunction with the material deficiencies
              were indicative of significant control weaknesses.

Comment 10 We agree with The Lending Company that there is a two year retention
           requirement for quality control files. However, this requirement does not prevent
           the OIG from requesting and reviewing records it deems significantly relevant to
           an audit objective. The nine FHA loans that were required to be reviewed for
           September (five loans) and October 2008 (four loans) were outside the two year
           retention requirement. We requested the monthly quality control logs that
           identified the FHA loans for September and October 2008 but none were
           provided. Because 9 of the 22 loans did predate the two year retention
           requirement and the records were not maintained, the audit report has been
           amended and the nine loans were removed from the report. However, the
           remaining details of finding 3 remain unchanged. Although it was beyond the
           two year retention requirement, the November 2009 quality control log that
           identified the number of FHA loans reviewed was provided by The Lending
           Company and therefore, was reviewed. The remaining two months, January and




                                              42
              August 2011, were within the two year retention requirement because the
              documentation was received on October 23, 2012.

Comment 11 We disagree with The Lending Company’s statement that its internal quality
           control practices meet or exceed HUD quality control regulations and guidelines.
           Our audit determined that The Lending Company did not always comply with
           HUD quality control requirements. As stated in the audit report, The Lending
           Company did not always review at least 10 percent of the loans it originated, did
           not adequately perform the quality control review of loans, and did not always
           review its loans that went into default within the first six payments.

Comment 12 We disagree with The Lending Company’s statement that its internal quality
           control practices do not place the FHA insurance fund at an unnecessarily
           increased risk of loss and FHA experiencing an increased risk of waste, fraud, or
           abuse. The audit identified weaknesses in The Lending Company’s quality
           control function, which is in place to minimize the risk of waste, fraud, and abuse
           and ensure FHA loans adhere to HUD regulations. An effective quality control
           function that adheres to HUD requirements would help identify weaknesses in
           The Lending Company’s operations, including the underwriting of FHA loans, so
           they could be corrected.




                                              43
Appendix C

                                        CRITERIA

HUD Handbook 4060.1, REV-2, Paragraph 7-6C
  A mortgagee who originates and/or underwrites 3,500 or fewer FHA loans per year must
  review 10 percent of the FHA loans it originates.

HUD Handbook 4060.1, REV-2, Paragraph 7-6D
  In addition to the loans selected for routine reviews, mortgagees must review all loans going
  into default within the first six payments. As defined here, early payment defaults are loans
  that become 60 days past due.

HUD Handbook 4060.1, REV-2, Paragraph 7-6E
  The quality control program must provide for the review and confirmation of information on
  all loans selected for review.
       1. A new credit report must be obtained for each borrower whose loan is included in a
          quality control review; unless the loan was a streamline refinance or was processed
          using a FHA approved automated underwriting system exempted from this
          requirement.
       2. Documents contained in the loan file should be checked for sufficiency and subjected
          to written reverification. Example of items that must be reverified include, but are
          not limited to, the mortgagors employment or other income, deposits, gift letters,
          alternate credit sources, and other sources of funds. Sources of funds must be
          acceptable as well as verified. Other items that may be reverified include mortgage
          or rent payments. If the written reverification is not returned to the mortgagee, a
          documented attempt must be made to conduct a telephone reverification. If the
          original information was obtained electronically or involved alternative documents, a
          written reverification must still be attempted.
       3. A desk review of the property appraisal must be performed on all loans chosen for a
          quality control review except streamline refinances and HUD Real Estate Owned
          sales.

HUD Handbook 4155.1, Paragraph 1.3.f
  If the borrower was not employed with the same employer for the previous two years, and
  has an employment gap of 60 days or greater, the borrower must provide a written
  explanation for the employment gap.

HUD Handbook 4155.1, REV-5, Paragraph 1-7A
  The seller (or other interested third parties such as real estate agents, builders, developers,
  etc., or a combination of parties) may contribute up to 6% of the property’s sales price
  toward the buyers actual closing costs, prepaid expenses, discount points, and other financing
  concessions. Contributions exceeding 6% of the sales price or exceeding the actual costs of
  prepaid expenses, discount points, and other financing concessions will be treated as
  inducements to purchase, thereby reducing the amount of the mortgage.


                                               44
HUD Handbook 4155.1, Paragraph 2.A.2.a
  In order for FHA to insure this maximum loan amount, the borrower must make a down
  payment of at least 3.5 percent of the lesser of the appraised value of the property or the sales
  price.

HUD Handbook 4155.1, REV-5, Paragraph 2-7D
  Commission income must be averaged over the previous two years. The borrower must
  provide copies of signed tax returns for the last two years, along with the most recent pay
  stub. (Unreimbursed business expenses must be subtracted from gross income.) Individuals
  whose commission income shows a decrease from one year to the next require significant
  compensating factors to allow for loan approval.

HUD Handbook 4155.1, REV-5, Paragraph 2-7M
  The gross rental amount must be reduced for vacancies and maintenance by 25 percent (or
  the percentage developed by the jurisdictional HOC [Homeownership Center]), before
  subtracting PITI [principal, interest, taxes, and insurance] and any homeowner’s association
  dues, etc., and applying the remainder to income (or recurring debts, if negative).

HUD Handbook 4155.1, REV-5, Paragraph 2-11C
  If a debt payment, such as a student loan, is scheduled to begin within twelve months of the
  mortgage loan closing, the lender must include the anticipated monthly obligation in the
  underwriting analysis, unless the borrower provides written evidence that the debt will be
  deferred to a period outside the timeframe.

HUD Handbook 4155.1, REV-5, Paragraph 3-1
  The following documents are generally required for mortgage credit analysis in all
  transactions except for streamline cases “E. VOE [verification of employment] and the
  borrower’s most recent pay stub are to be provided.”

HUD Handbook 4155.1, Paragraph 4.D.2.b
(HUD Handbook 4155.1, REV-5, Paragraph 2-7A)
   Overtime and bonus income can be used to qualify the borrower for a mortgage if he/she has
   received this income for the past two years, and it will likely continue. If the employment
   verification states that this income is unlikely to continue, it may not be used in qualifying.

   The lender must develop an average of bonus or overtime income for the past two years.
   Periods of overtime income and bonus income less than two years may be acceptable,
   provided the lender can justify and document in writing the reason for using the income for
   qualifying purposes.




                                                45
HUD Handbook 4155.1, Paragraph 4.C.4.c
(HUD Handbook 4155.1, REV-5, Paragraph 2-11A)
   If the credit report shows any revolving accounts with an outstanding balance but no specific
   minimum monthly payment, the payment must be calculated at the greater of 5 percent of the
   balance or $10, unless there is a specific monthly payment for the account.

HUD Handbook 4155.1, Paragraph 5.B.4.c
  The gift donor may not be a person or entity with an interest in the sale of the property, such
  as the seller, the real estate agent or broker, the builder, or an associated entity. Gifts from
  these sources are considered inducements to purchase, and must be subtracted from the sales
  price.

HUD Handbook 4155, Paragraph 5.B.4.e
  As a general rule, FHA is not concerned with how a donor obtains gift funds, provided that
  the funds are not derived in any manner from a party to the sales transaction.

Mortgagee Letter 2004-47
  Employment/Income
  For loan applications rated as “Accept/Approve,” the lender must obtain the single most
  recent pay stub (showing year-to-date earnings of at least one month) and any one of the
  following to verify current employment: written verification of employment, verbal
  verification of employment, electronic verification acceptable to FHA.

   Commissioned Individuals
   A commissioned applicant is defined as one who receives more than 25 percent of his or her
   annual income from commissions. For these individuals, obtain and analyze signed federal
   income tax returns, including all schedules, for the most recent two years and subtract
   unreimbursed business expenses in underwriting.

24 CFR 203.37a(b)(2), Waiver Requirements
   The regulations at 24 CFR 203.37a(b)(2) provide that a mortgage for a property will not be
   eligible for FHA insurance if the contract of sale for the purchase of the property is executed
   within 90 days of the prior acquisition by the seller and the seller does not come under any of
   the specific exemptions that apply to the 90-day rule. This waiver, which took effect on
   February 1, 2010, is limited to those sales meeting the following conditions:

         2.    In cases in which the sales price of the property is 20 percent or more over and
               above the seller’s acquisition cost, the waiver will only apply if the lender:
                  a. Justifies the increase in value by retaining in the loan file supporting
                       documentation and/or a second appraisal which verifies that the seller has
                       completed sufficient legitimate renovation, repair, and rehabilitation work
                       on the subject property to substantiate the increase in value or, in cases
                       where no such work is performed, the appraiser provides appropriate
                       explanation of the increase in property value since the prior title transfer.




                                                46
12 U.S.C. 1709(b)(9)(C)
   In no case shall the funds required by subparagraph (A) consist, in whole or part, of funds
   provided by any of the following parties before, during, or after closing of the property sale:
         (i) The seller or any other person or entity that financially benefits from the
               transaction.
         (ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the
               parties described in clause (i).
   This subparagraph shall apply only to mortgages for which the mortgagee has issued credit
   approval for the borrower on or after October 1, 2008.




                                                47
        Appendix D

              LIST OF LOANS WITH AN UNALLOWABLE GIFT FROM
                        FAMILY HOUSING RESOURCES

                                                                        Seriously                                                   Estimated
               Closing      Gift        Loan         Refinanced        delinquent       Unpaid           Claim       Loss to
Case number                                                                                                                        loss to HUD
                date       amount      status 36    case number            31           balance         amount        HUD
                                                                                                                                     (57%) 37

022-2117219   05/07/10    $   3,913       A               -                -        $     147,566   $            -   $         -   $    84,113
022-2145436   04/30/10        2,260       A               -                -              106,211                -             -        60,540
022-2147907   12/11/09        3,318       A               -                -              123,804                -             -        70,568
022-2160961   03/03/10        4,375       A               -                -              164,042                -             -        93,504
022-2166363   03/10/10        3,600       A               -                -              135,166                -             -        77,045
022-2173653   04/08/10        3,500       A               -                -              131,589                -             -        75,006
022-2174353   04/08/10        2,300       A               -                -              108,091                -             -        61,612
022-2175575   04/09/10        2,400       A               -                -              112,791                -             -        64,291
022-2187471   05/25/10        3,700       A               -                -              140,110                -             -        79,863
022-2191946   06/04/10        3,280       A               -                -              155,031                -             -        88,368
022-2192845   07/02/10        1,630       A               -                -               77,042          875 38              -        43,914
022-2200873   07/28/10        3,000       A               -                -              142,122               -              -        81,010
022-2201255   06/30/10        2,660       A               -                -              125,845               -              -        71,732
022-2202483   07/09/10        5,125       A               -                -              194,234               -              -       110,713
022-2208904   08/23/10        3,038       A               -                -              114,965               -              -        65,530
023-3033510   05/08/09        3,250       A               -                -              120,040               -              -        68,423
023-3205484   05/29/09        2,356       A               -                -              109,021               -              -        62,142
023-3356668   04/15/09        3,250       A               -            6 months           120,609               -              -        68,747
023-3389751   04/16/09        3,330       A               -                -              153,900               -              -        87,723
023-3430145   05/15/09        3,500       A               -                -              130,234               -              -        74,233
023-3446156   05/07/09        5,425       A               -            21 months          200,869               -              -       114,495
023-3461652   05/27/09        4,175       A               -                -              151,809               -              -        86,531
023-3468910   01/21/10        3,256       A               -                -              122,179               -              -        69,642
023-3497447   06/11/09        2,850       A               -                -              105,677               -              -        60,236
023-3508209   06/04/09        1,960       A               -                -               91,163               -              -        51,963
023-3512584   09/11/09        2,050       A               -                -               76,843               -              -        43,801
023-3552776   06/25/09        2,718       A               -                -              126,587               -              -        72,155
023-3580305   10/09/09        3,669       A               -                -              137,110               -              -        78,153
023-3611171   12/23/09        4,338       A               -                -              161,467               -              -        92,036
023-3637779   09/09/09        4,120       A               -                -              192,842               -              -       109,920
023-3661762   08/31/09        2,486       A               -            9 months           115,806               -              -        66,009
023-3683512   05/28/10        3,748       A               -                -              140,950               -              -        80,342
023-3690201   10/08/09        2,075       A               -                -               77,715               -              -        44,298
                                                          -                -                                  38
023-3720644   10/30/09        3,700       A                                               173,221          875                 -        98,736
023-3732557   10/15/09        4,500       A               -                -              167,216               -              -        95,313
023-3745488   10/16/09        1,800       A               -                -               84,179               -              -        47,982
                                                          -                -                                  38
023-3766993   11/09/09        2,225       A                                                83,264          875                 -        47,460
023-3779128   06/10/10        3,375       A               -                -              127,568               -              -        72,714
023-3779945   11/25/09        2,788       A               -                -              104,202               -              -        59,395


        36
           A = active; T = terminated; C = claim
        37
           The estimated loss amount is based on FHA’s 57 percent loss severity rate, multiplied by the unpaid principal
        balance.
        38
           Loss mitigation claim


                                                                  48
                                                                   Seriously                                           Estimated
              Closing     Gift      Loan        Refinanced        delinquent   Unpaid       Claim       Loss to
Case number                                                                                                           loss to HUD
               date      amount    status 36   case number            31       balance     amount        HUD
                                                                                                                        (57%) 37

023-3787442   11/25/09     2,300      A             -                 -          107,356            -             -        61,193
023-3787596   11/16/09     4,248      A             -                 -          158,952            -             -        90,603
023-3800158   12/02/09     4,248      A             -                 -          158,606            -             -        90,405
023-3813174   12/23/09     3,000      A             -              3 months      112,056            -             -        63,872
023-3819539   12/18/09     4,623      A             -                 -          172,660            -             -        98,416
023-3820198   12/21/09     3,488      A             -                 -          130,407            -             -        74,332
023-3837873   12/23/09     1,800      A             -                 -           84,133            -             -        47,956
023-3845718   12/31/09     7,150      A             -             10 months      267,359            -             -       152,395
023-3863339   01/22/10     2,245      A             -                 -           83,883            -             -        47,813
023-3863809   06/30/10     2,908      A             -                 -          136,785            -             -        77,967
023-3866358   01/19/10     2,940      A             -                 -          137,607            -             -        78,436
023-3867411   01/13/10     2,425      A             -                 -           90,990            -             -        51,864
023-3867837   12/30/09     6,123      A             -                 -          228,937            -             -       130,494
023-3871285   01/13/10     2,375      A             -                 -           88,930            -             -        50,690
023-3871312   12/30/09     2,000      A             -                 -           93,482            -             -        53,285
023-3875480   01/13/10     4,925      A             -                 -          184,412            -             -       105,115
023-3877049   06/22/10     2,727      A             -                 -          102,612            -             -        58,489
023-3877242   01/19/10     1,425      A             -                 -           53,468            -             -        30,477
023-3887522   01/27/10     2,498      A             -                 -           93,710            -             -        53,415
023-3888093   01/29/10     1,750      A             -                 -           65,663            -             -        37,428
023-3890039   02/05/10     2,000      A             -                 -           93,803            -             -        53,468
023-3890284   02/16/10     2,875      A             -                 -          107,799            -             -        61,445
023-3892618   03/02/10     2,622      A             -                 -          123,029            -             -        70,127
023-3892942   02/09/10     2,500      A             -                 -           94,018            -             -        53,590
023-3893064   01/29/10     2,625      A             -                 -           98,291            -             -        56,026
023-3893575   01/29/10     2,650      A             -              5 months       99,631            -             -        56,790
023-3906985   02/16/10     1,600      A             -                 -           74,991            -             -        42,745
023-3907583   02/09/10     1,800      A             -                 -           84,616            -             -        48,231
023-3912922   02/22/10     2,750      A             -                 -          103,617            -             -        59,062
023-3913379   02/12/10     3,200      A             -                 -          150,430            -             -        85,745
023-3926372   02/26/10     3,064      A             -                 -          115,126            -             -        65,622
023-3932201   03/16/10     3,322      A             -                 -          124,734            -             -        71,098
023-3942822   03/31/10     2,440      A             -              4 months      114,516            -             -        65,274
023-3946774   08/03/10     1,610      A             -                 -           75,830            -             -        43,223
023-3949837   03/22/10     3,200      A             -                 -          120,383            -             -        68,618
023-3951768   03/31/10     4,150      A             -                 -          155,817            -             -        88,816
023-3963687   03/30/10     1,380      A             -                 -           64,894            -             -        36,990
023-3964805   03/26/10     2,985      A             -                 -          139,811            -             -        79,692
023-3965455   04/24/10     2,126      A             -                 -           79,940            -             -        45,566
023-3967961   04/16/10     3,058      A             -                 -          143,714            -             -        81,917
023-3968626   04/01/10     4,479      A             -                 -          168,172            -             -        95,858
023-3970919   04/01/10     1,998      A             -                 -           93,772            -             -        53,450
023-3972433   05/19/10     2,500      A             -                 -           94,292            -             -        53,746
023-3973372   04/09/10     1,700      A             -                 -           79,893            -             -        45,539
023-3977605   04/21/10     2,973      A             -                 -          111,968            -             -        63,822
023-3978754   06/11/10     2,625      A             -                 -           98,773            -             -        56,301
023-3978891   04/15/10     2,776      A             -                 -          130,461            -             -        74,363
023-3980980   04/09/10     2,840      A             -                 -          133,469            -             -        76,077
023-3981379   04/09/10     2,363      A             -                 -           88,647            -             -        50,529
023-3983124   06/09/10     4,053      A             -                 -          152,804            -             -        87,098
023-3983804   04/09/10     2,900      A             -                 -          109,031            -             -        62,148
023-3983964   05/03/10     2,125      A             -                 -           80,045            -             -        45,626
023-3985834   04/07/10     2,255      A             -                 -           84,786            -             -        48,328
023-3986216   04/08/10     3,625      A             -                 -          136,289            -             -        77,685
023-3988109   04/23/10     1,820      A             -                 -           85,695            -             -        48,846


                                                             49
                                                                   Seriously                                           Estimated
              Closing     Gift      Loan        Refinanced        delinquent   Unpaid       Claim       Loss to
Case number                                                                                                           loss to HUD
               date      amount    status 36   case number            31       balance     amount        HUD
                                                                                                                        (57%) 37

023-3993302   04/14/10     2,700      A             -                 -          126,640            -             -        72,185
023-4002634   04/30/10     2,260      A             -                 -          106,211            -             -        60,540
023-4002657   04/26/10     3,375      A             -                 -          126,889            -             -        72,327
023-4004092   04/23/10     3,122      A             -                 -          117,359            -             -        66,895
023-4008949   04/14/10     4,350      A             -             12 months      164,009            -             -        93,485
023-4009777   05/07/10     1,600      A             -                 -           75,434            -             -        42,997
                                                    -                 -                         38
023-4010358   05/04/10     1,910      A                                           89,932      875                 -        51,261
023-4015253   08/31/10     3,258      A             -                -           122,712            -             -        69,946
023-4015723   06/28/10     4,320      A             -                -           203,567            -             -       116,033
023-4018482   05/28/10     3,345      A             -                -           125,703            -             -        71,651
023-4020486   05/21/10     2,125      A             -                -            80,000            -             -        45,600
023-4021016   06/08/10     2,325      A             -                -            87,955            -             -        50,134
023-4022175   05/25/10     2,320      A             -                -           109,073            -             -        62,172
023-4023467   06/04/10     1,560      A             -                -            73,510            -             -        41,901
023-4026177   04/30/10     3,375      A             -                -           127,248            -             -        72,531
023-4029780   05/03/10     2,800      A             -             4 months       105,471            -             -        60,118
023-4034377   04/30/10     3,499      A             -                -           132,572            -             -        75,566
023-4036933   05/27/10     1,825      A             -                -            69,172            -             -        39,428
023-4037350   05/04/10     1,800      A             -                -            82,174            -             -        46,839
023-4042111   05/25/10     4,825      A             -                -           182,541            -             -       104,048
023-4050833   06/24/10     2,680      A             -                -           126,791            -             -        72,271
023-4051398   06/10/10     4,358      A             -                -           206,737            -             -       117,840
023-4052450   06/02/10     2,450      A             -                -            92,860            -             -        52,930
023-4053172   06/07/10     1,975      A             -                -            74,819            -             -        42,647
023-4053206   05/28/10     3,700      A             -                -           174,809            -             -        99,641
023-4056191   05/26/10     5,800      A             -                -           219,428            -             -       125,074
023-4058502   05/27/10     1,875      A             -                -            71,193            -             -        40,580
023-4059015   05/18/10     5,875      A             -                -           221,841            -             -       126,449
023-4060903   05/21/10     3,625      A             -                -           137,143            -             -        78,172
023-4060961   05/19/10     2,250      A             -                -            85,042            -             -        48,474
023-4061967   05/28/10     2,366      A             -                -           112,202            -             -        63,955
023-4064884   05/21/10     2,680      A             -                -           126,972            -             -        72,374
023-4066118   06/02/10     2,010      A             -                -            94,964            -             -        54,129
023-4068017   06/30/10     3,457      A             -                -           163,409            -             -        93,143
023-4068183   05/27/10     1,325      A             -                -            50,265            -             -        28,651
023-4070368   06/04/10     3,500      A             -                -           132,468            -             -        75,507
023-4075467   06/09/10     2,350      A             -                -            89,024            -             -        50,744
023-4075569   06/10/10     2,869      A             -                -           108,676            -             -        61,945
023-4076269   06/10/10     1,720      A             -                -            81,448            -             -        46,425
023-4077501   06/23/10     3,200      A             -                -           151,803            -             -        86,528
023-4077603   06/15/10     2,975      A             -                -           113,001            -             -        64,411
023-4077836   06/16/10     4,044      A             -                -           153,196            -             -        87,322
023-4079084   06/18/10     2,875      A             -                -           108,912            -             -        62,080
023-4080228   08/11/10     1,488      A             -                -            49,766            -             -        28,367
023-4080286   06/22/10     3,500      A             -                -           132,590            -             -        75,576
023-4081027   06/10/10     3,000      A             -                -           113,544            -             -        64,720
                                                    -                -                          38
023-4081269   06/14/10     2,125      A                                           80,501      200                 -        45,886
023-4084032   06/15/10     2,320      A             -             6 months       109,860            -             -        62,620
023-4085884   06/23/10     2,980      A             -                 -          112,893            -             -        64,349
023-4091033   06/30/10     3,420      A             -                 -          161,649            -             -        92,140
023-4091424   06/30/10     2,900      A             -             16 months      137,326            -             -        78,276
023-4094131   06/25/10     2,039      A             -                 -           96,481            -             -        54,994
023-4095058   06/02/10     2,000      A             -                 -           94,491            -             -        53,860
023-4096995   06/28/10     2,800      A             -             15 months      105,974            -             -        60,405



                                                             50
                                                                   Seriously                                           Estimated
              Closing     Gift      Loan        Refinanced        delinquent   Unpaid       Claim       Loss to
Case number                                                                                                           loss to HUD
               date      amount    status 36   case number            31       balance     amount        HUD
                                                                                                                        (57%) 37

023-4098077   06/28/10     2,781      A             -                -           131,431            -             -        74,916
023-4098142   06/11/10     3,522      A             -                -           166,628            -             -        94,978
023-4098241   07/02/10     3,000      A             -                -           113,595            -             -        64,749
023-4099122   06/25/10     3,975      A             -                -           150,584            -             -        85,833
023-4100713   06/30/10     3,000      A             -                -           141,797            -             -        80,824
023-4105972   07/30/10     3,998      A             -                -           189,230            -             -       107,861
023-4106196   07/01/10     2,748      A             -                -           103,987            -             -        59,273
023-4107264   06/24/10     2,520      A             -                -           119,331            -             -        68,019
023-4108854   06/28/10     3,900      A             -                -           184,679            -             -       105,267
023-4109758   06/25/10     4,200      A             -                -           198,516            -             -       113,154
023-4110500   07/14/10     6,100      A             -                -           288,721            -             -       164,571
023-4111121   06/28/10     3,626      A             -             4 months       137,220            -             -        78,215
023-4112293   06/30/10     2,720      A             -                -           128,801            -             -        73,417
023-4114111   06/30/10     3,243      A             -                -           122,835            -             -        70,016
023-4116401   08/19/10     4,125      A             -                -           156,407            -             -        89,152
023-4118194   08/27/10     1,960      A             -                -            92,813            -             -        52,903
023-4118425   06/30/10     2,998      A             -                -           113,449            -             -        64,666
023-4118720   07/13/10     3,563      A             -                -           134,894            -             -        76,890
023-4119551   07/29/10     3,225      A             -                -           122,114            -             -        69,605
023-4120458   07/14/10     2,040      A             -                -            77,314            -             -        44,069
023-4121794   06/30/10     3,375      A             -                -           127,737            -             -        72,810
023-4122045   08/03/10     2,943      A             -                -           110,856            -             -        63,188
023-4122226   06/30/10     1,723      A             -                -            65,252            -             -        37,194
023-4122538   07/20/10     2,498      A             -                -            94,653            -             -        53,952
023-4124580   08/31/10     1,750      A             -                -            82,942            -             -        47,277
023-4126473   08/25/10     2,360      A             -                -           111,445            -             -        63,524
023-4126523   07/20/10     3,290      A             -                -           155,883            -             -        88,853
023-4126756   07/15/10     2,200      A             -                -           104,223            -             -        59,407
023-4127071   07/15/10     2,000      A             -                -            94,748            -             -        54,006
023-4127231   07/09/10     2,800      A             -                -           132,527            -             -        75,540
023-4128792   07/23/10     2,463      A             -                -            93,241            -             -        53,147
023-4133372   08/06/10     3,775      A             -                -           142,089            -             -        80,991
                                                    -                -                          38
023-4135502   07/22/10     3,300      A                                          156,193      875                 -        89,030
023-4136356   07/30/10     1,600      A             -                 -           75,730            -             -        43,166
023-4137981   08/09/10     5,725      A             -                 -          217,075            -             -       123,733
023-4139011   07/29/10     6,300      A             -                 -          298,187            -             -       169,967
023-4140656   08/20/10     3,750      A             -                 -          142,189            -             -        81,048
023-4141015   07/21/10     2,800      A             -                 -          106,021            -             -        60,432
023-4143386   07/26/10     7,250      A             -                 -          274,521            -             -       156,477
023-4144527   07/30/10     2,748      A             -                 -          104,034            -             -        59,299
023-4147693   07/28/10     2,000      A             -                 -           75,730            -             -        43,166
023-4148824   08/04/10     2,300      A             -                 -           87,209            -             -        49,709
023-4151490   08/20/10     1,625      A             -                 -           61,615            -             -        35,121
023-4152893   07/30/10     2,713      A             -                 -          102,708            -             -        58,544
023-4153036   08/09/10     3,350      A             -                 -          127,022            -             -        72,403
023-4153377   07/26/10     4,375      A             -                 -          165,193            -             -        94,160
023-4155247   08/03/10     8,400      A             -                 -          317,773            -             -       181,131
023-4158510   08/12/10     2,550      A             -                 -           96,688            -             -        55,112
023-4159935   08/13/10     2,850      A             -                 -          108,063            -             -        61,596
023-4164255   08/26/10     2,200      A             -                 -          104,084            -             -        59,328
023-4164471   08/20/10     6,125      A             -                 -          231,823            -             -       132,139
023-4164652   08/17/10     5,200      A             -                 -          246,461            -             -       140,483
023-4166387   08/27/10     3,200      A             -                 -          151,395            -             -        86,295
023-4166828   08/20/10     2,280      A             -                 -          107,869            -             -        61,485



                                                             51
                                                                    Seriously                                      Estimated
              Closing      Gift      Loan        Refinanced        delinquent   Unpaid       Claim     Loss to
Case number                                                                                                       loss to HUD
               date       amount    status 36   case number            31       balance     amount      HUD
                                                                                                                    (57%) 37

023-4166857   08/13/10      2,913      A             -                -           110,625          -          -        63,056
023-4172120   08/31/10      2,400      A             -                -           113,751          -          -        64,838
023-4175343   08/27/10      1,625      A             -             4 months        61,504          -          -        35,057
023-4175582   08/20/10      4,313      A             -                -           163,222          -          -        93,037
023-4177049   08/25/10      3,475      A             -                -           131,762          -          -        75,104
023-4177577   08/27/10      2,700      A             -                -           127,970          -          -        72,943
023-4178429   09/10/10      2,980      A             -                -           141,188          -          -        80,477
023-4182706   08/31/10      2,918      A             -                -           138,052          -          -        78,690
023-4186714   08/30/10      2,960      A             -                -           140,293          -          -        79,967
023-4191063   09/09/10      3,125      A             -                -           118,446          -          -        67,514
023-4191976   09/03/10      3,450      A             -                -           130,929          -          -        74,630
023-4192119   09/03/10      2,250      A             -                -           106,877          -          -        60,920
023-4198820   09/03/10      3,450      A             -                -           130,578          -          -        74,429
023-4201522   09/07/10      4,873      A             -                -           184,679          -          -       105,267
023-3405043   05/01/09      4,187      C             -                -                 -    172,554     90,630             -
023-3610521   8/10/2009     5,000      C             -                -                 -    203,707     57,293             -
023-3738123   11/03/09      3,780      C             -                -                 -     33,738     33,738             -
023-3980729   04/16/10      3,123      C             -                -                 -     26,198     26,198             -
023-4157135   08/27/10      2,660      C             -                -                 -     46,725     46,725             -
022-2119213   10/05/09      2,500      T        022-2261945           -           120,092          -          -        68,452
022-2152052   01/11/10      4,550      T        022-2222465           -           173,262          -          -        98,759
022-2161258   02/05/10      3,598      T        022-2382512           -           137,400          -          -        78,318
022-2182445   06/10/10      4,889      T        022-2287256           -           186,827          -          -       106,491
023-3175274   06/11/09      3,593      T        023-4303973           -           136,120          -          -        77,588
023-3356198   05/20/09      2,913      T        023-4112002           -                 -    119,457     20,093             -
023-3356651   04/01/09      4,250      T        023-3837952           -           160,888          -          -        91,706
023-3441693   12/01/09      2,500      T        023-4808112           -            94,895          -          -        54,090
023-3499816   06/15/09      2,198      T        023-3929009           -           102,968          -          -        58,692
023-3524486   10/08/09      3,518      T        023-5219775           -           168,242          -          -        95,898
023-3536461   07/01/09      2,659      T        023-3982046           -           124,537          -          -        70,986
023-3542438   10/05/09      3,575      T        023-4782021           -           134,281          -          -        76,540
023-3594514   06/29/10      5,500      T        023-4741723           -           208,488          -          -       118,838
023-3595062   08/31/09      2,248      T        023-4179056           -            84,638          -          -        48,244
023-3606579   8/12/2009     7,950      T        023-3986800           -           298,792          -          -       170,311
023-3623078   08/21/09      5,000      T        023-4242352           -           160,862          -          -        91,691
023-3635531   08/28/09      4,980      T        023-4206066           -           235,756          -          -       134,381
023-3643095   08/31/09      3,000      T        023-4182157           -           113,507          -          -        64,699
023-3645260   09/02/09      3,350      T        023-4304349           -           126,100          -          -        71,877
023-3645310   09/04/09      3,700      T        023-4097059           -           176,558          -          -       100,638
023-3648510   09/25/09      4,125      T        023-4118483           -           155,792          -          -        88,801
023-3655954   11/12/09      3,825      T        023-4271683           -           145,400          -          -        82,878
023-3656893   09/15/09      4,050      T        023-4074715           -           154,072          -          -        87,821
023-3657325   01/15/10      2,780      T        023-4303792           -           132,615          -          -        75,591
023-3660490   08/28/09      3,900      T        023-4180054           -           184,219          -          -       105,005
023-3682342   10/09/09      5,125      T        023-4165999           -           194,223          -          -       110,707
023-3683722   10/14/09      2,900      T        023-4294711           -           137,333          -          -        78,280
023-3704664   10/26/09      3,800      T        023-4166863           -           178,985          -          -       102,021
023-3710942   10/13/09      2,860      T        023-4178493           -           136,524          -          -        77,819
023-3726154   01/26/10      3,570      T        023-4301496           -           135,526          -          -        77,250
023-3738520   10/20/09      3,175      T        023-4967758           -           120,807          -          -        68,860
023-3761740   11/06/09      2,575      T        023-5223582           -            98,182          -          -        55,964
023-3770308   11/17/09      2,900      T        023-4289562           -           137,642          -          -        78,456
023-3778609   11/25/09      4,600      T        023-4099349           -           219,544          -          -       125,140
023-3787675   11/17/09      1,380      T        023-5131588           -            87,962          -          -        50,138
023-3801777   11/20/09      2,100      T        023-4665550           -            98,846          -          -        56,342


                                                              52
                                                                            Seriously                                                 Estimated
                 Closing       Gift         Loan         Refinanced        delinquent     Unpaid         Claim         Loss to
Case number                                                                                                                          loss to HUD
                  date        amount       status 36    case number            31         balance       amount          HUD
                                                                                                                                       (57%) 37

023-3804455      11/30/09         2,480       T         023-4223511            -            117,503               -              -        66,977
023-3812553      11/24/09         3,250       T         023-4298578            -            122,974               -              -        70,095
023-3831710      06/01/10         2,780       T         023-4818394            -            131,565               -              -        74,992
023-3855781      12/15/09         4,473       T         023-5176873            -            172,012               -              -        98,047
023-3884237      01/26/10         3,125       T         023-4931391            -            118,880               -              -        67,762
023-3887437      04/13/10         5,807       T         023-5114290            -            220,835               -              -       125,876
023-3903082      02/04/10         2,600       T         023-4935312            -            122,284               -              -        69,702
023-3929464      03/03/10         2,600       T         023-4299760            -            123,351               -              -        70,310
023-3930246      03/03/10         1,758       T         023-4835748            -             83,139               -              -        47,389
023-3943370      03/03/10         3,200       T         023-4298380            -            122,335               -              -        69,731
023-3947156      03/12/10         4,975       T         023-4751069            -            188,691               -              -       107,554
023-3948644      03/12/10         3,281       T         023-4374767            -            157,865               -              -        89,983
023-3951882      03/25/10         6,430       T         023-4738338            -            303,738               -              -       173,131
023-3961027      03/16/10         6,130       T         023-5044098            -            220,558               -              -       125,718
023-3968212      04/05/10         3,525       T         023-4772870            -            133,593               -              -        76,148
023-3977187      04/13/10         2,998       T         023-4990485            -            143,341               -              -        81,704
023-3981181      04/06/10         1,373       T         023-5012819            -             52,882               -              -        30,143
023-3992257      05/13/10         3,538       T         023-4634104            -            168,455               -              -        96,019
023-4006189      04/30/10         3,188       T         023-4792222            -            120,364               -              -        68,607
023-4015933      06/24/10         3,498       T         023-4749910            -            132,473               -              -        75,510
023-4018578      05/28/10         2,521       T         023-5098117            -            120,861               -              -        68,891
023-4018640      06/28/10         3,594       T         023-4622266            -            169,757               -              -        96,761
023-4020798      04/20/10         6,155       T         023-4820165            -            233,276               -              -       132,967
023-4031233      05/04/10         4,748       T         023-5040202            -            183,365               -              -       104,518
023-4053382      06/16/10         6,799       T         023-4895633            -            260,809               -              -       148,661
023-4056054      06/11/10         3,150       T         023-4875747            -            151,130               -              -        86,144
023-4056474      05/28/10         3,125       T         023-4660813            -            124,461               -              -        70,943
023-4061944      06/14/10         2,238       T         023-5098123            -            108,244               -              -        61,699
023-4072579      05/27/10         4,576       T         023-4796355            -            174,311               -              -        99,357
023-4078910      05/25/10         3,375       T         023-4477137            -            127,858               -              -        72,879
023-4087176      06/04/10         5,125       T         023-4652575            -            195,468               -              -       111,417
023-4090928      06/30/10         1,875       T         023-5116749            -             71,739               -              -        40,891
023-4102092      06/25/10         3,248       T         023-4743477            -            123,151               -              -        70,196
023-4105581      06/29/10         2,150       T         023-5137703            -            103,428               -              -        58,954
023-4112191      06/18/10         3,270       T         023-4839943            -            155,202               -              -        88,465
023-4112212      07/13/10         2,125       T         023-4796883            -             80,868               -              -        46,095
023-4115181      06/30/10         4,890       T         023-5051835            -            188,561               -              -       107,480
023-4155542      08/10/10         3,960       T         023-4724607            -            188,976               -              -       107,716
023-4185249      08/31/10         5,675       T         023-4819150            -            210,065               -              -       119,737
023-4190958      09/22/10         2,460       T         023-4879863            -            117,185               -              -        66,795
023-4207481      09/10/10         5,125       T         023-4857845            -            196,478               -              -       111,992

                                Totals                                        14        $ 38,669,742   $ 602,379 39   $ 274,677      $ 22,041,754




        39
             Loss mitigation claims are not included in the total.


                                                                      53
         Appendix E

                 LIST OF LOANS WITH AN UNALLOWABLE GIFT FROM
                          AFFORDABLE HOUSING PARTNERS

                                                                      Seriously                                               Estimated loss
                   Closing      Gift       Loan        Refinanced    delinquent       Unpaid        Claim       Loss to          to HUD
Case number
                    date       amount     status 40   case number        31           balance      amount        HUD                   37
                                                                                                                                 (57%)
022-2218918       09/30/10    $   2,638      A             -             -        $       99,967   $        -   $         -   $       56,981
022-2219624       10/01/10        1,980      A             -             -                93,809            -         -               53,471
022-2285698       08/31/11        2,440      A             -             -               115,661            -         -               65,927
022-2286300       09/02/11        2,800      A             -             -               106,273            -         -               60,576
022-2298980       11/18/11        5,372      A             -             -               204,404            -         -              116,510
022-2305104       12/23/11        2,950      A             -             -               112,460            -         -               64,102
022-2305474       03/05/12        2,425      A             -             -                92,675            -         -               52,825
022-2305599       12/16/11        2,200      A             -             -                83,827            -         -               47,781
022-2306507       02/29/12        2,087      A             -             -                79,776            -         -               45,472
022-2308310       01/06/12        1,625      A             -             -                62,010            -         -               35,346
022-2312945       02/10/12        3,747      A             -             -               143,204            -         -               81,626
022-2317437       03/06/12        3,347      A             -             -               127,929            -         -               72,920
022-2321159       03/22/12        5,500      A             -             -               210,500            -         -              119,985
023-3953116       11/19/10        4,425      A             -             -               167,231            -         -               95,322
023-4014372       09/22/10        3,047      A             -             -               143,683            -         -               81,899
023-4018526       10/12/10        3,064      A             -             -               115,755            -         -               65,980
023-4029479       11/22/10        1,720      A             -             -                81,184            -         -               46,275
023-4090021       11/03/10        2,640      A             -         5 months            125,256            -         -               71,396
023-4109907       10/13/10        6,875      A             -             -               260,949            -         -              148,741
023-4134020       10/28/10        2,313      A             -             -                87,773            -         -               50,031
023-4154690       11/05/10        4,100      A             -             -               194,638            -         -              110,944
023-4189184       10/08/10        1,980      A             -             -                93,942            -         -               53,547
023-4189517       09/17/10        8,850      A             -             -               334,832            -         -              190,854
023-4191238       09/16/10        3,475      A             -             -               131,712            -         -               75,076
023-4193786       09/24/10        2,618      A             -             -                95,597            -         -               54,490
023-4195427       09/28/10        1,960      A             -             -                92,861            -         -               52,931
023-4199096       09/15/10        4,000      A             -             -               189,170            -         -              107,827
023-4200381       10/28/10        2,000      A             -         7 months             75,913            -         -               43,270
023-4214004       09/22/10        2,250      A             -             -                85,430            -         -               48,695
023-4214765       09/21/10        3,798      A             -             -               179,781            -         -              102,475
023-4218925       09/23/10        6,250      A             -             -               236,892            -         -              135,028
023-4221562       09/22/10        3,750      A             -             -               142,007            -         -               80,944
023-4226792       10/08/10        3,322      A             -             -               157,068            -         -               89,529
023-4227066       09/28/10        5,628      A             -             -               213,702            -         -              121,810
023-4230404       10/14/10        2,250      A             -             -                85,402            -         -               48,679
023-4231813       09/30/10        3,250      A             -             -               123,183            -         -               70,214


         40
              A = active; T = terminated; C = claim


                                                                    54
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4231915   09/10/10     2,125      A             -             -            80,684            -         -           45,990
023-4232457   09/21/10     1,320      A             -             -            62,539            -         -           35,647
023-4237381   10/06/10     2,500      A             -             -            94,756            -         -           54,011
023-4238329   09/28/10     5,500      A             -             -           208,464            -         -          118,824
023-4240339   12/28/10     3,212      A             -             -           122,110            -         -           69,603
023-4241203   09/27/10     4,475      A             -             -           169,614            -         -           96,680
023-4241827   09/29/10     3,873      A             -             -           141,188            -         -           80,477
023-4242300   10/08/10     4,050      A             -             -           153,723            -         -           87,622
023-4248486   10/27/10     2,580      A             -             -           118,814            -         -           67,724
023-4250473   10/07/10     2,000      A             -             -            86,291            -         -           49,186
023-4250966   10/25/10     2,998      A             -             -           113,675            -         -           64,795
023-4251302   10/28/10     3,054      A             -             -           115,946            -         -           66,089
023-4256549   10/13/10     2,375      A             -             -            90,146            -         -           51,383
023-4257567   10/22/10     2,770      A             -             -           131,424            -         -           74,912
023-4264971   12/21/10     4,500      A             -             -           171,146            -         -           97,553
023-4267269   11/02/10     7,424      A             -             -           281,530            -         -          160,472
023-4268048   10/25/10     2,375      A             -             -            90,298            -         -           51,470
023-4269282   03/22/11     1,697      A             -             -            81,238            -         -           46,306
023-4270274   10/28/10     2,348      A             -             -            90,068            -         -           51,339
023-4270715   12/07/10     6,345      A             -             -           241,319            -         -          137,552
023-4272302   10/27/10     1,970      A             -             -            93,385            -         -           53,229
023-4274898   04/08/11     2,902      A             -             -           139,070            -         -           79,270
023-4276928   10/22/10     3,850      A             -             -           145,612            -         -           82,999
023-4284543   11/18/10     4,274      A             -             -           202,756            -         -          115,571
023-4287523   10/21/10     2,800      A             -             -           132,732            -         -           75,657
023-4289110   11/12/10     3,247      A             -             -           123,228            -         -           70,240
023-4294416   10/29/10     3,749      A             -             -           142,203            -         -           81,056
023-4295860   11/04/10     1,600      A             -             -            75,956            -         -           43,295
023-4296481   11/01/10     3,568      A             -             -           168,989            -         -           96,324
023-4296610   10/26/10     4,200      A             -         10 months       159,278            -         -           90,788
023-4296649   11/02/10     2,918      A             -         4 months        138,203            -         -           78,776
023-4296656   11/23/10     2,925      A             -             -           111,179            -         -           63,372
023-4298765   11/29/10     4,050      A             -             -           153,680            -         -           87,598
023-4305583   10/28/10     3,100      A             -             -           146,558            -         -           83,538
023-4310793   11/02/10     4,464      A             -             -           169,318            -         -           96,511
023-4311391   11/18/10     2,575      A             -             -            97,793            -         -           55,742
023-4313804   04/11/11     3,100      A             -             -           119,236            -         -           67,965
023-4317893   11/08/10     3,358      A             -             -           157,329            -         -           89,678
023-4324104   11/03/10     2,550      A             -             -            98,575            -         -           56,188
023-4324547   11/12/10     3,687      A             -             -           138,213            -         -           78,781
023-4325457   11/17/10     1,998      A             -             -            93,690            -         -           53,403
023-4330355   11/17/10     1,458      A             -             -            68,368            -         -           38,970
023-4331213   11/18/10     2,238      A             -             -           104,854            -         -           59,767
023-4331350   11/12/10     4,738      A             -             -           177,569            -         -          101,214
023-4332940   11/19/10     5,820      A             -             -           267,972            -         -          152,744




                                                             55
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4333742   11/19/10     4,748      A             -             -           177,944            -         -          101,428
023-4334600   11/30/10     2,122      A             -             -            79,554            -         -           45,346
023-4334840   11/22/10     2,660      A             -             -           124,409            -         -           70,913
023-4335641   11/17/10     3,050      A             -             -           114,319            -         -           65,162
023-4339007   12/07/10     3,225      A             -             -           121,154            -         -           69,058
023-4340352   12/06/10     2,120      A             -             -            99,471            -         -           56,698
023-4340542   11/24/10     1,675      A             -             -            62,782            -         -           35,786
023-4341098   11/30/10     3,725      A             -             -           139,619            -         -           79,583
023-4341160   12/07/10     2,300      A             -             -            86,333            -         -           49,210
023-4342143   11/30/10     2,380      A             -             -           111,508            -         -           63,560
023-4342330   11/23/10     2,080      A             -         4 months         97,535            -         -           55,595
023-4343920   11/24/10     2,247      A             -             -            84,239            -         -           48,016
023-4347820   11/18/10     2,475      A             -             -            92,846            -         -           52,922
023-4349027   12/22/10     1,598      A             -             -            71,548            -         -           40,782
023-4349220   12/03/10     2,422      A             -             -            91,007            -         -           51,874
023-4351180   12/17/10     2,212      A             -             -            83,185            -         -           47,415
023-4351197   12/02/10     4,250      A             -             -           159,530            -         -           90,932
023-4351700   12/20/10     2,140      A             -             -           100,492            -         -           57,280
023-4353832   12/22/10     1,180      A             -             -            55,362            -         -           31,556
023-4354401   12/16/10     1,930      A             -             -            90,704            -         -           51,701
023-4357125   12/09/10     2,200      A             -             -            84,526            -         -           48,180
023-4357393   12/07/10     4,125      A             -             -           154,838            -         -           88,258
023-4357618   12/28/10     2,475      A             -             -            93,272            -         -           53,165
023-4361845   01/27/11     2,200      A             -             -            82,956            -         -           47,285
023-4361851   01/11/11     4,225      A             -             -           159,313            -         -           90,808
023-4362755   12/15/10     3,820      A             -             -           179,385            -         -          102,249
023-4365360   12/14/10     3,373      A             -             -           126,638            -         -           72,184
023-4367276   12/17/10     2,680      A             -             -           125,851            -         -           71,735
023-4370745   01/05/11     3,147      A             -             -           147,682            -         -           84,179
023-4372247   12/20/10     2,250      A             -             -            84,728            -         -           48,295
023-4374441   01/05/11     3,975      A             -             -           149,687            -         -           85,322
023-4374595   12/29/10     3,375      A             -             -           127,189            -         -           72,498
023-4374616   12/23/10     1,450      A             -             -            68,336            -         -           38,952
023-4375640   12/21/10     2,500      A             -             -            93,919            -         -           53,534
023-4379796   01/26/11     2,500      A             -             -            94,126            -         -           53,652
023-4380900   01/10/11     3,422      A             -             -           129,053            -         -           73,560
023-4382300   12/30/10     3,750      A             -             -           141,213            -         -           80,491
023-4382556   01/07/11     2,498      A             -             -            94,103            -         -           53,639
023-4384245   12/30/10     2,875      A             -             -           108,346            -         -           61,757
023-4387497   01/19/11     2,200      A             -             -           103,771            -         -           59,149
023-4388962   02/11/11     1,340      A             -             -            63,332            -         -           36,099
023-4389344   01/19/11     1,425      A             -             -            53,733            -         -           30,628
023-4390450   01/20/11     3,475      A             -             -           131,033            -         -           74,689
023-4392480   01/25/11     1,725      A             -             -            65,044            -         -           37,075
023-4392807   01/21/11     2,275      A             -         3 months         85,784            -         -           48,897




                                                             56
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4394105   01/20/11     2,300      A             -             -           108,488            -         -           61,838
023-4395304   01/31/11     2,183      A             -             -           102,932            -         -           58,671
023-4396886   01/28/11     3,625      A             -             -           136,689            -         -           77,913
023-4399959   01/28/11     2,172      A             -             -            81,918            -         -           46,693
023-4403373   02/09/11     1,800      A             -             -            84,954            -         -           48,424
023-4406958   03/04/11     2,120      A             -             -           100,056            -         -           57,032
023-4407034   02/03/11     2,700      A             -             -           127,431            -         -           72,636
023-4410634   02/11/11     2,075      A             -             -            78,346            -         -           44,657
023-4412317   03/14/11     1,800      A             -             -            68,053            -         -           38,790
023-4413755   03/10/11     2,320      A             -             -            99,244            -         -           56,569
023-4419423   03/15/11     2,800      A             -             -           132,326            -         -           75,426
023-4419691   03/29/11     1,935      A             -             -            73,156            -         -           41,699
023-4420190   03/22/11     2,375      A             -             -            89,792            -         -           51,181
023-4427494   03/08/11     7,125      A             -             -           269,561            -         -          153,650
023-4430254   05/16/11     2,340      A             -             -            88,701            -         -           50,560
023-4431503   02/22/11     2,300      A             -             -            86,963            -         -           49,569
023-4434965   03/11/11     1,862      A             -             -            70,463            -         -           40,164
023-4436864   03/08/11     2,497      A             -             -            94,423            -         -           53,821
023-4439168   03/10/11     2,135      A             -             -            80,828            -         -           46,072
023-4441937   03/22/11     2,625      A             -             -            99,312            -         -           56,608
023-4443156   05/04/11     2,027      A             -             -            76,752            -         -           43,749
023-4445128   03/28/11     1,155      A             -             -            72,779            -         -           41,484
023-4446554   03/30/11     2,000      A             -             -            75,615            -         -           43,101
023-4448617   05/31/11     3,140      A             -             -           118,948            -         -           67,800
023-4452187   03/22/11     2,000      A             -             -            75,615            -         -           43,101
023-4453022   03/24/11     2,738      A             -             -           103,496            -         -           58,993
023-4454339   03/29/11     1,600      A             -             -            75,615            -         -           43,101
023-4455601   04/08/11     2,300      A             -             -            87,070            -         -           49,630
023-4461784   03/31/11     2,450      A             -             -            92,627            -         -           52,797
023-4464270   04/14/11     3,150      A             -             -           119,249            -         -           67,972
023-4465043   04/15/11     2,860      A             -         3 months        135,338            -         -           77,143
023-4467429   04/15/11     2,310      A             -             -            87,543            -         -           49,900
023-4468418   04/11/11     2,160      A             -             -           102,214            -         -           58,262
023-4469363   05/04/11     3,858      A             -             -           182,320            -         -          103,922
023-4472152   04/15/11     2,425      A             -             -            91,803            -         -           52,328
023-4474363   11/10/11     2,996      A             -             -           114,141            -         -           65,060
023-4474681   04/28/11     2,500      A             -             -            94,642            -         -           53,946
023-4481495   04/20/11     1,200      A             -             -            56,786            -         -           32,368
023-4484144   04/28/11     1,710      A             -             -            64,717            -         -           36,889
                                                                                             38
023-4485740   04/22/11     4,262      A             -             -           161,037     875              -           91,791
023-4486638   06/17/11     2,043      A             -             -            77,230            -         -           44,021
023-4486781   06/14/11     2,497      A             -             -            94,677            -         -           53,966
023-4490031   05/16/11     3,600      A             -             -           170,579            -         -           97,230
023-4490229   05/09/11     1,580      A             -             -            74,865            -         -           42,673
023-4490915   05/06/11     2,260      A             -             -           107,085            -         -           61,038




                                                             57
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4492084   04/27/11     2,375      A             -             -            89,020            -         -           50,741
023-4492843   04/29/11     2,625      A             -             -            99,374            -         -           56,643
023-4494815   04/27/11     3,334      A             -             -           157,768            -         -           89,928
023-4496005   05/20/11     2,000      A             -             -            75,813            -         -           43,213
023-4499546   05/05/11     3,550      A             -             -           134,568            -         -           76,704
023-4501084   05/12/11     1,600      A             -             -            60,650            -         -           34,571
023-4501633   04/28/11     1,380      A             -             -            65,302            -         -           37,222
023-4507800   05/24/11     2,638      A             -             -           124,839            -         -           71,158
023-4508660   10/05/11     4,762      A             -             -           180,936            -         -          103,134
023-4508858   05/10/11     1,822      A             -             -            69,083            -         -           39,377
023-4516122   05/10/11     1,350      A             -             -            63,965            -         -           36,460
023-4518406   05/17/11     3,748      A             -             -           142,053            -         -           80,970
023-4522163   07/29/11     2,999      A             -             -           113,801            -         -           64,867
023-4523537   06/13/11     3,200      A             -             -           121,458            -         -           69,231
023-4527886   06/24/11     1,900      A             -             -            75,854            -         -           43,237
023-4530471   06/01/11     2,575      A             -             -            97,483            -         -           55,565
023-4532790   06/01/11     2,625      A             -             -            99,441            -         -           56,681
023-4533330   06/22/11     1,625      A             -             -            61,779            -         -           35,214
023-4534190   10/05/11     3,302      A             -             -           125,601            -         -           71,593
023-4537139   07/11/11     3,240      A             -             -           153,739            -         -           87,631
023-4538288   06/06/11     2,800      A             -             -           106,078            -         -           60,464
023-4539412   06/17/11     2,498      A             -             -            94,618            -         -           53,932
023-4539957   06/20/11     1,980      A             -             -            93,705            -         -           53,412
023-4540196   06/24/11     3,447      A             -         4 months        130,690            -         -           74,493
023-4544137   06/17/11     4,398      A             -             -           208,140            -         -          118,640
023-4545476   06/10/11     4,905      A             -             -           232,134            -         -          132,316
023-4547352   06/22/11     3,300      A             -             -           125,020            -         -           71,261
023-4548922   06/20/11     2,070      A             -             -            78,372            -         -           44,672
023-4553699   07/05/11     2,140      A             -             -           101,277            -         -           57,728
023-4554166   07/01/11     2,125      A             -             -            80,454            -         -           45,859
023-4555190   06/27/11     5,122      A             -             -           193,941            -         -          110,546
023-4556620   06/30/11     4,475      A             -             -           169,427            -         -           96,573
023-4558638   06/29/11     2,750      A             -             -           104,117            -         -           59,347
023-4559026   07/27/11     2,600      A             -             -            98,576            -         -           56,188
023-4560286   07/06/11     2,750      A             -             -           104,184            -         -           59,385
023-4560371   06/30/11     3,300      A             -             -           125,020            -         -           71,261
023-4560625   07/06/11     5,323      A             -             -           201,643            -         -          114,937
023-4560654   07/12/11     6,247      A             -             -           236,867            -         -          135,014
023-4564951   07/29/11     2,475      A             -             -            93,895            -         -           53,520
023-4568281   06/30/11     3,160      A             -             -           149,646            -         -           85,298
023-4569312   07/20/11     1,720      A             -             -            81,614            -         -           46,520
023-4570911   08/02/11     3,180      A             -             -           150,708            -         -           85,904
023-4571158   07/25/11     2,080      A             -             -            99,555            -         -           56,746
023-4572311   07/26/11     2,980      A             -             -           141,401            -         -           80,599
023-4574551   07/19/11     1,658      A             -             -            78,669            -         -           44,841




                                                             58
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4575087   08/04/11     2,600      A             -             -            98,576            -         -           56,188
023-4577990   07/22/11     2,100      A             -             -            99,524            -         -           56,729
023-4581240   08/29/11     2,900      A             -             -           110,105            -         -           62,760
023-4592079   08/05/11     2,200      A             -             -           104,409            -         -           59,513
023-4592339   07/28/11     3,875      A             -             -           146,917            -         -           83,743
023-4592969   08/03/11     2,400      A             -             -           113,880            -         -           64,912
023-4594483   08/10/11     4,125      A             -             -           156,614            -         -           89,270
023-4595732   07/29/11     4,338      A             -             -           164,452            -         -           93,738
023-4597690   08/05/11     2,000      A             -             -            75,828            -         -           43,222
023-4600487   08/12/11     2,912      A             -             -           110,579            -         -           63,030
023-4613772   04/03/12     3,802      A             -             -           145,518            -         -           82,945
023-4614072   08/25/11     2,750      A             -             -           104,414            -         -           59,516
023-4614609   08/31/11     2,920      A             -             -           138,497            -         -           78,943
023-4615061   08/31/11     2,375      A             -             -            90,171            -         -           51,397
023-4618101   08/26/11     3,486      A             -             -           132,373            -         -           75,453
023-4619579   09/16/11     5,425      A             -         3 months        205,905            -         -          117,366
023-4620939   08/31/11     6,000      A             -             -           227,668            -         -          129,771
023-4622532   11/18/11     2,125      A             -             -            80,934            -         -           46,132
023-4626852   11/02/11     3,875      A             -             -           147,373            -         -           84,003
023-4629110   09/19/11     4,375      A             -             -           166,148            -         -           94,704
023-4629468   11/04/11     2,472      A             -             -            94,168            -         -           53,676
023-4631093   09/29/11     3,500      A             -             -           132,842            -         -           75,720
023-4631114   09/16/11     2,138      A             -             -            81,222            -         -           46,297
023-4631222   09/27/11     3,372      A             -             -           127,925            -         -           72,917
023-4637905   10/06/11     2,875      A             -             -           109,219            -         -           62,255
023-4638424   11/08/11     2,050      A             -             -            77,995            -         -           44,457
023-4638453   09/29/11     2,875      A             -             -           109,183            -         -           62,234
023-4639101   09/29/11     3,725      A             -             -           139,982            -         -           79,790
023-4639494   09/30/11     3,347      A             -             -           127,123            -         -           72,460
023-4640644   10/28/11     3,500      A             -             -           133,111            -         -           75,873
023-4644118   09/26/11     4,200      A             -             -           159,503            -         -           90,917
023-4646285   09/21/11     2,400      A             -             -           113,931            -         -           64,941
023-4647484   11/28/11     3,550      A             -             -           135,065            -         -           76,987
023-4647528   09/29/11     2,837      A             -             -           107,821            -         -           61,458
023-4647902   09/29/11     3,725      A             -             -           141,297            -         -           80,539
023-4648211   09/29/11     2,750      A             -             -           104,250            -         -           59,423
023-4651703   09/29/11     3,497      A             -             -           132,668            -         -           75,621
023-4656492   10/07/11     3,750      A             -             -           142,460            -         -           81,202
023-4657793   10/28/11     2,590      A             -             -           123,134            -         -           70,186
023-4657951   10/13/11     3,175      A             -             -           120,684            -         -           68,790
023-4661457   10/05/11     3,750      A             -             -           142,479            -         -           81,213
023-4663832   10/17/11     2,450      A             -             -            93,074            -         -           53,052
023-4666250   01/31/12     4,120      A             -             -           157,243            -         -           89,629
023-4666845   10/24/11     3,062      A             -             -           116,408            -         -           66,353
023-4670847   10/21/11     2,750      A             -             -           104,529            -         -           59,582




                                                             59
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4671874   11/02/11     2,675      A             -             -           101,679            -         -           57,957
023-4677463   12/21/11     3,125      A             -             -           119,073            -         -           67,872
023-4681031   11/10/11     1,500      A             -             -            71,337            -         -           40,662
023-4684304   02/24/12     4,761      A             -             -           181,976            -         -          103,726
023-4685555   11/04/11     2,700      A             -             -           102,833            -         -           58,615
023-4689189   11/17/11     2,250      A             -             -            85,694            -         -           48,846
023-4697308   11/08/11     2,706      A             -             -           102,963            -         -           58,689
023-4702098   11/21/11     2,297      A             -             -            87,411            -         -           49,824
023-4702183   12/02/11     2,750      A             -             -           104,628            -         -           59,638
023-4706626   11/29/11     4,620      A             -             -           219,719            -         -          125,240
023-4709067   12/14/11     2,750      A             -             -           104,836            -         -           59,757
023-4714231   12/15/11     3,775      A             -             -           143,912            -         -           82,030
023-4721748   02/29/12     3,274      A             -             -           125,141            -         -           71,330
023-4725625   01/19/12     4,372      A             -             -           166,853            -         -           95,106
023-4726614   12/29/11     4,058      A             -             -           154,647            -         -           88,149
023-4728696   02/03/12     4,525      A             -             -           173,004            -         -           98,612
023-4730076   12/22/11     2,740      A             -             -           130,504            -         -           74,387
023-4730654   02/03/12     2,612      A             -             -            99,692            -         -           56,824
023-4730733   12/30/11     3,050      A             -             -           116,215            -         -           66,243
023-4732110   12/30/11     1,625      A             -             -            61,918            -         -           35,293
023-4734017   01/09/12     2,689      A             -             -           128,300            -         -           73,131
023-4735009   12/30/11     2,925      A             -             -           110,007            -         -           62,704
023-4736671   01/19/12     2,247      A             -             -            85,804            -         -           48,908
023-4742929   01/30/12     5,083      A             -             -           193,977            -         -          110,567
023-4747167   01/18/12     3,875      A             -             -           147,869            -         -           84,285
023-4749405   01/23/12     2,200      A             -             -            83,952            -         -           47,853
023-4749848   01/20/12     2,300      A             -             -            87,767            -         -           50,027
023-4751149   01/27/12     4,323      A             -             -           164,969            -         -           94,032
023-4751631   01/24/12     2,140      A             -             -           102,078            -         -           58,184
023-4754723   02/01/12     3,300      A             -             -           125,927            -         -           71,778
023-4755294   01/25/12     4,420      A             -             -           168,677            -         -           96,146
023-4759460   01/27/12     5,003      A             -         13 months       190,940            -         -          108,836
023-4763328   02/01/12     2,487      A             -             -            94,922            -         -           54,106
023-4763833   02/24/12     5,137      A             -             -           196,336            -         -          111,912
023-4764966   02/02/12     2,600      A             -             -            99,216            -         -           56,553
023-4769842   02/03/12     3,250      A             -             -           124,020            -         -           70,691
023-4772394   02/24/12     5,000      A             -             -           191,082            -         -          108,917
023-4772552   03/20/12     4,409      A             -             -           168,754            -         -           96,190
023-4773377   03/08/12     3,300      A             -             -           126,299            -         -           71,990
023-4773830   02/10/12     3,500      A             -             -           133,758            -         -           76,242
023-4777044   02/29/12     4,050      A             -             -           154,799            -         -           88,235
023-4777905   02/22/12     3,617      A             -             -           138,234            -         -           78,793
023-4777963   02/23/12     5,175      A             -             -           197,770            -         -          112,729
023-4778634   03/06/12     3,537      A             -             -           135,389            -         -           77,172
023-4778736   02/27/12     4,025      A             -             -           153,821            -         -           87,678




                                                             60
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
023-4779386   03/05/12    $4,958      A             -             -          $189,756            -         -          108,161
023-4781224   02/29/12     2,875      A             -             -           109,872            -         -           62,627
023-4782622   03/08/12     2,440      A             -             -           116,731            -         -           66,537
023-4789065   03/07/12     2,825      A             -             -           108,120            -         -           61,628
023-4790238   03/30/12     2,725      A             -             -           104,292            -         -           59,446
023-4792189   03/01/12     2,625      A             -             -            91,584            -         -           52,203
023-4792297   04/05/12     3,714      A             -             -           142,383            -         -           81,158
023-4792330   03/23/12     2,815      A             -             -           107,746            -         -           61,415
023-4792540   03/30/12     3,500      A             -             -           133,816            -         -           76,275
023-4794036   03/02/12     5,475      A             -             -           209,235            -         -          119,264
023-4799692   03/15/12     3,217      A             -             -           123,136            -         -           70,188
023-4800242   03/23/12     3,400      A             -             -           130,127            -         -           74,172
023-4803065   03/26/12     3,450      A             -             -           132,040            -         -           75,263
023-4804480   03/28/12     2,625      A             -             -           100,424            -         -           57,242
023-4805948   04/02/12     4,200      A             -             -           160,745            -         -           91,625
023-4806242   04/03/12     3,497      A             -             -           133,858            -         -           76,299
023-4806265   03/19/12     2,875      A             -             -           110,033            -         -           62,719
023-4809166   03/22/12     3,450      A             -             -           132,040            -         -           75,263
023-4810507   03/21/12     5,375      A             -             -           205,631            -         -          117,210
023-4810894   03/27/12     3,225      A             -             -           123,429            -         -           70,355
023-4811373   03/23/12     3,700      A             -             -           141,609            -         -           80,717
023-4811814   03/16/12     4,412      A             -             -           168,878            -         -           96,260
023-4821682   03/28/12     2,900      A             -             -           110,991            -         -           63,265
023-4823581   04/02/12     4,675      A             -             -           178,997            -         -          102,028
023-4824231   03/29/12     5,250      A             -             -           200,931            -         -          114,531
023-4825711   03/26/12     3,225      A             -             -           123,429            -         -           70,355
023-4829584   04/05/12     5,853      A             -             -           224,281            -         -          127,840
023-4830422   04/04/12     2,125      A             -             -            81,329            -         -           46,358
023-4848163   03/30/12     4,375      A             -             -           167,442            -         -           95,442
023-4875595   05/18/12     3,550      A             -             -           136,170            -         -           77,617
042-9347345   02/23/12     4,000      A             -             -           152,866            -         -           87,134
043-8781461   03/30/12     4,125      A             -             -           157,875            -         -           89,989
044-4851940   12/30/10     3,800      A             -             -           178,870            -         -          101,956
044-4886990   05/04/11     3,875      A             -             -           146,695            -         -           83,616
044-4958593   11/14/11     6,597      A             -             -           251,011            -         -          143,076
045-7332342   11/18/10     3,300      A             -             -           156,526            -         -           89,220
045-7391217   01/07/11     4,075      A             -             -           153,657            -         -           87,584
048-6307011   10/25/10    17,250      A             -             -           644,444            -         -          367,333
048-6317649   11/30/10     2,500      A             -             -           117,393            -         -           66,914
048-6830554   01/31/12     3,650      A             -             -           139,283            -         -           79,391
048-6887145   03/27/12     9,875      A             -             -           377,942            -         -          215,427
052-6313419   04/28/11     1,900      A             -             -            72,820            -         -           41,507
052-6358286   05/27/11     4,725      A             -             -           179,107            -         -          102,091
052-6411267   07/22/11     2,597      A             -             -            98,481            -         -           56,134
052-6439315   08/25/11     2,938      A             -             -           111,394            -         -           63,495




                                                             61
                                                               Seriously                                       Estimated loss
              Closing     Gift      Loan        Refinanced    delinquent   Unpaid        Claim       Loss to      to HUD
Case number
               date      amount    status 40   case number        31       balance      amount        HUD               37
                                                                                                                  (57%)
052-6472946   02/24/12     1,998      A             -             -            76,337            -         -           43,512
052-6501021   11/30/11     4,200      A             -             -           159,795            -         -           91,083
052-6540372   12/05/11     2,750      A             -             -           104,836            -         -           59,757
052-6541684   12/15/11     4,265      A             -             -           176,228            -         -          100,450
052-6566386   12/29/11     2,500      A             -             -            95,306            -         -           54,324
061-4027289   03/30/11     9,047      A             -             -           342,061            -         -          194,975
061-4163468   12/23/11     3,300      A             -             -           157,255            -         -           89,635
061-4208916   03/16/12     3,660      A             -             -           174,952            -         -           99,723
197-5202052   11/16/10     5,380      A             -             -           251,624            -         -          143,426
197-5416928   06/03/11     7,262      A             -             -           274,941            -         -          156,716
197-5421385   07/21/11     8,725      A             -             -           330,800            -         -          188,556
197-5510614   12/23/11     6,325      A             -         4 months        241,004            -         -          137,372
197-5751787   02/28/12     3,000      A             -             -           114,649            -         -           65,350
361-3758729   10/12/11     4,187      A             -             -           159,080            -         -           90,676
492-8980692   12/16/10     2,950      A             -             -           110,732            -         -           63,117
492-9010884   01/26/11     5,250      A             -             -           197,963            -         -          112,839
492-9025741   02/25/11     2,997      A             -             -           113,177            -         -           64,511
492-9048112   05/24/11     2,000      A             -             -            75,813            -         -           43,213
023-4439700   05/06/11     2,700      C             -             -                 -     9,735        9,735                -
022-2215464   10/01/10     4,790      T        022-2302721        -           183,007            -         -          104,314
022-2242106   01/07/11     5,522      T        022-2399669        -           212,109            -         -          120,902
022-2260927   04/21/11     4,247      T        022-2381680        -           162,787            -         -           92,789
022-2271370   05/31/11     3,750      T        022-2330745        -           143,189            -         -           81,618
023-3929697   02/03/11     3,812      T        023-5163545        -           147,285            -         -           83,952
023-3977981   09/30/10     3,500      T        023-4793552        -           132,856            -         -           75,728
023-4004244   12/28/10     3,575      T        023-4800000        -           136,063            -         -           77,556
023-4244626   10/05/10     3,580      T        023-5301781        -           171,663            -         -           97,848
023-4254633   10/18/10     3,100      T        023-5086551        -           149,530            -         -           85,232
023-4278777   01/12/11     5,048      T        023-4759670        -           193,086            -         -          110,059
023-4286478   11/12/10     1,700      T        023-5093024        -            82,311            -         -           46,917
023-4287937   10/28/10     3,618      T        023-4798038        -           136,840            -         -           77,999
023-4317024   03/02/11     8,957      T        023-5143875        -           335,198            -         -          191,063
023-4349345   11/29/10     8,750      T        023-4796349        -           330,813            -         -          188,563
023-4349397   12/02/10     3,575      T        023-4766902        -           132,822            -         -           75,709
023-4369639   12/20/10     2,940      T        023-4744046    7 months        137,355            -         -           78,292
023-4375193   01/07/11     1,987      T        023-4870575        -            75,916            -         -           43,272
023-4378210   02/16/11     4,625      T        023-4993591        -           178,417            -         -          101,698
023-4399863   01/31/11     4,000      T        023-5179069        -           152,921            -         -           87,165
023-4409750   02/10/11     3,250      T        023-5006661        -           121,242            -         -           69,108
023-4410873   02/14/11     3,750      T        023-4730914        -           142,645            -         -           81,308
023-4415082   04/01/11     3,075      T        023-5293554        -           118,533            -         -           67,564
023-4424554   03/04/11     4,250      T        023-4766919        -           161,321            -         -           91,953
023-4432827   03/07/11     3,200      T        023-4742363        -           152,105            -         -           86,700
023-4441047   03/11/11     3,040      T        023-5319362        -           145,291            -         -           82,816
023-4442138   05/10/11     2,650      T        023-4774859        -           101,541            -         -           57,878




                                                             62
                                                                Seriously                                         Estimated loss
              Closing     Gift       Loan        Refinanced    delinquent     Unpaid        Claim       Loss to      to HUD
Case number
               date      amount     status 40   case number        31         balance      amount        HUD               37
                                                                                                                     (57%)
023-4444014   03/31/11      1,540      T        023-5011308        -              75,017            -         -           42,760
023-4446651   04/01/11      5,731      T        023-4745093        -             274,453            -         -          156,438
023-4453521   03/24/11      2,925      T        023-4799056        -             112,161            -         -           63,932
023-4453987   06/03/11      5,900      T        023-4830212        -             280,703            -         -          160,001
023-4454194   03/29/11      3,642      T        023-4703528        -             138,544            -         -           78,970
023-4461592   03/30/11      3,025      T        023-4715079        -             115,000            -         -           65,550
023-4466851   04/18/11      3,075      T        023-4794404        -             117,377            -         -           66,905
023-4468794   05/23/11      3,001      T        023-5066330        -             116,516            -         -           66,414
023-4469328   04/08/11      2,750      T        023-4775253        -             105,389            -         -           60,072
023-4470559   04/26/11      3,000      T        023-4804661        -             115,177            -         -           65,651
023-4473880   04/28/11      2,650      T        023-5022431        -             101,454            -         -           57,829
023-4474760   04/25/11      3,612      T        023-4766925        -             137,917            -         -           78,613
023-4480028   04/25/11      5,430      T        023-4863676        -             208,608            -         -          118,907
023-4497834   05/18/11      3,000      T        023-5047558        -             115,013            -         -           65,557
023-4528041   06/03/11      4,425      T        023-4979746        -             170,468            -         -           97,167
023-4540269   06/13/11      3,375      T        023-5052196        -             130,632            -         -           74,460
023-4563513   06/30/11      5,050      T        023-4784176        -             193,223            -         -          110,137
023-4586073   07/28/11      2,912      T        023-5242575        -             112,141            -         -           63,920
023-4610788   08/24/11      4,785      T        023-4872366        -             183,062            -         -          104,345
023-4610881   08/25/11      6,000      T        023-5248634        -             231,625            -         -          132,026
023-4663310   10/04/11      4,012      T        023-4928494        -             155,611            -         -           88,698
023-4677059   10/31/11      5,625      T        023-5151104        -             217,388            -         -          123,911
023-4682089   11/01/11      4,825      T        023-5066137        -             185,932            -         -          105,981
023-4701556   11/22/11      4,500      T        023-5129674        -             175,103            -         -           99,809
023-4713902   12/15/11      5,147      T        023-5117528        -             199,445            -         -          113,684
023-4735131   02/09/12      4,325      T        023-5173355        -             167,459            -         -           95,452
023-4752955   01/26/12      5,690      T        023-5132916        -             222,048            -         -          126,567
042-9130716   02/11/11      5,800      T        042-9377659        -             279,839            -         -          159,508
043-8575589   06/20/11      5,250      T        043-8837916        -             202,129            -         -          115,214
044-4851020   12/28/10      9,125      T        044-5029346        -             347,968            -         -          198,342
045-7381894   03/15/11      3,250      T        045-7810000        -             125,273            -         -           71,406
048-6369827   01/07/11      4,800      T        048-6792479        -             183,372            -         -          104,522
048-6575768   06/30/11      6,500      T        048-7436009        -             251,945            -         -          143,609
048-6787869   12/21/11      4,100      T        048-7372273        -             198,303            -         -          113,033
052-6455347   08/26/11      4,748      T        052-7191570        -             183,657            -         -          104,684
052-6547805   11/29/11      7,775      T        052-7099681        -             302,082            -         -          172,187
052-6582632   01/24/12      3,675      T        052-7067705        -             142,872            -         -           81,437
566-0243387   01/31/11      5,125      T        566-0490366        -             194,366            -         -          110,789

                         Totals                                    12       $58,593,224    $9,73539     $ 9,735   $ 33,398,142




                                                              63
Appendix F

         SCHEDULE OF LOSSES FOR LOANS WITH MATERIAL
                UNDERWRITING DEFICIENCIES


         FHA loan            Unpaid mortgage                  Actual loss to   Estimated loss
                                               Claim paid
          number                 balance                         HUD          to HUD (57%)
       022-2192845                N/A 41       $          –   $             – $              –
       023-2971333                         –         74,033           74,033                 –
       023-3046385                         –        136,594         136,594                  –
       023-3167827                         –         38,930           38,930                 –
       023-3295473                         –        121,047         121,047                  –
       023-3502416                         –        129,454           51,026
                                      41
       023-3661762                N/A                     –                 –                –
       023-4002794                N/A 42                  –                 –                –
       023-4485740                N/A41                   –                 –                –
          Totals             $             –   $    500,058   $     421,630 $               –




41
     Included under finding 1.
42
     Loan was terminated (paid in full).


                                                   64
Appendix G

     LOAN SUMMARIES FOR MATERIAL UNDERWRITING
                   DEFICIENCIES

The following summaries provide details for each loan containing material underwriting
deficiencies noted in finding 2.

1. FHA loan number:           022-2192845
   Loan status:               Active
   Default status:            Reinstated after loss mitigation intervention

   This loan contains material underwriting deficiencies (violation of antiflipping waiver) that
   warrant indemnification; however, we are seeking indemnification based on the unallowable
   gift (see finding 1).

   Appraisal
   The Lending Company did not ensure that FHA’s antiflipping waiver was followed. The
   property was acquired on April 27, 2010, for $59,744, and the borrower’s contract for the
   property was signed on May 5, 2010, for $81,500, a 36 percent increase, only 1 week later.
   The loan closed on July 2, 2010 (66 days after the previous sale). Regulations at 24 CFR
   203.37a(b)(2) state that a property is not eligible for a mortgage to be insured by FHA if the
   resale date is 90 days or less following the date of acquisition by the seller. However, if the
   sales price was 20 percent or more above the seller’s acquisition cost, the regulation was
   waived if the lender justified the increase in value or a second appraisal verified that the
   seller completed sufficient rehabilitation work to substantiate the increase in value or the
   appraiser provided an appropriate explanation of the increase in value. The Lending
   Company ordered a second appraisal; however, it showed that the cost of renovations was
   only $1,845, and the appraiser did not explain the increase in value.

2. FHA loan number:           023-2971333
   Loan status:               Claim
   Default status:            Preforeclosure sale completed

   We are seeking reimbursement for the losses incurred by HUD based on The Lending
   Company’s not properly supporting the borrower’s commission income.

   Income
   The Lending Company did not properly support the borrower’s commission income because
   it was 47 percent of the borrower’s annual income for the previous year and The Lending
   Company did not obtain any of the borrower’s tax returns. The Lending Company
   determined the borrower’s monthly income using regular pay ($1,629), commission pay
   ($1,596), and other pay ($79); however, since the commission income was more than 25
   percent of the borrower’s annual income (approximately 47 percent), The Lending Company



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       was required to obtain and analyze the most recent 2 years’ tax returns and consider business
       expenses in underwriting. Mortgagee Letter 2004-47 requires lenders to obtain and analyze
       the most recent 2 years of tax returns to consider business expenses in underwriting when the
       commission income exceeds 25 percent of the annual income. If the commission income
       was not used in qualifying the borrower, the total fixed payment-to-income ratio would have
       increased from 46.45 to 89.84 percent.

3. FHA loan number:                 023-3046385
   Loan status:                     Claim
   Default status:                  Preforeclosure sale completed

       We are seeking reimbursement for the losses incurred by HUD based on The Lending
       Company’s not conducting a verification of employment before the loan closed.

       Income
       The Lending Company did not verify the borrower’s current employment as required by
       Mortgagee Letter 2004-47. The Lending Company conducted a verification of employment
       on October 2, 2008; however, it was 2 days after the loan closed on September 30, 2008.

4. FHA loan number:                 023-3167827
   Loan status:                     Claim
   Default status:                  Preforeclosure sale completed

       We are seeking reimbursement for the losses incurred by HUD based on the revised total
       fixed payment-to-income ratio, which reflects the allowable qualifying income as calculated
       by the OIG in accordance with HUD’s requirements. After considering the overstated
       income and recalculation of the qualifying ratios, the total fixed payment-to-income ratio
       increased from 56.69 to 62.17 percent.

       Income
       The Lending Company overstated the borrower’s monthly income by $183. The Lending
       Company determined the borrower’s monthly base income based on the borrower’s
       averaging 40 hours per week ($1,886); however, the verification of employment stated that
       the borrower averaged 35-40 hours per week. The most recent pay stub obtained by The
       Lending Company covered only 30 days of the current year, and the base income for the
       previous year did not support that the borrower averaged 40 hours per week. Therefore, we
       calculated the borrower’s monthly income based on the previous 25 months. 43




43
     ($19,224 [2007] + $21,617 [2008] + $1,738 [2009]) / 25 months = $1,703


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5. FHA loan number:                   023-3295473
   Loan status:                       Claim
   Default status:                    Preforeclosure sale completed

       We are seeking reimbursement for the losses incurred by HUD based on the revised total
       fixed payment-to-income ratio, which reflects the allowable qualifying income as calculated
       by the OIG in accordance with HUD’s requirements. After considering the overstated
       income and recalculation of the qualifying ratios, the total fixed payment-to-income ratio
       increased from 41.03 to 53.08 percent.

       Income
       The Lending Company overstated the borrower’s monthly income by $3,291 because it did
       not support the “other type of income” that was used in qualifying the borrower and
       overstated the base income by $117.

           •    The Lending Company determined the borrower’s total monthly income based in part
                on “other type of income” ($3,174); however, it was not supported or documented.
                The borrower’s pay stubs for the current year showed that overtime income was
                earned so the “other type of income” may have been for overtime. If this was the
                case, The Lending Company did not verify that the overtime income was received for
                the past 2 years and was likely to continue as required by HUD Handbook 4155.1,
                REV-5, paragraph 2-7A. Also, The Lending Company did not develop an earnings
                trend to determine whether the overtime showed a continual decline.

           •    The Lending Company determined the borrower’s base monthly income at $6,296;
                however, it did not document how this amount was calculated, and we were not able
                to determine how it was calculated. Therefore, we calculated the base income at
                $6,179, 44 which is based on the average hours worked, from the three pay stubs in the
                loan file (76.6 hours per 2-week pay period).

6. FHA loan number:                   023-3502416
   Loan status:                       Claim
   Default status:                    N/A

       We are seeking reimbursement for the losses incurred by HUD based on The Lending
       Company’s not verifying the borrower’s employment history for the previous 2 years.

       Income
       The Lending Company did not verify the borrower’s employment history for the previous 2
       years as required. HUD Handbook 4155.1, paragraph 1.3.f, states that for Technology Open
       to Approved Lenders accept recommendations, if the borrower was not employed with the
       same employer for the previous 2 years and has an employment gap of 60 days or greater, the
       borrower must provide a written explanation for the employment gap. The borrower was not
       employed with same employer for the previous 2 years. The Lending Company verified the
       borrower’s employment history from August 20, 2007, to May 4, 2009, and June 18 to July
44
     ([$37.23 hourly rate x 76.6 hours per 2-week pay period] x 26 pay periods) / 12 months = $6,179


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  28, 2009 (the date of the verification of employment). The Lending Company did not obtain
  an explanation for the borrower’s unemployment from July 29 to August 19, 2007 (23 days),
  and the gap in employment from May 5 to June 17, 2009 (43 days), a total of 66 days.

7. FHA loan number:         023-3661762
   Loan status:             Active
   Default status:          First legal action to commence foreclosure

  This loan had material underwriting deficiencies (understated liabilities) that warrant
  indemnification; however, we are seeking indemnification based on the unallowable gift (see
  finding 1). After considering the understated liabilities and recalculation of the qualifying
  ratios, the total fixed payment-to-income ratio increased from 52.52 to 56.27 percent.

  Credit
  The Lending Company understated the borrower’s monthly liabilities by $116 because it
  incorrectly omitted an account in qualifying the borrower. The borrower had three separate
  accounts for Macy’s listed on her initial credit report with different opening dates and
  account numbers. The three accounts had monthly payments of $33, $43, and $159. An
  updated credit report showed that the account with a monthly payment of $43 had been paid
  in full; however, The Lending Company incorrectly included this account as a liability and
  omitted the account with a term of $159 from the automated underwriting system.

8. FHA loan number:         023-4002794
   Loan status:             Terminated (paid in full)
   Default status:          N/A

  This loan had material underwriting deficiencies (overstated income) that warrant
  indemnification; however, it was terminated (paid in full) during the audit. This loan also
  had an unallowable gift (see finding 1). After considering the overstated income and
  recalculation of the qualifying ratios, the total fixed payment-to-income ratio increased from
  50.13 to 59.45 percent.

  Income
  The Lending Company overstated the borrower’s monthly income by $127. The Lending
  Company determined the borrower’s monthly income based in part on bonus income ($127);
  however, the borrower received the bonus for only approximately 18 months and did not
  justify and document in writing the reason for using the income as required by HUD
  Handbook 4155.1, paragraph 4.D.2.b.

  Credit
  The Lending Company understated the borrower’s monthly liabilities by $211 because it
  omitted a liability account in qualifying the borrower. The borrower’s credit report listed an
  account for Toyota Motor Credit with a monthly payment of $211 and a balance of $8,199.
  The Lending Company did not document the reasons why the account was omitted as
  required by the desktop underwriter underwriting findings.




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9. FHA loan number:         023-4485740
   Loan status:             Active
   Default status:          Reinstated after loss mitigation intervention

  This loan had material underwriting deficiencies (understated liabilities) that warrant
  indemnification; however, we are seeking indemnification based on the unallowable gift (see
  finding 1). After considering the understated liabilities and recalculation of the qualifying
  ratios, the total fixed payment-to-income ratio increased from 50.92 to 62.13 percent.

  Credit
  The Lending Company understated the borrower’s monthly liabilities by $447 because it
  determined the monthly payment for a student loan at $73; however, it did not document or
  support how the monthly payment was determined. The credit report listed a student loan
  with a balance of $10,399 and no monthly payment. The credit report stated that the
  repayment was deferred but did not specify the timeframe of the deferment. We were not
  able to determine how The Lending Company determined the monthly payment of $73,
  therefore; we determined the monthly payment at $520, 5 percent of the outstanding balance,
  which is $447 more than the monthly payment calculated by The Lending Company. HUD
  Handbook 4155.1, paragraph 4.C.4.c, requires the monthly payment to be calculated at 5
  percent of the balance if an account has an outstanding balance but no monthly payment.




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