oversight

                                              U.S. DEPARTMENT OF
                              HOUSING AND URBAN DEVELOPMENT
                                       OFFICE OF INSPECTOR GENERAL



                       
                                          September 30, 2015

                                                                                            MEMORANDUM NO:
                                                                                            2015-CH-1801



Memorandum
TO:           Dane M. Narode
              Associate General Counsel, Office of Program Enforcement, CACC

              //signed//
FROM:         Kelly Anderson
              Regional Inspector General for Audit, Chicago Region, 5AGA

SUBJECT:      Final Civil Action: GTL Investments, Inc., Doing Business as John Adams
              Mortgage Company Settled Allegations of Failing To Comply With HUD’s FHA
              Loan Requirements

                                          INTRODUCTION

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General
(OIG), in coordination with the U.S. Attorney’s Office for the Eastern District of Michigan,
conducted a joint investigation of GTL Investments, Inc., doing business as John Adams
Mortgage Company regarding its originations, underwriting, quality control, and endorsement of
Federal Housing Administration (FHA) loans.

                                           BACKGROUND

FHA is a component of HUD. The FHA program provides mortgage insurance for a person to
purchase or refinance a principal residence. The mortgage loan is funded by a lending
institution, such as a mortgage company or bank, and the mortgage is insured by FHA.

GTL Investments, based in Southfield, MI, has participated in the FHA program since 1972 and
has been a direct endorsement lender since 2003. The direct endorsement program authorizes
private-sector mortgage lenders to approve mortgage loans for insurance by FHA. Lenders
approved for the program must follow FHA requirements and provide annual and per loan
certifications that the lender complied with these requirements when underwriting and approving
loans for FHA insurance.

                                             Office of Audit (Region 5)
                           77 West Jackson Boulevard, Room 2201, Chicago, IL 60604
                                          Phone (312) 353-7832, Fax (312) 353-8866
                              Visit the Office of Inspector General Web site at www.hudoig.gov.
 
                                                  




                                                           RESULTS OF INVESTIGATION

The U.S. Government contended that it had certain civil claims against GTL Investments due to
the origination, underwriting, quality control, and endorsement of 29 FHA-insured loans made
from January 2008 through April 2012 that went to claim. Further, GTL Investments’ material
deficiencies in the underwriting of the 29 loans resulted in losses to the FHA insurance fund.
The Government also contended that it had actual and potential administrative claims against
GTL Investments for two additional FHA-insured loans that remained in GTL Investments’ loan
portfolio.

To avoid the delay, uncertainty, inconvenience, and expense of lengthy ligation in regard to the
Government’s claim and in consideration of mutual promises and obligations, on December 23,
2014, GTL Investments entered into a settlement agreement to pay $4.2 million to the FHA
insurance fund. GTL Investments also agreed to refrain from making any claim for FHA
insurance benefits or indemnify FHA for losses incurred, if any, on the two loans that remained
in its loan portfolio.1 The settlement agreement was neither an admission of liability by GTL
Investments nor a concession by the Government that its allegations were not well founded.

                                                               RECOMMENDATIONS

We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,

1A.           Allow HUD OIG to post the $4,200,000 recovery to HUD’s Audit Resolution and
              Corrective Action Tracking System as an ineligible cost.

1B.           Allow HUD OIG to post $27,158 to HUD’s Audit Resolution and Corrective Action
              Tracking System as an ineligible cost for the loss incurred on the sale of the property
              associated with FHA case number 261-9436172.

1C.           Coordinate with the Office of Single Family Housing to ensure that FHA case number
              261-9389877 is identified, in the appropriate HUD system, as being subject to
              indemnification if claims are paid and losses are incurred as a result of the settlement
              agreement. The loss to the FHA insurance fund is estimated to be $36,773.2




                                                            
1
  Since the settlement agreement, one of the two loans, FHA case number 261-9436172, went to claim and incurred
a loss on the sale of the associated property. For the remaining loan, FHA case number 261-9389877, the loan was
active as of September 3, 2015.
2
  This amount is based on the loss severity rate of 50 percent of the unpaid principal balance of $73,546 as of
September 3, 2015.

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