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
65
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
66
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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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)