oversight

EverBank Did Not Properly Determine Mortgagor Eligibility for FHA's Preforeclosure Sale Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-29.

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

OFFICE OF AUDIT
REGION 4
ATLANTA, GA
   i




                  EverBank Servicing Lender
                       Jacksonville, FL

               Federal Housing Administration’s
                 Preforeclosure Sale Program




2014-AT-1012                                  SEPTEMBER 29, 2014
                                                        Issue Date: September 29, 2014

                                                        Audit Report Number: 2014-AT-1012




TO:            Kathleen Zadareky, Deputy Assistant Secretary for Single Family Housing, HU

              //signed//
FROM:         Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:       EverBank Did Not Properly Determine Mortgagor Eligibility for FHA’s
               Preforeclosure Sale Program


       Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of EverBank’s servicing of mortgagor
approval for FHA’s Preforeclosure Sale Program.

    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 8M, 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
404-331-3369.
                                            September 29, 2014
                                            EverBank Did Not Properly Determine Mortgagor
                                            Eligibility for FHA’s Preforeclosure Sale Program



Highlights
Audit Report 2014-AT-1012


 What We Audited and Why                     What We Found

We audited EverBank’s Preforeclosure        EverBank did not properly determine that mortgagors
Sale Program because it had the highest     were eligible to participate in FHA’s Preforeclosure
Florida preforeclosure sale claims of all   Sale Program in accordance with HUD requirements.
servicing lenders located in Florida and    EverBank did not adequately (1) assess the
more than 50 percent of its Florida         mortgagors’ financial information to ensure that it
Federal Housing Administration (FHA)        properly determined the mortgagors’ default was due
claims were from preforeclosure sales       to an adverse and unavoidable financial situation, (2)
with more than $12.9 million paid from      assess the mortgagors’ ability to pay the FHA-insured
2011 through 2013. Our objective was        mortgage and (3) substantiate that the mortgagors’
to determine whether EverBank               need to vacate the FHA-insured property was related to
properly determined that mortgagors         the cause of default. This condition occurred because
were eligible to participate in FHA’s       EverBank’s interpretation of the program requirements
Preforeclosure Sale Program.                that it adopted to qualify the mortgagors for the
                                            program was not in accordance with HUD
 What We Recommend                          requirements. As a result, the FHA insurance fund
                                            paid nearly $1.6 million in improper claims for 11
                                            preforeclosure sales, including lender and mortgagors
We recommend that the Deputy                incentives.
Assistant Secretary for Single Family
Housing require EverBank to (1)
reimburse the U.S. Department of
Housing and Urban Development
(HUD) for the 11 ineligible
preforeclosure sale claims totaling
$1,567,518 and (2) develop and
implement policies and procedures in
accordance with HUD requirements to
properly determine mortgagor eligibility
for the program.
                           TABLE OF CONTENTS

Background and Objective                                                     3

Results of Audit
      Finding: EverBank Did Not Properly Determine That 11 Mortgagors Were
      Eligible for the Preforeclosure Sale Program                           4

Scope and Methodology                                                        12

Internal Controls                                                            14

Appendixes
A.    Schedule of Questioned Costs                                           16
B.    Auditee Comments and OIG’s Evaluation                                  17
C.    Schedule of Preforeclosure Sale Claims Reviewed                        34
D.    Case Narratives                                                        35




                                           2
                         BACKGROUND AND OBJECTIVE

The Federal Housing Administration’s (FHA) Preforeclosure Sale Program was introduced as a
national program in 1994 and has helped thousands of mortgagors avoid foreclosure and
transition to more affordable housing. The program allows mortgagors who cannot make their
mortgage payments, resulting from an adverse and unavoidable financial situation, to sell their
home at fair market value. The sale proceeds satisfy the mortgage debt even if the proceeds are
less than the amount owed. This option is appropriate for mortgagors whose financial situation
requires that they sell their home but who cannot do so without FHA relief because the gross
recovery on the sale of their property is less than the amount owed on the mortgage. FHA
lenders must maintain supporting documentation to demonstrate a comprehensive review of the
mortgagor’s financial records and that the mortgagor did not have sufficient income to pay the
mortgage. A lender may submit an FHA insurance claim and be compensated for the difference
between the sale proceeds and the amount owed on the mortgage. In addition, lenders will
receive an incentive fee of $1,000 for each transaction completed using this program in
accordance with HUD requirements. Mortgagors who successfully sell their property to a third
party within the required time may receive a cash consideration of up to $1,000.

Mortgagee Letter 2008-43, issued December 24, 2008, is the main criterion for the program and
serves to remind lenders of the relief that the program can bring to mortgagors with FHA-insured
mortgages. To facilitate greater use of this program, FHA issued this Mortgagee Letter to
consolidate the requirements of the program that have been issued over the years, update and
clarify those requirements wherever needed, better address the problems faced by mortgagors
today, and provide greater flexibility in considering a mortgagor’s candidacy for participation in
this program.

EverBank, a HUD-approved Title II supervised lender, is a federally chartered thrift institution
with its home office located in Jacksonville, FL. Its direct banking services are offered
nationwide. In addition, EverBank operates financial centers in Florida and commercial and
consumer lending centers across the United States. Among its lending services, EverBank (1)
originates, purchases, services, sells, and securitizes residential real estate mortgage loans and (2)
originates consumer and home equity loans. EverBank’s Loss Mitigation department is divided
into multiple teams based on default solution types and investor and insurer designations. It is in
part responsible for performing a compliance review at two intervals: before approval to
participate is issued and before preforeclosure sale approval is issued. One such team within the
global Loss Mitigation department is the FHA Liquidation team, which is comprised of two
groups responsible for administering FHA’s Preforeclosure Sale Program.

The HUD Office of Inspector General (OIG) issued internal audits of the program in 2012 1 and
2013 2, which reported that a majority of claims did not meet the criteria for participation in the


1
 Audit Report No. 2012-KC-0004, HUD Preforeclosure Sale Program, issued September 18, 2012.
2
 Audit Report No. 2013-LA-0002, Office of Single Family Housing FHA Preforeclosure Sale Program, issued
September 5, 2013.
                                                     3
program, and HUD paid many claims that did not meet the minimum net sale proceeds,
respectively.

The objective of the audit was to determine whether EverBank properly determined that
mortgagors were eligible to participate in FHA’s Preforeclosure Sale Program.




                                              4
                                RESULTS OF AUDIT


Finding: EverBank Did Not Properly Determine That 11 Mortgagors
Were Eligible for the Preforeclosure Sale Program
EverBank did not properly determine that mortgagors were eligible to participate in FHA’s
Preforeclosure Sale Program in accordance with HUD requirements. Specifically, EverBank did
not adequately (1) assess the mortgagors’ financial information to ensure that it properly
determined their defaults were due to an adverse and unavoidable financial situation, (2) assess
their ability to pay the FHA-insured mortgage, and (3) substantiate that the need to vacate the
FHA-insured property was related to the cause of the default. This condition occurred because
EverBank’s interpretation of the program requirements that it adopted to qualify the mortgagors
for the program was not in accordance with HUD requirements. As a result, the FHA paid
nearly $1.6 million in improper claims including lender and borrower incentives.


 EverBank Submitted Ineligible
 Claims

              EverBank did not properly determine that mortgagors were eligible to participate
              in the program for 11 of the 17 claim files reviewed totaling nearly $1.6 million
              (see appendix C). EverBank did not ensure that the mortgagors’ default on the
              FHA-insured mortgages was due to an adverse and unavoidable financial
              situation. Also, EverBank did not conduct a thorough and independent
              verification of the mortgagors’ income, claimed expenses and personal resources
              to properly determine if they had the ability to pay their mortgage payments.
              Lastly, EverBank did not substantiate that mortgagors’ need to vacate the FHA-
              insured property was due to the cause of the default. Regulations at 24 CFR
              (Code of Federal Regulations) 203.370 provide that HUD will pay FHA insurance
              benefits to lenders for preforeclosure sales that are conducted in accordance with
              all regulations and procedures applicable to the Program. This condition occurred
              because EverBank’s interpretation of the program requirements that it adopted to
              qualify the mortgagors for the program was not in accordance with HUD
              requirements. EverBank management believed that the processes it adopted to
              operate the program and qualify the mortgagors were adequate and in accordance
              with the available guidance. Therefore, EverBank did not ensure that the
              mortgagors were eligible for the program and submitted 11 ineligible
              preforeclosure sales claims. See appendix D for case narratives for all 11
              ineligible claim files.




                                               5
                              Summary of review deficiencies
                                             Inadequate financial analysis to support
                                            the mortgagor’s ability to meet mortgage
                             Default not     Financial    Income not Expenses not          Need to
                 Claim          due to     information     supported independently        vacate the
Sample no.
                amount       adverse and   not obtained        or           verified    property not
                             unavoidable    or assessed    calculated                   substantiated
                              financial                     properly
                              situation
#1              $148,304          x                                          x               x
#2              $276,570          x               x           x              x
#5              $131,781          x                                          x               x
#6              $130,213          x                                          x               x
#7              $126,872          x                           x              x
#10             $143,147          x                                          x
#11             $149,330          x                                          x
#12             $128,851          x               x           x              x               x
#14             $104,359          x                                          x
#15             $112,342          x                                          x
#17             $115,749          x                                          x
Total
ineligible                       11               2           3              11              4
               $1,567,518
claims



Default Not Due to an Adverse and
Unavoidable Financial Situation


             EverBank did not adequately assess the mortgagors’ financial information to
             ensure that it determined that the mortgagors were in default as a result of an
             adverse and unavoidable financial situation. Specifically, it did not (1) have
             documentation to support the mortgagors’ hardships caused the default, and (2)
             adequately assess the mortgagors’ personal resources. Mortgagee Letter 2008-43,
             Section B – Mortgagor Qualification, requires that the mortgagors of the FHA
             loan be in default as a result of an adverse and unavoidable financial situation.

                Unsupported hardship claims – EverBank did not have documentation to
                support the mortgagors’ hardship claims used as a reason for the default for 11
                claims. In 6 claims, the mortgagors’ hardship letters stated that they were in a
                default due to a reduction in income. However, EverBank did not have
                documentation to support an income reduction, or unemployment claims. In
                other 5 claims, the mortgagors’ stated they were in default due to increased
                expenses, no longer could afford or maintain the property, and wanted to
                relocate to another state. The claims files did not contain documentation to
                sufficiently support the hardships claimed by the mortgagors. Therefore,
                EverBank did not support that the default was due to an adverse and
                unavoidable financial situation.


                                              6
Personal resources not adequately assessed – EverBank inappropriately
approved mortgagors to participate in the program without adequately
reviewing and evaluating the mortgagors’ financial information to ensure that
they did not have sufficient personal resources to pay their mortgage
commitment for four claim files reviewed. Mortgagee Letter 2008-43,
Section D – Financial Analysis, provides that the preforeclosure sale option
may not be offered to mortgagors who have sufficient personal resources to
pay off their mortgage commitment.

In three of the four claims, the mortgagors purchased or acquired another
home within 1 to 2 months before defaulting on their FHA-insured mortgages.
Thus, the mortgagors had the resources to purchase more than one property.
These mortgagors had an address listed on their credit reports or bank
statements that differed from the FHA-insured property address. Two of the
mortgagors’ credit reports showed that they had a second mortgage with the
initial payment occurring the month of or 1 month before the mortgagors
defaulted on their FHA-insured mortgages.

For sample 6, the mortgagors had a conventional second mortgage of
$159,000 with a monthly mortgage payment of $810 that started in September
2011, the same month in which they stopped paying their FHA-insured
mortgage. The mortgagors purchased the second property in August 2011 for
$199,900 and defaulted on the FHA-insured mortgage in September 2011.
EverBank approved the mortgagors for the program in January 2013.

In all three claims, EverBank obtained documentation indicating that the
mortgagors purchased or acquired another property. However, EverBank did
not question mortgagors’ ability to obtain the additional property or require
additional explanation from the mortgagors.

In addition, EverBank overstated the mortgagors’ overall monthly expenses
when it improperly included the second mortgage debt in its financial analysis
for the mortgagors, which contributed to the mortgagors’ overall net income
deficit. When excluding the inappropriate expenses from the financial
calculations, two of the mortgagors had a surplus net income, which would
not have qualified them financially to participate in the program.

This condition occurred because EverBank did not perform its due diligence
and failed to recognize the information from the mortgagors’ credit reports or
bank statements as a potential issue. It did not prudently evaluate the
mortgagors’ financial information to ensure that the mortgagors were in
default as a result of an adverse and unavoidable financial situation. In
addition, it did not ensure that these claims were in accordance with program
requirements.



                             7
Inadequate Financial Analysis to
Support Mortgagor’s Ability to
Meet the Mortgage Obligation


            EverBank did not conduct a thorough and independent financial analysis to
            properly determine the mortgagors’ ability to meet the mortgage obligation.
            Mortgagee Letter 2008-43, Section D – Financial Analysis, requires that the
            lender request financial documentation to evaluate the mortgagor’s ability to
            support the mortgage debt and analyze the mortgagor’s ability to meet the
            monthly mortgage obligation.

               Mortgagors’ financial information not obtained or assessed – EverBank
               approved the mortgagors for the program before obtaining or adequately
               assessing the financial information of all mortgagors on the mortgages to
               determine their ability to pay the mortgage payment for two of the claim files
               reviewed. In sample 2, there were three mortgagors named on the FHA-
               insured mortgage. The credit report showed that the second mortgagor was
               deceased. EverBank only documented the financial information of the first
               mortgagor. It did not obtain or document that it obtained and assessed the
               third mortgagor’s financial information before approving the mortgagors to
               participate in the program. In addition, EverBank did not independently
               verify the first mortgagor’s self-employment income of $2,256 and expenses
               of $1,188. EverBank provided tax returns for the first mortgagor, but the tax
               returns were not current and did not support the mortgagor’s reported income.
               Therefore, EverBank did not support or obtain adequate financial information
               to properly analyze and determine the mortgagors’ ability to pay the FHA-
               insured mortgage. This condition occurred because the processes that
               EverBank adopted to assess mortgagor eligibility were not adequate and in
               accordance with HUD requirements.

               Income not properly calculated or supported – EverBank did not support
               or properly calculate the mortgagors’ income for 3 of the 17 claim files
               reviewed. The mortgagors’ income information provided in the files did not
               support EverBank’s calculated income amounts for the mortgagors. For
               sample 7, EverBank did not correctly calculate the mortgagors’ income, or its
               income calculations did not agree with the earnings and bank statements in the
               claim files. EverBank’s financial calculations showed that the mortgagors had
               a deficit net income, but when applying the mortgagors’ income amounts that
               were supported by the earnings or bank statements in the claim files, the result
               of the calculations showed that the mortgagors had a surplus net income.

               EverBank did not have documentation to support its income calculations used
               to qualify the mortgagors for the program. This condition occurred because
               EverBank did not have adequate procedures to ensure that mortgagors’
               income information was properly reviewed and calculated.
                                             8
                      Expenses not supported or independently verified – EverBank did not
                      independently verify or have documentation to support the mortgagors’
                      expenses, such as utilities, rents, childcare, and other services, which can be
                      verified by requesting receipts, invoices, or billing statements, for all 17 claim
                      files reviewed 3. EverBank also did not question or obtain support for large
                      lump-sum expense amounts that were not itemized. Mortgagee Letter 2008-
                      43, Section D – Financial Analysis, states that regardless of how the
                      mortgagor’s financial information is obtained, the lender must independently
                      verify the financial information.

                      For sample 14, EverBank did not independently verify $3,478 of the
                      mortgagor’s expenses, including a $1,700 expense for helping her parents.
                      The file did not contain documentation to support the validity of the
                      mortgagor’s expenses. For sample 10, EverBank showed a $3,800 lump-sum
                      amount for living expenses in its financial assessment for the mortgagors but
                      did not independently verify or obtain supporting documentation for the
                      expenses. In both claims, EverBank’s calculation showed that the mortgagors
                      had a deficit net income, but when excluding the lump-sum unsupported
                      expense amounts, the mortgagors had a surplus net income. This condition
                      occurred because EverBank believed that it satisfied the requirements when it
                      obtained and solely relied upon payroll checks, credit reports, and/or bank
                      statements as program qualification documents since the Mortgagee Letter did
                      not prescribe any specific financial documentation or independent verification
                      requirements.

                 Without obtaining and adequately assessing the financial information for all the
                 mortgagors and properly calculating and verifying the mortgagors’ income and
                 expenses, EverBank did not ensure that it adequately assessed the mortgagors’
                 financial ability to make the FHA-insured mortgage payment and properly
                 determined that the mortgagors were eligible to participate in the program for 11
                 of the 17 claim files reviewed. Therefore, it did not ensure that the claims were
                 submitted in accordance with program requirements.




3
  Although EverBank did not adequately verify and review the mortgagors’ financial information, the documentation
for 6 of the 17 claim files reviewed showed that the mortgagors did not have the ability to pay the monthly mortgage
and were eligible to participate in the program.
                                                         9
EverBank Did Not Substantiate
the Mortgagors’ Need To
Vacate the FHA-insured
Property

             EverBank did not adequately establish or demonstrate that the mortgagors’ need
             to vacate the FHA-insured property was related to the cause of default for four of
             the claim files reviewed. Mortgagee Letter 2008-43, Section B – Mortgagor
             Qualifications, provides that lenders are authorized to grant reasonable exceptions
             to nonoccupant mortgagors when it can be demonstrated that the need to vacate
             was related to the cause of default (for example, job loss, transfer, divorce, death).
             This condition occurred because EverBank’s interpretation of the program
             requirements that it adopted to determine mortgagor eligibility was not in
             accordance with HUD requirements.

             In sample 6, the mortgagors indicated in their hardship application that they
             occupied the property. However, the mortgagors’ address listed on their credit
             reports and bank statements was different from the FHA-insured property address.
             EverBank did not require or document that it required proof of occupancy. In
             sample 5, the mortgagor indicated that she and her spouse, who was not on the
             mortgage, vacated the property in part due to health issues. However, the distance
             between the FHA-insured property and the second property purchased was less
             than 5 miles. Thus, it appeared there was no connection between the mortgagors’
             need to vacate the property and their health issues. In sample 1, the mortgagor
             stated that he was not occupying the property at the time of default due to his
             hardship claim that he had a new baby, was the only one working, and could not
             maintain the property. However, the mortgagor purchased another home about 1
             month before defaulting on his FHA-insured mortgage.

             In all three claims, the mortgagors purchased another property and obtained
             another mortgage within 1 or 2 months before defaulting on the FHA-insured
             mortgage. The file did not contain evidence that EverBank recognized these
             issues or required an explanation from the mortgagors before qualifying them to
             participate in the program. Thus, the mortgagors’ need to vacate the FHA-insured
             property was not related to the cause of the default.

Conclusion

             EverBank did not properly determine that mortgagors were eligible to participate
             in FHA’s Preforeclosure Sale Program in accordance with HUD requirements.
             The files reviewed did not contain documentation to adequately support the
             mortgagors’ eligibility for 11 of 17 claim files (or 65 percent) reviewed.
             EverBank did not adequately (1) assess the mortgagors’ financial information to
             ensure that it properly determined the mortgagors’ defaults were due to an adverse
             and unavoidable financial situation, (2) determine the mortgagors’ ability to pay
                                               10
          the FHA-insured mortgage (3) substantiate that the mortgagors’ need to vacate the
          FHA-insured property was related to the cause of the default before approving the
          mortgagors for the program. This condition occurred because EverBank’s
          interpretation of the program requirements that it adopted to qualify the
          mortgagors for the program was not in accordance with HUD requirements. As a
          result, FHA paid nearly $1.6 million for improper claims, including lender and
          borrower incentives.

Recommendations

          We recommend that the Deputy Assistant Secretary for Single Family Housing
          require EverBank to

          1A. Reimburse HUD for the 11 improper claims totaling $1,567,518.

          1B. Develop and implement policies and procedures in accordance with HUD
              requirements to properly determine mortgagor eligibility for the program.




                                         11
                         SCOPE AND METHODOLOGY

We performed our review from February through July 2014 at EverBank’s offices located at 301
West Bay Street Jacksonville, FL, and the Jacksonville OIG Office of Audit. Our review
covered the period October 1, 2011, through September 30, 2013.

To accomplish our objective, we

   •   Reviewed Federal regulations, HUD handbooks, and mortgagee letters;
   •   Reviewed applicable EverBank policies and procedures for the Preforeclosure Sale
       Program;
   •   Reviewed HUD monitoring and independent public accountant reports;
   •   Reviewed EverBank’s preforeclosure sale claim files; and
   •   Interviewed HUD and EverBank officials.

During the audit period, HUD processed 153 preforeclosure sale claims totaling more than $12.9
million filed by EverBank for properties located in Florida. We selected and reviewed all 17
claim files with a total claim amount greater than or equal to $100,000 and the percentage of
total claim amount to original mortgage amount greater than or equal to 70 percent. The 17
claim files selected totaled more than $2.5 million, or 19 percent of the total preforeclosure sale
claims. The results of this audit apply only to the claims reviewed and were not projected to the
universe of preforeclosure sale claims.

We reviewed EverBank’s preforeclosure sale claim files to evaluate whether EverBank properly
determined the mortgagors’ eligibility in accordance with Federal requirements. Specifically, we
reviewed the files to determine whether EverBank

   •   Verified that the mortgagors were in default as a result of an adverse and unavoidable
       financial situation,
   •   Obtained and assessed the financial information for all mortgagors on the mortgage,
   •   Adequately assessed the mortgagors’ personal resources,
   •   Properly calculated and supported the mortgagors’ income,
   •   Independently verified or adequately supported the mortgagors’ expenses, and
   •   Properly substantiated the mortgagors’ need to vacate the FHA-insured property for
       nonowner occupants.

We also reviewed the case files to determine whether EverBank verified that

   •   The mortgagors did not have another FHA-insured mortgage,
   •   The mortgage was more than 30 days delinquent when the preforeclosure sale closed,
   •   The mortgage payoff amount exceeded the “as-is” fair market value of the home,
   •   The home was listed for sale at no less than the appraised “as-is” fair market value,
   •   The sale generated the minimum net sale proceeds required by the program, and
                                                12
    •    The closing fees were appropriate and allowable by the program.

We used information from HUD’s Single Family Data Warehouse 4 and Neighborhood Watch 5
databases as background information for our review. Specifically, we used the information to
identify preforeclosure sale claims that were processed during the audit period, the claim
amounts, and the original mortgage amounts. However, we did not rely on these data for our
conclusions or assess the reliability of the computer-processed data. The conclusions were based
on additional reviews performed during the audit.

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
objective(s). We believe that the evidence obtained provides a reasonable basis for our finding
and conclusion based on our audit objective.




4
 HUD’s Single Family Data Warehouse is a system of records that enables HUD/FHA to operate the single family
mortgage insurance programs and respond to inquiries regarding insured mortgages.
5
  Neighborhood Watch is a secure web-based application designed to provide comprehensive data querying,
reporting and analysis capabilities for tracking the performance of loans originated, underwritten, and serviced by
FHA-approved lending institutions.
                                                         13
                              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:

                  •   Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                  •   Relevant and reliable information – Policies and procedures that
                      management has implemented to establish controls over the relevance and
                      reliability of information.

                  •   Compliance with laws and regulations – Policies and procedures that
                      management has implemented to provide reasonable assurance that
                      program implementation is in accordance with laws, regulations, and
                      provisions of contracts or grant agreements.

               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.




                                                14
Significant Deficiency

             Based on our review, we believe that the following item is a significant deficiency:

                 •   The policy and procedures that EverBank adopted to qualify the
                     mortgagors for the program were not in accordance with HUD
                     requirements.




                                              15
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                            Recommendation
                                                  Ineligible 1/
                                   number
                                 1A                $1,567,518


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.




                                            16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         17
Comment 1




Comment 1




            18
Comment 1




Comment 1




Comment 1




            19
Comment 1




Comment 1




Comment 1




            20
Comment 1




            21
Comment 2




Comment 3




Comment 3




            22
Comment 3




Comment 4




Comment 4




            23
Comment 4




Comment 4


Comment 4




Comment 5




            24
Comment 5




Comment 5




Comment 5




Comment 5



Comment 6




            25
Comment 6




Comment 6




Comment 6




            26
Comment 1




Comment 7




            27
28
                         OIG Evaluation of Auditee Comments

Comment 1   EverBank stated that it takes its responsibilities under the FHA program seriously.
            It has entered into a subservicing agreement with Green Tree Servicing to service
            the majority of its FHA-insured loans. EverBank has implemented a program that
            included three levels of oversight for Green Tree to ensure compliance with FHA
            loss mitigation requirements. In addition, the remainder of the loans in
            EverBank’s portfolio included process enhancements that support compliance
            with FHA requirements.

            We did not review EverBank’s agreement with Green Tree Servicing or any of
            the work or changes implemented because of that agreement. However, we
            acknowledge EverBank’s proactive approach to ensuring compliance with HUD
            loss mitigation regulations as well as its efforts in developing the enhancements
            and applying changes to its servicing operations to resolve issues raised in the
            draft audit report. Implementing these report recommendations will assist in
            ensuring compliance with HUD requirements and ensure the issues in the report
            have been effectively resolved.

Comment 2   EverBank stated that upon receipt of our draft report, it conducted a thorough
            review of the findings and loan files. Its review indicated that certain allegations
            in the report are at variance with the facts and did not constitute violations of
            HUD requirements.

            The information contained in the claim files did not show that the 11 files
            questioned in the report were in compliance with HUD requirements. The issues
            identified in the report were provided to, and discussed with EverBank officials
            throughout the audit. EverBank did not provide additional information during the
            audit or in response to the draft report to show that the questioned files were in
            compliance with requirements. As a result, the FHA insurance fund paid nearly
            $1.6 million in improper claims for 11 preforeclosure sales.


Comment 3   EverBank disagreed with our conclusion that the mortgagors were not in default
            as a result of an adverse and unavoidable financial situation for sample 7.
            EverBank stated that the co-mortgagor was unemployed for one year and unable
            to find a job where the subject property was located. It explained that the
            mortgagors’ medical hardships impacted their ability to maintain the FHA-insured
            loan. EverBank believed that its servicing record documented adverse and
            unavoidable financial conditions and requested that the asserted deficiency be
            removed from the final report.

            The mortgagors’ earnings statements provided in the claim file showed both
            mortgagors were employed as of May 2011 when EverBank approved the
            mortgagors for the program on June 14, 2011. In addition, the income verified in
            the earnings and bank statements provided in the claim file showed that the
                                             29
            mortgagors had sufficient net income ($6,658) to support their FHA monthly
            mortgage payment ($1,162) and other reported expenses ($ 4,783). We
            acknowledged the mortgagors’ hardship statements that EverBank noted in its
            response. The mortgagors’ hardship letters were dated June 15, 2011, and June
            24, 2011, after EverBank approved the mortgagors for the program on June 14,
            2011. We did not dispute whether the mortgagors’ hardships were valid.
            However, the claim file did not contain documentation to support that EverBank
            verified the mortgagors’ hardship claims such as reduction of income and
            increased expenses. EverBank did not have supporting documentation for the
            mortgagors’ expenses that it showed in its financial assessment for the
            mortgagors. Its reported income for the mortgagors was not supported or
            properly calculated. Therefore, EverBank’s servicing records did not adequately
            support that it properly reviewed and determined that the mortgagors were in
            default as a result of an adverse and unavoidable financial situation. As a result,
            sample 7 should not be revised or removed from the final report.

Comment 4   EverBank disagreed with the report’s conclusion regarding sample 10. In
            EverBank’s response, it contended that the appropriate question was whether,
            given the dissolution of the domestic partnership, either the mortgagor or the co-
            mortgagor could support the mortgage on his own. In addition, EverBank
            identified various debt and expenses incurred by the mortgagor and co-mortgagor
            in its response that, individually, would result in a deficit for the mortgagor and
            the co-mortgagor. Some of the expenses were considered in its financial analysis
            and others were derived from the IRS Collection Financial Standards. Therefore,
            EverBank believed that based on the loan file and supporting information, the
            mortgagors qualified for the preforeclosure sale and requested that sample 10 be
            removed from the final report.

            EverBank did not assess the ability of one mortgagor to meet the mortgage
            obligation, but used both the mortgagor’s and co-mortgagor’s income and
            expenses in its financial analysis (dated September 6, 2011) when evaluating the
            mortgagor’s and co-mortgagor’s eligibility to participate in the preforeclosure
            sales program.

            The expenses from the IRS Standards were not shown in EverBank’s financial
            analysis and there was no mention of the Standards in the claim file provided.
            Also, when using the expenses identified from the IRS Collection Financial
            Standards in EverBank’s response, the expenses total $2,003 (see below), which
            is less than the $3,800 shown as the lump sum living expenses in its financial
            analysis.

                                           Expense                    Amount
                           Mortgagor food, clothing, other items       $ 583
                           Mortgagor car costs                         $ 244
                           Mortgagor health care costs                 $ 60
                           Co-mortgagor food, clothing, other items    $ 583
                           Co-mortgagor car costs                      $ 244
                                               30
                           Co-mortgagor health care costs            $ 60
                           Co-mortgagor Verizon bill                 $ 134
                           Co-mortgagor Progress Energy bill         $ 95
                                  TOTAL                              $2,003



            We maintain that EverBank did not conduct a thorough and independent financial
            analysis to support that the mortgagors (1) were in default as a result of an
            adverse and unavoidable financial situation and (2) did not have the ability to
            meet their mortgage obligation. Therefore, sample 10 should not be revised or
            removed from the final report.

Comment 5   EverBank disagreed with the report’s conclusion regarding sample 11. It stated
            that it discovered that the co-mortgagor purchased a second property when
            preparing its response to the draft audit report. It explained that there was no
            indication in the loan file to suggest that the co-mortgagor had purchased a second
            property. EverBank also stated that it was not aware of any HUD guidance
            requiring servicers to check local property records to determine whether a co-
            mortgagor recently acquired and additional property. In addition, it contended the
            deposits and unsupported living expenses are immaterial to the mortgagors’
            eligibility for the program. EverBank believed that based on the information
            available at the time, it properly analyzed the mortgagors’ eligibility for the
            preforeclosure sales program and requested that sample 11 be removed from the
            final report.

            HUD regulations require that the mortgagee (servicing lender) request and obtain
            sufficient financial information and independently verify the information to
            determine whether the mortgagor had surplus income or other assets that would
            require repayment of the indebtedness through the use of a repayment plan
            (Mortgagee Letter 2008-43, Section D - Financial Analysis). EverBank did not
            follow HUD’s requirement to independently verify the co-mortgagor’s financial
            information. The mortgagors’ bank statements indicated that the mortgagors’
            received deposits, other than the co-mortgagor’s salary. Based on the information
            from the bank statements, we researched and identified that the co-mortgagor
            purchased another property. Thus, the co-mortgagor had other personal resources
            that afforded her the ability to purchase a second property for $199,000, one week
            before approval into the program. As a whole, the claim was determined
            ineligible because EverBank did not support that it adequately assessed the co-
            mortgagor’s financial information to properly determine whether the co-
            mortgagor had other assets that may have provided her the ability to repay the
            mortgage debt and therefore, sample 11 should not be revised or removed from
            the final report.

Comment 6   EverBank disagreed with the report that the default was not due to an adverse and
            unavoidable financial situation for sample 15. EverBank contended that to
            evaluate the mortgagors for the preforeclosure sale program, it assessed the
            mortgagors’ current income and expenses and determined that they had a monthly
                                             31
deficit. It further explained that the report did not cite nor was EverBank aware of
any HUD guidance that would have required EverBank to document the
mortgagors’ income over time to verify that their income had, in fact, decreased
as claimed. EverBank stated that assessing the mortgagors’ current financial
situation satisfied applicable HUD requirements. In addition, EverBank disagreed
that it did not have supporting documentation for three expenses included in its
financial analysis—a $500 child care expense, a monthly $500 loan repayment,
and a $560 monthly utilities expense. EverBank stated that bank statements in the
loan file supported $500 as a reasonable estimate of the mortgagors’ monthly
utility expense based on copies of the bank statements showing payments to cell
phone, water, electricity, home telephone, cable, and internet providers totaling
$572.85 (or $573 rounded). Further, EverBank responded that the loan file
included documentation that the mortgagors made a $500 loan payment via check
in January and February 2012, and the mortgagors’ bank statements included
references to checks that it believed supported the claimed child care expenses.
EverBank provided the mortgagors’ bank statement from November 2011
showing that the mortgagors wrote four checks, one per week, totaling $500,
which was the amount claimed for child care expenses. Lastly, EverBank
responded that it appeared that the mortgagors may have underestimated other
monthly expenses according to the IRS Collection Financial Standards. It stated
that this further supports the conclusion that the mortgagors truly could not afford
to maintain their mortgage. EverBank believed that the loan file documented the
mortgagors’ adverse and unavoidable financial situation, and that the mortgagors’
claimed expenses were reasonable and supported and requested that this sample
15 be removed from the report.

Mortgage Letter 2008-43, Section B-Mortgagor Qualifications, stipulates that the
preforeclosure sales option may be extended to mortgagors who are in default as a
result of an adverse and unavoidable financial situation, which may include a
verifiable income reduction. EverBank did not confirm the mortgagors’ claim of
a reduction in income, and thereby did not support that the default was due to an
adverse and unavoidable financial situation. Included with its response,
EverBank provided a copy of a bank statement showing a $500 payment in
January 2012 with a name of the payee handwritten on the page and a copy of a
$500 check written to the same name in February 2012. However, there was no
evidence of the loan term, reason, balance or that the payments were satisfying a
regular recurring monthly debt. There was no other supporting documentation in
the case file to support legitimacy of the debt. In addition, the bank statement
provided had no indication that the payments were for child care expenses and no
other supporting information was provided. The bank statement only showed
check numbers, dates, and amounts. Therefore, the child care expense was not
verified by independent verification because there were no supporting documents,
such as a bill or contract in the case file to support the expense. The expenses
from the IRS Standards were not shown in EverBank’s financial analysis and
there was no mention of the Standards in the claim file provided. If EverBank’s
response were considered, then the utility expense used in EverBank’s financial
                                 32
            analysis was overstated because it listed separately the utilities ($560), Internet
            ($50), and cell phone ($160) expenses, totaling $770. Using the utilities expenses
            (totaling $573) from the bank statements in EverBank’s financial analysis would
            result in a surplus of $81, instead of a $116 deficit, which would have made the
            mortgagors ineligible for participation in the preforeclosure sales program.

            Based on the above information, EverBank did not support that the default was
            due to an adverse and unavoidable financial situation or independently verify
            certain expenses. As a result, sample 15 should not be revised or removed from
            the final report.

Comment 7   EverBank stated that its review indicated that the deficiencies stated in the report
            were at variance with the facts and did not affect the loans’ eligibility for a
            preforeclosure sale. EverBank believed that its response and the accompanying
            exhibits, related to four loans questioned in the report, demonstrate that certain
            allegations in connection with the cited loans were unwarranted.

            We thoroughly reviewed and considered EverBank’s comments and the related
            exhibits for the four claims. The procedural and internal control policy changes
            that EverBank made will assist in addressing the issues raised in the report.
            However, EverBank’s comments and related exhibits for the four claims did not
            validate the eligibility of the claims as discussed in comments 3, 4, 5, and 6. The
            review showed that EverBank did not properly determine and accurately assess
            the mortgagors’ eligibility for the program in accordance with HUD’s
            requirements. As a result, the FHA insurance fund paid nearly $1.6 million in
            improper claims for 11 preforeclosure sales.




                                             33
Appendix C

           SCHEDULE OF PREFORECLOSURE SALE CLAIMS
                          REVIEWED

         Sample no.                       Claim amount                            Ineligible claim amount
1                                            $ 148,304                                   $ 148,304
2                                            $ 276,570                                   $ 276,570
3*                                           $ 193,632                                       n/a
4*                                           $ 196,019                                       n/a
5                                            $ 131,781                                   $ 131,781
6                                            $ 130,213                                   $ 130,213
7                                            $ 126,871                                   $ 126,872
8*                                           $ 183,931                                       n/a
9*                                           $ 129,831                                       n/a
10                                           $ 143,147                                   $ 143,147
11                                           $ 149,330                                   $ 149,330
12                                           $ 128,851                                   $ 128,851
13*                                          $ 106,091                                       n/a
14                                           $ 104,359                                   $ 104,359
15                                           $ 112,342                                   $ 112,342
16*                                          $ 128,118                                       n/a
17                                           $ 115,749                                   $ 115,749
Totals                                       $2,505,140                                  $1,567,518

*Although EverBank did not adequately verify and review the mortgagors’ financial information, the documentation
for 6 of the 17 claim files reviewed showed that the mortgagors did not have the ability to pay the monthly mortgage
and were eligible to participate in the program.




                                                          34
Appendix D
                                 CASE NARRATIVES

Sample 1 – Ineligible claim                  FHA No. 095-0314619
2nd home purchase date: June 10, 2010        Original mortgage amount: $167,627
Default date: August 1, 2010                 Unpaid principal balance: $159,585
Approval to participate date: July 8, 2011   Claim amount: $148,304
Settlement date: August 3, 2011

EverBank did not adequately evaluate and determine the mortgagor’s eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to properly determine that the mortgagor (1) was in default as a
result of an adverse and unavoidable financial situation, (2) did not have the ability to meet the
mortgage obligation and (3) vacating the property was related to the cause of default as required
by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D (Financial
Analysis).

Default not due to an adverse and unavoidable financial situation
The mortgagor stated that his hardship was he had a new baby, was the only one working, and
could not maintain the property. However, the mortgagor’s credit report showed that the
mortgagor had a second mortgage of $86,316 with a monthly mortgage payment of $975
beginning July 2010, 1 month before he defaulted on his FHA-insured loan. The mortgagor
purchased the second property on June 10, 2010, for $85,000 and defaulted on the FHA
mortgage in August 2010. Therefore, the mortgagor had the financial ability to purchase a
second home and obtain a second mortgage and was not in default as a result of an adverse and
unavoidable financial situation. EverBank approved the mortgagor for the program on July 8,
2011. EverBank did not recognize the information from the credit report as a potential issue and
prudently evaluate the mortgagor’s financial situation to ensure that the mortgagor complied with
program requirements.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank did not independently verify $2,200 in expenses, such as $1,000 for food for a
household of two adults and one baby and $335 for utilities. In addition, EverBank
inappropriately used the $975 second mortgage payment as an expense to qualify the mortgagor
for the program. Excluding the $975 mortgage debt from the financial calculation, the
mortgagor had a net income surplus of $545 as opposed to a deficit net income of $430 as
calculated by EverBank. Mortgagors with surplus income or other assets are required to repay
the indebtedness through the use of a repayment plan and are not eligible to participate in the
program (Mortgagee Letter 2008-43, Section D, Financial Analysis).




                                                35
                                                                          OIG’s review
                                                          Verified        Unverified or     Inappropriate
            EverBank’s financial analysis
                                                          amount          unsupported        2nd mortgage
                                                                            amount              amount
 Monthly net income:
 Mortgagor income                            $4,089             $4,089
 Monthly expenses:
 FHA-insured mortgage                        $1,330             $1,330
 2nd home mortgage                           $ 975                                                   $975
 Auto loan or transportation                 $ 400                                 $ 400
 Credit cards                                $ 14               $    14
 Homeowner association or                    $ 190                                 $ 190
 condo fees
 Auto or health insurance                    $ 275                                 $ 275
 Food                                        $1,000                                $1,000
 Utilities                                   $ 335                                 $ 335
               Total expenses               $ 4,519             $1,344             $2,200            $975

 Total income                                 $4,089   Total verified income                        $4,089
 Less total expenses                        - $4,519   Less verified expenses                     - $1,344
                                                       Less unsupported expenses                  - $2,200
 Net surplus or (deficit)                   $ (430)    Net surplus or (deficit)                     $ 545

Vacating the property was not related to the cause of default
EverBank did not adequately assess the mortgagor’s information to ensure that the mortgagor’s
need to vacate the property was related to the cause of the default. The mortgagor indicated in
his uniform mortgagor assistance form that he was not occupying the property because of his
hardship. The claim file did not support the mortgagor’s hardship and therefore, did not support
that the mortgagor’s need to vacate the property was related to the cause of default. The
mortgagor purchased another property and obtained another mortgage within 1 to 2 months
before defaulting on the FHA-insured mortgage. Thus, his need to vacate the FHA-insured
property was not related to the cause of the default, instead, he chose to purchase another home
and walk away from the FHA-insured property.

HUD granted a variance for the nonowner occupant on June 1, 2011, based on the mortgagor’s
hardship claim. However, EverBank did not document in the variance that the mortgagor had
purchased another home 1 month before he defaulted on his FHA-insured mortgage.

EverBank explained that the mortgagor had purchased the second home with the intention of
converting his FHA-insured home to an investment property, but was unable to secure a tenant
for the FHA property. There was no documentation from the claim file to support EverBank’s
statement of the mortgagor intention or show that the mortgagor listed the FHA-insured property
for rent. However, the mortgagor was not eligible for the program if the FHA-insured property
was used as a rental within 18 months prior to acceptance into the program (Mortgagee Letter
2008-43, Section B). EverBank also stated that the $975 second mortgage debt was included in
the mortgagor’s financial analysis because the mortgagor resided at the second home. Thus,
EverBank inappropriately approved the mortgagor to participate in the program knowing that the
mortgagor (1) had purchased a second home 2 months before he defaulted on his FHA-insured

                                                   36
mortgage (2) vacating the FHA-insured property was not related to the cause of the default and
(3) would have had a surplus net income had he not incurred the additional mortgage debt for the
second home. Therefore, EverBank did not comply with HUD requirements in qualifying the
mortgagor for the program and consequently submitted an improper claim to HUD.




                                              37
Sample 2 – Ineligible claim                          FHA No. 095-0249182
Default date: December 1, 2008                       Original mortgage amount: $265,828
Approval to participate date: May 6, 2011            Unpaid principal balance: $257,555
Settlement date: October 18, 2011                    Claim amount: $276,570

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure program. Specifically, EverBank did not conduct a thorough and independent
financial analysis to support that the mortgagors (1) were in default as a result of an adverse and
unavoidable financial situation and (2) did not have the ability to meet their mortgage obligation
as required by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D
(Financial Analysis).

Default not due to an adverse and unavoidable financial situation
The claim file showed that there were three mortgagors on the FHA-insured mortgage. The first
mortgagor claimed that the real estate market crises affected his business and his ability to
maintain his mortgage payments. EverBank did not document that it evaluated the mortgagor
was experiencing a decrease in business services. The credit report showed the second
mortgagor as deceased. EverBank did not document information about the third mortgagor.
Thus, EverBank did not support and obtain the hardship claims for all mortgagors to properly
determine that the mortgagors were unable to meet their mortgage obligation due to an adverse
and unavoidable financial situation.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank did not obtain and assess the financial information for all the mortgagors to properly
determine their ability to meet the mortgage obligation. EverBank documented the first
mortgagor’s financial information, but did not obtain and assess the third mortgagor’s financial
information in its evaluation before approving the mortgagors to participate in the program.
EverBank stated that it did not consider the third mortgagor in its financial analysis because the
third mortgagor did not reside at the property. Not residing at the property did not release the
third mortgagor of his responsibility for the mortgage.

In addition, EverBank did not independently verify the first mortgagor’s self-employment
income of $2,256 and expenses of $1,188 before approving him to participate in the program.
The unsupported expenses included $460 for transportation and $146 for childcare. The claim
file did not contain (1) a current tax return to support the first mortgagor’s self-employment
income and (2) invoices or billing statements to support the expenses.




                                                38
                                                                           OIG’s review
                EverBank’s financial analysis                Verified amount         Unverified or
                                                                                 unsupported amount
 Monthly net income:
 First Mortgagor                                  $2,256                                               $2,256
 Second Mortgagor (deceased)                          n/a
 Third Mortgagor
 Monthly expenses:
 1st and 2nd mortgage                             $2,884                 $2,884
 Charge cards                                     $ 256                  $ 266
 Installment                                      $ 136                  $ 136
 Food (toiletries)                                $ 300                                                $ 300
 Utilities                                        $ 500                    $318                        $ 182
 Transportation                                   $ 460                                                $ 460
 Childcare                                        $ 146                                                $ 146
 Other                                            $ 100                                                $ 100
                    Total expenses                $4,782                  $3,604                       $1,188
                                                            The claim file did not have adequate supporting
 Total income                                     $ 2,256   documentation to determine the mortgagors’
 Less total expenses                            - $ 4,782   monthly financial position since EverBank did
 Net surplus or (deficit)                                   not obtain the third mortgagor’s financial
                                                            information or have adequate support for the first
                                                $(2,526)    mortgagor’s income and expenses.

EverBank did not obtain and adequately assess the financial information for the third mortgagor
or independently verify the first mortgagor’s self-employment income of $2,256 and expenses of
$1,188 to support that it properly calculated the deficit income of $2,526 that it showed for the
first mortgagor. Therefore, EverBank did not follow HUD’s requirements in determining the
mortgagor’s eligibility in the program and submitted an improper claim to HUD.




                                                  39
Sample 5 – Ineligible claim                                     FHA No. 093-6099688
2nd home acquire date: March 30, 2010                           Original mortgage amount: $149,458
Default date: May 1, 2010                                       Unpaid principal balance: $143,777
Approval to participate date: October 15, 2011                  Claim amount: $131,781
Settlement date: April 26, 2012

EverBank did not adequately evaluate and determine the mortgagor’s eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to properly determine that the mortgagor (1) was in default as a
result of an adverse and unavoidable financial situation, (2) did not have the ability to meet the
mortgage obligation and (3) vacating the property was related to the cause of default as required
by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D (Financial
Analysis).

Default not due to an adverse and unavoidable financial situation
The mortgagor indicated in her hardship letter that she and her spouse (who was not on the
mortgage) could no longer afford the property and vacated it due to the reduction of her spouse’s
income and their health issues. However, EverBank did not provide documents to support that
the household experienced an income reduction, or that there were health issues affecting their
income. The mortgagor’s address listed on her bank statements and credit report was not the
FHA-insured property address. It was the address of a property that she and her spouse acquired
through a quitclaim deed 6 for the sale price of $90,000 on March 30, 2010, about 1 month before
she defaulted on her FHA-insured loan on May 1, 2010. EverBank did not recognize the
information from the bank statements as a potential issue. It did not prudently evaluate the
mortgagor’s financial situation to ensure the mortgagor complied with program requirements and
was in default as a result of an adverse and unavoidable financial situation.

Inadequate financial analysis to support the mortgagor’s ability to meet the mortgage
obligation
EverBank did not verify or document that it verified $3,140 of the mortgagor’s expenses, such as
$585 for utilities and $300 for cell phones. In addition, EverBank’s financial analysis showed
that the mortgagor had a rent expense of $760, but it did not independently verify the
information or obtain documentation to support the rent payment. EverBank should have
followed up on the nature of this expense to adequately evaluate whether or not it made sense for
the mortgagor to have a rent expense when she and her spouse acquired the property of their
residence.




6
 A quit claim deed is a legal document used to transfer interest in real estate from one person or entity (grantor) to
another (grantee).
                                                          40
                                                                         OIG’s review
               EverBank’s financial analysis                                        Unverified or
                                                             Verified amount
                                                                                unsupported amount
 Monthly net income:
 Mortgagor income                                $3,133                   $3,133

 Monthly expenses:
 FHA-insured mortgage                            $1,285                   $1,285
 Rent                                            $ 760                                             $ 760
 Auto loan                                       $ 321                    $ 321
 Credit cards                                    $ 177                    $ 177
 Auto insurance                                  $ 250                                              $ 250
 Home maintenance                                $ 280                                              $ 280
 Food                                            $ 545                                              $ 545
 Utilities                                       $ 585                                              $ 585
 Transportation                                  $ 420                                              $ 420
 Cell phones                                     $ 300                                              $ 300
                            Total expenses       $4,923                    $1,783                   $3,140
                                                           The claim file did not have adequate supporting
 Total income                                   $ 3,133    documentation for the expenses to determine
 Less total expenses                           -$ 4,923    the mortgagor’s monthly financial position.
 Net surplus or (deficit)                       $(1,790)

Vacating the property was not related to the cause of default
EverBank did not adequately assess the mortgagor’s information to ensure that the mortgagor’s
need to vacate the property was related to the cause of the default (Mortgagee Letter 2008-43,
Section B – Mortgagor Qualifications). The mortgagor indicated that she and her spouse vacated
the property, in part, due to health issues. However, the distance between the FHA-insured
property and the second property that the mortgagor and her spouse acquired was less than 5
miles. Thus, it appeared there was no connection between the mortgagors’ need to vacate the
property and their health issues. There was no evidence in the file that EverBank noted the
distance between the two properties or required additional explanation regarding the need to
vacate.

HUD granted a variance on March 25, 2011, to allow the mortgagor to be reviewed for the
program as a nonowner based on her spouse’s illness and their need to move due to the inability
to pay. However, EverBank did not document in the file that the mortgagor and her spouse
acquired another home, less than 5 miles away, 1 month before she defaulted on her FHA-
insured mortgage.

EverBank did not (1) support that the mortgagor was in default due to the income reduction and
health issues and that the mortgagor’s need to vacate the FHA-insured property was related to
the cause of the default (2) question and evaluate the mortgagor’s acquired property as a
potential asset used to satisfy the FHA-insured mortgage obligation, and (3) independently verify
the mortgagor’s claimed expenses. Therefore, EverBank did not comply with HUD
requirements in qualifying the mortgagor for the program and consequently submitted an
improper claim to HUD.


                                                  41
Sample 6 – Ineligible claim                           FHA No. 093-7034937
2nd home purchase date: August 10, 2011               Original mortgage amount: $174,952
Default date: September 1, 2011                       Unpaid principal balance: $172,393
Approval to participate date: January 16, 2013        Claim amount: $130,213
Settlement date: April 25, 2013

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to properly determine that the mortgagors (1) were in default as a
result of an adverse and unavoidable financial situation, (2) did not have the ability to meet the
mortgage obligation and (3) vacating the property was related to the cause of default as required
by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D (Financial
Analysis).

Default not due to an adverse and unavoidable financial situation
The mortgagors stated that their hardship was due to the loss of year-end bonus income, no pay
for 12 weeks of maternity leave, and increased medical expenses. Yet, the mortgagors purchased
a second property on August 10, 2011 for $199,900 and one month later defaulted on its FHA-
insured mortgage in September 2011. The mortgagors’ credit report showed that they had a
second mortgage of $159,000 with a monthly mortgage payment of $810 beginning September
2011. Therefore, the mortgagors had the financial ability to purchase a second property and
obtain a second mortgage. The purchase of a second property did not support that the default
due to an adverse and unavoidable financial situation. EverBank approved the mortgagors for
the program on January 16, 2013. It did not recognize the information from the credit report as a
potential issue and prudently evaluate the mortgagors’ financial information to ensure that they
did not have sufficient personal resources to pay their mortgage commitment before approving
them for the program. The preforeclosure sale option may not be offered to mortgagors who
have sufficient personal resources to pay off their mortgage commitment (Mortgagee Letter
2008-43, Section D, Financial Analysis).

Inadequate financial analysis to support the mortgagor’s ability to meet the mortgage
obligation
EverBank did not independently verify or have supporting documentation for $2,721 of the
mortgagors’ expenses, such as $490 for utilities and $465 for miscellaneous expenses. In
addition, it used the $810 second mortgage payment as an expense to qualify the mortgagors for
the program. Excluding the $810 mortgage debt from the financial calculation, the mortgagors
had a net income surplus of $710 as opposed to a deficit net income of $100 as calculated by
EverBank. Mortgagors with surplus income or other assets are required to repay the
indebtedness through the use of a repayment plan and are not eligible for the program
(Mortgagee Letter 2008-43, Section D, Financial Analysis).




                                                 42
                                                                           OIG’s review
                                                            Verified    Unverified or   Inappropriate 2nd
           EverBank’s financial analysis
                                                            amount      unsupported         mortgage
                                                                          amount            amount
 Monthly net income:
 Mortgagor                            $2,984                $2,984
 Co-mortgagor                         $2,749                $2,749
                Total net income      $5,733                $5,733
 Monthly expenses:
 FHA-insured mortgage                 $1,330                $1,330
 2nd home mortgage                    $ 810                                                  $ 810
 Auto loans                           $ 771                 $ 771
 Credit cards                         $ 201                 $ 201
 Auto insurance                       $ 215                                $   215
 Food                                 $ 450                                $   450
 Utilities                            $ 490                                $   490
 Transportation                       $ 675                                $   675
 Childcare                            $ 426                                $   426
 Other (phone, home
                                      $ 465                                $ 465
 maintenances, medical)
                 Total expenses       $ 5,833               $2,302         $2,721             $ 810

 Total income                                $ 5,733   Total verified income                        $ 5,733
 Less total expenses                       - $ 5,833   Less verified expenses                      - $2,302
                                                       Less unsupported expenses                   - $2,721
 Net surplus or (deficit)                   $ (100)    Net surplus or (deficit)                     $ 710

Vacating the property was not related to the cause of the default
The mortgagors indicated in their application that they occupied the property; however, the
address on their credit report did not match the FHA-insured property address. The file did not
contain evidence that EverBank recognized the issue or required proof of occupancy or an
explanation from the mortgagors. The mortgagors purchased another property and obtained
another mortgage within a month before defaulting on their FHA-insured mortgage. Thus, their
need to vacate the FHA-insured property was not related to the cause of the default.

EverBank did not (1) identify that the mortgagors had a second home that was purchased about a
month before defaulting on their FHA-insured mortgage, (2) independently verify $2,721 of the
mortgagor’s expenses and include only the mortgagor’s appropriate expenses to support that it
properly calculated the deficit income of $100 it showed for the mortgagors, and (3) ensure that
the mortgagors’ need to vacate the FHA-insured property was related to the cause of the default.
Therefore, EverBank submitted an improper claim to HUD for mortgagors that were not eligible
to participate in the program.




                                                       43
Sample 7 – Ineligible claim                           FHA No. 091-4315827
Default date: February 1, 2009                        Original mortgage amount: $166,815
Approval to participate date: June 14, 2011           Unpaid principal balance: $165,116
Settlement date: August 29, 2011                      Claim amount: $126,872

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to support that the mortgagors (1) were in default as a result of an
adverse and unavoidable financial situation and (2) did not have the ability to meet their
mortgage obligation as required by Mortgagee Letter 2008-43, Section B (Mortgagor
Qualifications) and Section D (Financial Analysis).

Default not due to an adverse or unavoidable financial situation
The mortgagors stated in their hardship letter that they were in the process of looking for jobs in
another state because the co-mortgagor had to travel for his job, and the family wanted to stay
together. The mortgagor stated that she had resigned from her job as a school bus driver to take
care of their two disabled sons and planned to find a job by their new residence. However, the
earnings statement showed that the mortgagor was still working at the time EverBank approved
the mortgagors for the program. Thus, EverBank did not support that the mortgagors were not
default due to an adverse or unavoidable financial situation.

Inadequate financial analysis to support the mortgagor’s ability to meet the mortgage
obligation
EverBank did not have supporting documentation for $1,104 of the mortgagors’ auto loan
expenses shown in its financial assessment for the mortgagors. EverBank stated that it was
unable to locate the mortgagors’ credit reports. It also did not have documentation to support it
independently verified $3,327 of the mortgagors’ other expenses, such as $630 in medical bills
and $600 in miscellaneous expenses. The lender must independently verify the financial
information and maintain all evidence to comply with HUD’s loss mitigation program
requirements (Mortgagee Letter 2008-43, Section D).

In addition, the mortgagors’ income information provided in the file did not support EverBank’s
income calculation. EverBank showed that the mortgagors had a net income of $5,897, but the
total amount did not agree with the earnings statements and deposited payment information from
the bank statements, which provided a total income amount of $6,658. EverBank’s calculation
of the mortgagors’ financial information showed that the mortgagors had a deficit net income of
$48. However, using the income amount of $6,658 that was supported by the documentation in
the file and deducting it from the verified expenses of $1,539 and the unverified expenses of
$4,431, the result showed the mortgagors had a net income surplus of $688. Mortgagors with
surplus income or other assets are required to repay the indebtedness through the use of a
repayment plan and are not eligible for the program (Mortgagee Letter 2008-43, Section D,
Financial Analysis).




                                                44
                                                                           OIG’s review
               EverBank’s financial analysis                                         Unverified or
                                                            Verified amount
                                                                                  unsupported amount
 Monthly net income:
 Mortgagor                                       $2,950                $1,763
 Co-mortgagor                                    $1,800                $3,614
 Supplemental Security Income                    $1,147                $1,281
                      Total income               $5,897                $6,658
 Monthly expenses:
 Mortgage                                        $1,162                $1,162
 Auto loan (1)                                  $ 672                                            $   672
 Auto loan (2)                                  $ 432                                            $   432
 Medical bills                                  $ 630                                            $   630
 Auto insurance                                 $ 258                                            $   258
 Utilities                                      $ 300                                            $   300
 Telephone                                      $ 62                   $ 79
 Cable TV                                       $ 190                  $ 192
 Cell phone                                     $ 100                  $ 106
 Groceries                                      $ 600                                            $ 600
 Transportation                                 $ 500                                            $ 500
 Eating out                                     $ 200                                            $ 200
 Miscellaneous                                  $ 600                                            $ 600
 Insurance                                      $ 239                                            $ 239
                  Total expenses                $ 5,945                $1,539                    $4,431

 Total income                                    $ 5,897   Total verified income                 $ 6,658
 Less total expenses                           - $ 5,945   Less verified expenses              - $ 1,539
                                                           Less unsupported expenses           - $ 4,431
 Net surplus or (deficit)                       $ (48)     Net surplus or (deficit)              $ 688

EverBank did not support that it properly analyzed the mortgagors’ income and expenses used to
qualify the mortgagors for the program. The mortgagors’ information in the claim file did not
support that the mortgagors were in default as a result of an adverse and unavoidable financial
situation. Therefore, EverBank did not follow HUD’s requirements for determining the
mortgagor’ eligibility into the program and submitted an improper claim to HUD.




                                                  45
Sample 10 – Ineligible claim                         FHA No. 093-6033284
Default date: June 1, 2010                           Original mortgage amount: $183,207
Approval to participate date: September 27, 2011     Unpaid principal balance: $175,224
Settlement date: December 16, 2011                   Claim amount: $143,147

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure program. Specifically, EverBank did not conduct a thorough and independent
financial analysis to support that the mortgagors (1) were in default as a result of an adverse and
unavoidable financial situation and (2) did not have the ability to meet their mortgage obligation
as required by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D
(Financial Analysis).

Default not due to an adverse or unavoidable financial situation
The mortgagors’ hardship claim was that their expenses increased after they dissolved their
domestic partnership. Part of the mortgagors’ claimed expenses included a $3,800 lump-sum
amount for living expenses. EverBank accepted the lump-sum amount and included it in its
financial analysis without identifying and independently verifying the individual expenses that
made up the $3,800. The lender must independently verify the financial information and
maintain all evidence of compliance with HUD’s loss mitigation program requirements
(Mortgagee Letter 2008-43, Section D). Therefore, EverBank did not adequately support that the
mortgagors’ expenses increased or that the default was due to an adverse and unavoidable
financial situation.

Inadequate financial analysis to support the mortgagor’s ability to meet the mortgage
obligations
EverBank’s analysis of the mortgagors’ financial information showed that the mortgagors had a
net deficit income of $642. Without verifying the $3,800 in living expenses, EverBank did not
substantiate that the mortgagors’ expenses had increased and affected its ability to meet its
mortgage obligation. When excluding the $3,800 unsupported expense from the financial
calculation, the mortgagor had a net surplus of $3,134. Mortgagors with surplus income or other
assets are required to repay the indebtedness through the use of a repayment plan and are not
eligible to participate in the program (Mortgagee Letter 2008-43, Section D).




                                                46
                                                                             OIG’s review
                  EverBank’s financial analysis                   Verified              Lump-sum
                                                                  amount           unsupported amount
 Monthly net income:
 Mortgagor income                                  $2,938                $2,938
 Co-mortgagor income                               $3,185                $3,185
                             Total net income      $6,123                $6,123
 Monthly expenses:
 FHA-insured mortgage                              $1,561                $1,561
 Credit cards and installment loans                $ 576                 $ 600
 Auto loans - mortgagor                            $ 417                 $ 417
 Auto loans – co-mortgagor                         $ 410                 $ 410
 Food, utilities, gas, living expenses             $3,800                                       $3,800
 combined
                               Total expenses      $6,764                $2,988                 $3,800

 Total income                                       $6,122   Total verified income               $6,122
 Less total expenses                              - $6,764   Less verified expenses            - $2,988
 Net surplus or (deficit)                          $ (642)   Net surplus or (deficit)            $3,134

EverBank did not independently verify or support the expenses used to qualify the mortgagors
for the program. The claim file did not have adequate documentation to support the mortgagors’
monthly financial position. As a result, EverBank did not follow program requirements for
determining the mortgagors’ eligibility and submitted an improper claim to HUD.




                                                  47
Sample 11 – Ineligible claim                         FHA No. 093-6629749
2nd home purchase date: April 8, 2013                Original mortgage amount: $ 211,196
Default date: September 1, 2011                      Unpaid principal balance: $ 203,836
Approval to participate date: April 15, 2013         Claim amount: $ 149,330
Settlement date: July 12, 2013

EverBank did not adequately evaluate and determine the mortgagor’s eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to properly determine that the mortgagor (1) was in default as a
result of an adverse and unavoidable financial situation and (2) did not have the ability to meet
the mortgage obligation as required by Mortgagee Letter 2008-43, Section B (Mortgagor
Qualifications) and Section D (Financial Analysis).

Default not due to an adverse or unavoidable financial situation
The co-mortgagor indicated in her hardship letter that with the mortgagor’s (her spouse) passing
on December 13, 2012, the household income was reduced by more than half. Based on her
financial situation, EverBank approved the co-mortgagor for the program on April 15, 2013.
However, the co-mortgagor’s bank statement for March 2013 indicated that she had other
sources of income, such as two deposits ($2,000 and $1,000) transferred from two accounts into
her bank account. EverBank did not identify or show that it was aware of the deposits and
inquire into the co-mortgagor’s additional personal resources to pay the mortgage. About 1
week before EverBank approved the co-mortgagor for the program, the co-mortgagor obtained
another home with a sale price of $199,000 on April 8, 2013. We did not identify financing for
the purchased property. Thus, the co-mortgagor had the financial ability to obtain a second
home and was not in default as a result of an adverse and unavoidable financial situation.

Inadequate financial analysis to determine the mortgagor’s ability to meet the mortgage
obligation
EverBank did not independently verify or have supporting documentation for $1,005 of the
mortgagors’ expenses. For example, the claim file did not contain an invoice for the reported
home insurance expense of $126 and supported only $178 of the $409 reported for utilities. The
lender must independently verify the financial information and maintain all evidence of
compliance with HUD’s loss mitigation program requirements (Mortgagee Letter 2008-43,
Section D).

EverBank did not adequately review the deposits from the co-mortgagor’s bank statement as an
indication that she may have had other personal resources that afforded her the ability to
purchase another property, although the financial information submitted by the co-mortgagor
indicated that she had a deficit net income. EverBank may have identified the additional asset
had it independently verified the financial information submitted by the co-mortgagor.
Therefore, EverBank did not prudently evaluate the co-mortgagor’s financial information to
ensure that she did not have sufficient personal resources to pay her mortgage commitment
before approving her for the program.




                                               48
                                                                              OIG’s review
            EverBank’s financial analysis                    Verified or supported        Unverified or
                                                                    amount             unsupported amount
 Monthly net income:
 Mortgagor (deceased)                             n/a                            n/a
 Co-mortgagor                                 $2,344                         $2,344
 Monthly expenses:
 FHA-insured mortgage                          $1,576                        $1,576
 Auto insurance                                $ 248                         $ 248
 Food                                          $ 600                                                 $ 600
 Utilities                                     $ 409                         $   231                 $ 178
 Transportation                                $ 400                         $   402
 Life insurance                                $ 130                         $    70                 $      60
 Cell phone                                    $ 220                         $   208                 $      12
 Cable and Internet                            $ 120                         $   121
 Home insurance                                $ 126                                                  $ 126
                    Total expenses            $ 3,829                        $ 2,856                   $ 976
 Total income                                 $ 2,344    Total verified income                       $ 2,344
 Less total expenses                        - $ 3,829    Less verified expenses                    - $ 2,856
                                                         Less unsupported expenses                   - $ 976
 Net surplus or (deficit)                   $ (1,485)    Net surplus or (deficit)                   $(1,488)

EverBank did not properly analyze the co-mortgagor’s financial information when it failed to
identify additional assets held by the co-mortgagor. The co-mortgagor claimed a reduction in
income, but was able to purchase another home while applying for the program. As a result, the
mortgagor was not eligible for the program and EverBank submitted an improper claim to HUD.




                                                        49
Sample 12 – Ineligible claim                         FHA No. 094-5541127
Default date: August 1, 2011                         Original mortgage amount: $175,050
Approval to participate date: June 4, 2012           Unpaid principal balance: $169,307
Settlement date: September 27, 2012                  Claim amount: $128,851

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to support that the mortgagors (1) were in default as a result of an
adverse and unavoidable financial situations (2) did not have the ability to meet their mortgage
obligation, and (3) vacating the property was related to the cause of default as required by
Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and Section D (Financial
Analysis).

Default not due to an adverse and unavoidable financial situation
The co-mortgagor stated that she was unemployed as of September 2011 and was financially
supported by her spouse, who was not on the FHA-insured mortgage. EverBank included the co-
mortgagor’s financial information, which was based on the co-mortgagor’s spouse’s income, but
did not include the financial information of the mortgagor in its financial analysis to qualify the
mortgagors for the program. EverBank did not document its reason for not including and
assessing the mortgagor’s financial information. During our audit, EverBank provided a faxed
document in which the mortgagor stated that he was currently unemployed and was working odd
jobs. The document was not dated, but had a faxed date of August 29, 2012. In addition,
EverBank’s financial analysis used to qualify the mortgagors was updated on August 31, 2012,
more than 2 months after it approved the mortgagors to participate in the program in June 4,
2012. The claim file did not contain documentation showing that EverBank verified the
mortgagors’ unemployment claims, assessed the mortgagor’s financial information, and verified
the co-mortgagor’s financial expenses to substantiate that the mortgagors were in default as a
result of an adverse and unavoidable financial situation.

EverBank explained that the mortgagor and the co-mortgagor were separated, and the co-
mortgagor got married and stayed in the home. Although the mortgagor was not residing at the
property, he was responsible for the mortgage. Without documentation showing that EverBank
adequately assessed and verified both mortgagors’ financial information, EverBank did not
properly substantiate the mortgagors’ eligibility to participate in the program.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank incorrectly determined the co-mortgagor’s spouse had a net income of $2,070. The
earnings and bank statements supported a total calculated income amount of $3,809 per month, a
difference of $1,739. EverBank also did not have or obtain supporting documentation to
independently verify $2,445 of the co-mortgagor’s expenses, such as $950 for rent and $200 for
cell phones. The lender must independently verify the financial information and maintain all
evidence of compliance with HUD’s loss mitigation program requirements (Mortgagee Letter
2008-43, Section D).



                                                50
                                                                                OIG’s review
           EverBank’s financial analysis                      Verified amount        Unverified or unsupported
                                                                                              amount
 Monthly net income:
 Mortgagor                                          0
 Co-mortgagor (income from
                                              $ 2,070                    $ 3,809
 spouse)
 Monthly expenses:
 1st and 2nd mortgage                         $ 1,391                    $ 1,391
 Rent                                         $ 950                                                        $ 950
 Credit cards                                 $    15                                                      $ 15
 Food                                         $ 450                                                        $ 450
 Utilities                                    $ 300                                                        $ 300
 Transportation                               $ 400                                                        $ 400
 Cable and Internet                           $ 130                                                        $ 130
 Cell phones                                  $ 200                                                        $ 200
                 Total expenses                $3,836                    $ 1,391                           $2,445

 Total income                                $ 2,070     The claim file did not have adequate supporting
 Less total expenses                       - $ 3,836     documentation to determine the mortgagors’ monthly
 Net surplus or (deficit)                    $ (1,766)   financial position since EverBank did not obtain income
                                                         or unemployment income documentation for either the
                                                         mortgagor or co-mortgagor or have support for the
                                                         expenses.

Vacating the property was not related to the cause of default
The claim file indicated that neither of the two mortgagors occupied the property at time of
application for the program. The co-mortgagor stated she vacated the property as of October
2011 to be with her current spouse, who financially supported her because she was unemployed
as of September 2011. There was no information in the claim file documenting the mortgagor’s
reason for vacating the property. EverBank explained that the mortgagor and the co-mortgagor
were separated, but did not state when the mortgagor vacated the property. Therefore, EverBank
did not adequately assess the mortgagors’ information to ensure that the mortgagors’ need to
vacate the property was related to the cause of the default.

EverBank did not adequately assess the mortgagors’ unemployment information to substantiate
that the reason for the default was due to an adverse and unavoidable financial situation and
support that the mortgagors’ need to vacate was related to the default. Also, EverBank did not
independently verify the claimed expenses such as rent and transportation. As a result,
EverBank did not follow HUD requirements to qualify mortgagors for the program and
submitted an improper claim for this preforeclosure sale.




                                                         51
Sample 14 – Ineligible claim                         FHA No. 094-5187886
Default date: February 1, 2011                       Original mortgage amount: $136,010
Approval to participate date: June 3, 2011           Unpaid principal balance: $128,911
Settlement date: September 11, 2011                  Claim amount: $104,359

EverBank did not adequately evaluate and determine the mortgagor’s eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to support that the mortgagor (1) was in default as a result of an
adverse and unavoidable financial situation and (2) did not have the ability to meet her mortgage
obligation as required by Mortgagee Letter 2008-43, Section B (Mortgagor Qualifications) and
Section D (Financial Analysis).

Default not due to an adverse and unavoidable financial situation
The mortgagor stated that her financial hardship started in 2008 when she began supporting her
deceased brother’s four children in addition to her two children, her disabled mother, and her
unemployed father. EverBank’s financial analysis indicated that the expenses the mortgagor
incurred in supporting her parents contributed to her deficit net income. However, the claim file
did not contain documentation to support the validity of the mortgagor’s expenses. EverBank
did not require or document that it verified the mortgagor’s additional expenses incurred.
Without adequate financial documentation to support the mortgagor’s claim of increased
expenses, EverBank did not properly determine the mortgagor’s default was due to an adverse
and unavoidable financial situation.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank did not independently verify or have documentation such as invoices to support that it
independently verified $3,478 in expenses, including a $1,700 expense for helping her parents
and $100 for childcare. Therefore, EverBank did not substantiate that the calculated deficit net
income of $1,398 was correct. When excluding the $1,700 unsupported expense from the
financial calculation, the mortgagor had a net surplus of $257. Mortgagors with surplus income
or other assets are required to repay the indebtedness through the use of a repayment plan and are
not eligible to participate in the program (Mortgagee Letter 2008-43, Section D). However,
since the file lacked documentation to support the claimed expenses and its true amounts,
EverBank did not properly determine the mortgagor’s eligibility to participate in the program.




                                                52
                                                                           OIG’s review
                                                        Verified          Unverified or      Lump-sum
          EverBank’s financial analysis
                                                        amount            unsupported       unsupported
                                                                            amount            amount
 Monthly net income:
 Mortgagor income                          $3,818             $3,818
 Monthly expenses:
 FHA-insured mortgage                      $1,042             $1,042
 Car payments                              $ 250              $ 244               $     6
 Student loan                              $ 250              $ 212               $    38
 Food                                      $ 800                                  $   800
 Utilities                                 $ 235                                  $   235
 Transportation                            $ 479                                  $   479
 Childcare                                 $ 100                                  $   100
 Auto insurance                            $ 140              $ 150
 Cell phone                                $ 120                                  $ 120
 Home phone, Internet, cable               $ 100              $ 135
 Helping parents                           $1,700                                                   $1,700
                 Total expenses            $5,216             $1,783              $1,778            $1,700

 Total income                           $ 3,818      Total verified income                          $3,818
 Less total expenses                  - $ 5,216      Less verified expenses                       - $1,783
                                                     Less unsupported expenses                    - $1,778
 Net surplus or (deficit)                 $(1,398)   Net surplus or (deficit)                         $257

EverBank did not support that it approved a mortgagor who was in default as a result of an
adverse and unavoidable financial situation and was eligible for the program. Also, it did not
independently verify the expenses claimed to support that the mortgagor had a net deficit
income. As a result, EverBank did not follow HUD requirements to qualify the mortgagor for
the program and submitted an improper claim to HUD.




                                                       53
Sample 15 – Ineligible claim                         FHA No. 094-5169620
Default date: July 1, 2011                           Original mortgage amount: $148,724
Approval to participate date: November 17, 2011      Unpaid principal balance: $138,794
Settlement date: June 8, 2012                        Claim amount: $112,342

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to support that the mortgagors (1) were in default as a result of an
adverse and unavoidable financial situation and (2) did not have the ability to meet their
mortgage obligation as required by Mortgagee Letter 2008-43, Section B (Mortgagor
Qualifications) and Section D (Financial Analysis).

Default not due to an adverse and unavoidable financial situation
The mortgagors stated that their income decreased significantly and they had not received a cost
of living increase, were making $6,000 less than the year they purchased the house, took a 3
percent cut in take-home pay, and had a child. They indicated that these changes, along with
other things, contributed to their struggle to make their mortgage payment. However, the claim
file did not contain information to support the mortgagors’ claim of a reduction in income.
EverBank did not support that the default was due to an adverse and unavoidable financial
situation.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank did not independently verify or have documentation such as invoices to support that it
verified $2,560 in expenses and debts, such as $500 for childcare, $500 for a loan repayment,
and $560 for utilities. Without independently verifying the expenses to accurately determine the
mortgagors’ ability to meet their mortgage obligation, EverBank did not follow with program
requirements to qualify the mortgagors for the program. The lender must independently verify
the financial information and maintain all evidence of compliance with HUD’s loss mitigation
program requirements (Mortgagee Letter 2008-43, Section D).




                                                54
                                                                           OIG’s review
            EverBank’s financial analysis                     Verified amount            Unverified or
                                                                                      unsupported amount
 Monthly net income:
 Mortgagor income                             $2,322                          $2,286
 Co-mortgagor income                          $2,322                          $2,322
            Total net income                  $4,644                          $4,608

 Monthly expenses:
 FHA-insured mortgage                         $1,165                          $1,165
 Credit cards                                 $ 405                           $ 405
 Student loans                                $ 131                           $ 131
 Repayment of loan                            $ 500                                                      $ 500
 Food and toiletries                          $ 500                                                      $ 500
 Utilities                                    $ 560                                                      $ 560
 Transportation and insurance                 $ 700                                                      $ 700
 Childcare                                    $ 500                                                      $ 500
 Medicine                                     $ 30                                                       $ 30
 Internet                                     $ 50                                                       $ 50
 Cell phone                                   $ 160                                                      $ 160
 House maintenance                            $ 60                                                       $ 60
              Total expenses                  $4,761                             $1,701                  $3,060
                                                         The claim file did not have adequate supporting
 Total income                                 $ 4,644    documentation for expenses to determine the mortgagors’
 Less total expenses                        - $ 4,761    monthly financial position.
 Net surplus or (deficit)                    $ (117)

EverBank did not properly analyze the mortgagors’ financial information to support the expense
amounts used to qualify the mortgagors for the program and that the mortgagors were in default
as a result of an adverse and unavoidable financial situation. Therefore, EverBank did not follow
requirements to qualify the mortgagors for the program and submitted an improper claim to
HUD.




                                                        55
Sample 17 – Ineligible claim                          FHA No. 094-5230354
Default date: July 1, 2011                            Original mortgage amount: $162,450
Approval to participate date: January 28, 2013        Unpaid principal balance: $153,715
Settlement date: May 3, 2013                          Claim amount: $115,749

EverBank did not adequately evaluate and determine the mortgagors’ eligibility to participate in
the preforeclosure sales program. Specifically, EverBank did not conduct a thorough and
independent financial analysis to support that the mortgagors (1) were in default as a result of an
adverse and unavoidable financial situation and (2) did not have the ability to meet their
mortgage obligation as required by Mortgagee Letter 2008-43, Section B (Mortgagor
Qualifications) and Section D (Financial Analysis).

Default due to an adverse and unavoidable financial situation
The mortgagors stated that their hardship was due to a reduction in income and an increase in
expenses. However, EverBank did not document the mortgagor’s claimed reduction in income
and increases in expenses as an adverse and unavoidable financial situation that caused them to
default. Without adequate financial documentation to support the mortgagors’ expenses,
EverBank did not substantiate the mortgagors’ eligibility to participate in the program.

Inadequate financial analysis to support the mortgagor’s ability to meet mortgage
obligations
EverBank did not independently verify or have documentation such as invoices to support that it
independently verified $2,756 in expenses, such as $700 for transportation and $260 for cell
phones. Without independently verifying the expenses to accurately determine the mortgagors’
ability to meet their mortgage obligation, EverBank did not follow with program requirements to
qualify the mortgagors for the program. The lender must independently verify the financial
information and maintain all evidence of compliance with HUD’s loss mitigation program
requirements (Mortgagee Letter 2008-43, Section D).




                                                 56
                                                                          OIG’s review
              EverBank’s financial analysis                  Verified amount          Unverified or
                                                                                  unsupported amount
 Monthly net income:
 Mortgagor income                               $2,331                      $2,331
 Co-mortgagor income                            $2,504                      $2,504
               Total net income                 $4,835                      $4,835

 Monthly expenses:
 FHA-insured mortgage                           $1,305                      $1,305
 Auto loans                                     $ 709                       $ 709
 Credit cards                                   $ 55                        $ 133
 Dues and uniforms                              $ 212                                                   $ 212
 Student loans                                  $ 98                        $   98
 Food                                           $ 600                                                    $ 600
 Utilities                                      $ 264                                                    $ 264
 Transportation                                 $ 700                                                    $ 700
 Auto insurance                                 $ 200                                                   $ 200
 Pet expenses                                   $ 100                                                   $ 100
 Home maintenance                               $ 300                                                   $ 300
 Cell phone                                     $ 260                                                    $ 260
 Cable, Internet, and home phone                $ 120                                                    $ 120
                   Total expenses              $ 4,923                      $ 2,245                     $ 2,756
                                                          The claim file did not have adequate supporting
 Total income                                   $ 4,835   documentation for expenses to determine the
 Less total expenses                          - $ 4,923   mortgagors’ monthly financial position.
 Net surplus or (deficit)
                                                $ (88)

EverBank did not properly analyze the mortgagors’ financial information to support the expense
amounts used to qualify the mortgagors for the program and that the mortgagors were in default
as a result of an adverse and unavoidable financial situation. Therefore, EverBank did not follow
HUD requirements for approving the mortgagors into the program and submitted an improper
claim to HUD.




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