oversight

The Georgia Housing and Finance Authority, Atlanta, GA, Did Not Adequately Implement the Federal Housing Administration's Home Affordable Modification Program in Accordance With HUD's Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-08-05.

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

           Georgia Housing and Finance
             Authority, Atlanta, GA
    Federal Housing Administration – Home Affordable
                  Modification Program




Office of Audit, Region 4     Audit Report Number: 2016-AT-1011
Atlanta, GA                                       August 5, 2016
To:            Robert E Mulderig, Acting Deputy Assistant Secretary for Single Family
               Housing, HU


               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Georgia Housing and Finance Authority, Atlanta, GA, Did Not Adequately
               Implement the Federal Housing Administration’s Home Affordable Modification
               Program in Accordance With HUD’s Requirements




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Georgia Housing and Finance Authority.
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.
                    Audit Report Number: 2016-AT-1011
                    Date: August 5, 2016

                    The Georgia Housing and Finance Authority, Atlanta, GA, Did Not
                    Adequately Implement the Federal Housing Administration’s Home
                    Affordable Modification Program in Accordance With HUD’s Requirements



Highlights

What We Audited and Why
We audited the Georgia Housing and Finance Authority’s implementation of the Federal
Housing Administration’s Home Affordable Modification Program (FHA-HAMP). We selected
the Authority because (1) our data analysis showed that the Authority had the highest ratio of
FHA-HAMP actions to delinquent loans within the jurisdiction of our regional office, (2) the
U.S. Department of Housing and Urban Development (HUD) office located in Atlanta, GA,
performed a review in 2012 that identified multiple loss mitigation and servicing deficiencies,
and (3) it was part of our annual audit plan. Our audit objective was to determine whether the
Authority properly implemented its FHA-HAMP in accordance with HUD’s requirements.

What We Found
The Authority did not adequately implement its FHA-HAMP in accordance with HUD’s
requirements. Specifically, it did not (1) comply with the market rate condition required for
FHA-HAMP stand-alone partial claims, (2) ensure that the borrowers successfully completed
their trial payment plans, (3) support that it properly evaluated and independently verified the
borrowers’ financial information, and (4) support that it properly calculated the partial claim and
loan modification amounts. As a result, HUD paid more than $1.1 million for 138 loans that
were not eligible or supported for proper implementation of FHA-HAMP, including three active
modified loans with unpaid principal balances of $241,031.

What We Recommend
We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require the
Authority to (1) reimburse HUD $160,013 for claims and incentive fees paid for 10 loans that
were not FHA-HAMP eligible, (2) indemnify HUD for two active modified loans with total
unpaid balance of $102,241 that were not FHA-HAMP eligible, (3) support or reimburse HUD
$941,770 for claims and incentive fees paid on 124 loans that may not have been eligible for
FHA-HAMP, (4) support or reimburse HUD $74,767 for partial claims and incentive fees paid
for three loans that were not supported as eligible for FHA-HAMP, (5) support or indemnify
HUD for one active modified loan with unpaid balance of $138,790 that was not supported as
eligible for FHA-HAMP, and (6) improve its written policies and procedures to ensure
implementation of FHA-HAMP in accordance with HUD’s requirements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The Authority Did Not Adequately Implement FHA-HAMP in
         Accordance With HUD’s Requirements ......................................................................... 5

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................15
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 15
         B. Auditee Comments and OIG’s Evaluation ............................................................. 16
         C. Relevant Criteria ....................................................................................................... 37
         D. FHA Loss Mitigation Loan File – Summary of Deficiencies................................. 40
         E. Unsupported Costs: Stand-Alone Partial Claim Loans ....................................... 51
         F. Estimated Losses to HUD From Loss Mitigation Deficiencies ............................. 55




                                                                  2
Background and Objective
The Making Home Affordable (MHA) program provides homeowners the opportunity to reduce
their mortgage payments by modifying their loan through the Home Affordable Modification
Program (HAMP). When initially introduced, the program excluded Federal Housing
Administration (FHA)-insured mortgages with the expectation that FHA would later develop its
own stand-alone program. On July 30, 2009, the U.S. Department of Housing and Urban
Development (HUD) issued Mortgagee Letter 2009-23, announcing the new FHA-HAMP, which is
one of several options under FHA’s loss mitigation home retention options. The lender must
evaluate the delinquent borrower for the following options in the following order: (1) informal and
formal forbearance plans, 1 (2) special forbearances,2 (3) loan modification,3 and (4) FHA-HAMP.

The objective of FHA-HAMP is to assist FHA homeowners who are in default in avoiding
foreclosure. Through the use of a partial claim combined with a loan modification, the mortgage is
reduced to an affordable payment. Under the partial claim option, lenders are authorized to advance
funds to bring the mortgage current by buying down the loan for up to 30 percent of the unpaid
principal balance. This option defers the repayment of the partial claim amount through an interest-
free subordinate mortgage that is not due until the first mortgage is paid off.

Lenders that use the FHA-HAMP options are eligible to receive incentive payments of up to $1,250,
including $500 for approving the use of a partial claim and $750 for the use of a loan modification.
HUD pays the lender the partial claim amount plus the incentive fee after the lender submits the
claim. Lenders must file a claim for insurance benefits for the partial claim within the 60-day
timeframe to receive incentive fees for the FHA-HAMP loss mitigation action. The lender is also
responsible for delivering a copy of the promissory note and recorded mortgage to HUD.

With the issuance of Mortgagee Letter 2012-22 on November 16, 2012, FHA-HAMP allowed the
use of a stand-alone partial claim, a stand-alone loan modification, or a combination of both.
Through Mortgagee Letters 2012-22 and 2013-32, HUD provided step-by-step guidance to the
lender to help determine which home retention option may be appropriate for the delinquent
borrower and the calculations for the partial claim and loan modification amounts under FHA-
HAMP.

The Georgia Housing and Finance Authority, which merged with the Georgia Department of
Community Affairs in 1996, is a Title II lender in Atlanta, GA. Its various programs are designed to
provide low- and moderate-income people safe and affordable rental housing and to acquire and


1
    Informal forbearance plans are oral agreements for a period of up to 3 months. Formal forbearance plans are
    written agreements with a period of more than 3 and less than 6 months. These options are not eligible for
    incentive payments.
2
    A special forbearance is a written agreement between a lender and a borrower who is unemployed to reduce or
    suspend the mortgage payments.
3
    A loan modification is a permanent change to one or more of the loan terms.



                                                        3
maintain housing for home ownership and to help abate homelessness in the State. Proceeds
derived from the issuance of mortgage revenue bonds as well as Federal and State funds support the
Authority’s home ownership programs. The money from the revenue bonds also goes toward the
purchase of mortgages as the Authority does not underwrite loans. State Home Mortgage, an entity
under the umbrella of the Authority, services the purchased loans. The proceeds from these
mortgages are used to repay the bond holders.

We selected the Authority for audit because it had the highest ratio of FHA-HAMP actions to
delinquent loans within specified limits. As of November 2015, the Authority serviced
approximately 15,000 loans. The Authority’s portfolio consists of FHA, U.S. Department of
Veterans Affairs, Federal National Mortgage Association, and uninsured and insured conventional
loans. As of December 2015, FHA loans accounted for 89 percent of the total number of loans and
92 percent of the total dollar value of loans.

Our audit objective was to determine whether the Authority properly implemented FHA-HAMP in
accordance with Federal and HUD’s requirements.




                                                 4
Results of Audit

Finding: The Authority Did Not Adequately Implement FHA-
HAMP in Accordance With HUD’s Requirements
The Authority did not adequately implement FHA-HAMP in accordance with HUD’s
requirements. Specifically, it did not (1) comply with the FHA-HAMP stand-alone partial claim
market rate requirement, (2) ensure that the borrowers successfully completed the trial payment
plan, (3) support that it properly evaluated and independently verified the borrowers’ financial
information, and (4) support that it properly calculated the partial claim and loan modification
amounts. These loss mitigation deficiencies occurred because the Authority (1) mistakenly
thought that its FHA-insured loans were exempted from one of the qualifying requirements for
FHA-HAMP stand-alone partial claims and (2) did not have adequate written policies and
procedures to ensure that its implementation of FHA-HAMP complied with HUD’s
requirements. As a result, HUD paid more than $1.1 million and insured $241,031 for 138 loans
that were not eligible or supported as being eligible for FHA-HAMP.

We reviewed 22 loss mitigation loan files with FHA-HAMP claims processed between January
1, 2014, and September 30, 2015. We identified loss mitigation deficiencies with 14 of the 22
loss mitigation loan files (64 percent) reviewed in which the Authority did not comply or
adequately support that the borrowers met all of the FHA-HAMP qualifying criteria in
Mortgagee Letters 2013-32 and 2012-22. Applicable criteria can be found in appendix C.

                                                          Verifiable loss     Incorrect
                                           Successful      of income or      partial claim
                        Market rate      completion of      increase in        and loan
       FHA case         requirement     trial payments     expenses not      modification
        number            not met           not met         supported        calculations
      105-6387683            X                                   X
      105-5539870            X                                   X
      105-5804221            X                                   X
      105-2105142            X
      105-2747341            X
      105-5798660            X
      105-2912604            X
      105-6446384            X
      105-2822097                              X                                  X
      101-8481635                              X                 X
      105-7394963                                                X
      105-7377414                                                X
      105-7534978                                                X



                                                5
                                                                       Verifiable loss        Incorrect
                                                    Successful          of income or         partial claim
                             Market rate          completion of          increase in           and loan
         FHA case            requirement         trial payments         expenses not         modification
          number               not met               not met             supported           calculations
       105-3589300 4                                                                               X
           Totals                   8                     2                    7                   2


FHA-HAMP Stand-Alone Partial Claim Market Interest Rate Requirement Not Met
The Authority did not ensure that FHA-HAMP partial claims met the market rate requirement.
According to Mortgagee Letter 2013-32, a lender may use an FHA-HAMP stand-alone partial
claim without an accompanying loan modification if the borrower’s current interest rate is at or
below market rate. 5 Eight of the thirteen approved partial claim loans reviewed (62 percent) had
interest rates that were above the market rate requirement and, therefore, were not permissible
under FHA-HAMP. As a result, HUD paid $112,777 for partial claims and $4,000 for incentive
fees for nine loans that were not eligible for an FHA-HAMP stand-alone partial claim.

                                                                         Borrower’s
     FHA case             Partial claim          Incentive fee            mortgage              Market rate
      number              amount paid            amount paid             interest rate          percentage
                                                                         percentage
    105-6387683                    $19,902                    $500          5.250                   4.380
    105-5539870                     27,136                     500          5.125                   4.480
    105-5804221                     26,515                     500          5.375                   4.620
    105-2105142                      7,699                     500          5.500                   4.560
    105-2747341                      5,214                     500          5.000                   4.350
    105-5798660                     11,086                     500          5.375                   4.120
    105-2912604                      7,946                     500          5.625                   4.170
    105-6446384                      7,279                     500          5.500                   4.380
           Totals                  112,777                    4,000

In response to this issue, the Authority stated that it received a variance from HUD that
exempted its loans from the interest reduction requirement in Mortgagee Letter 2009-35 due to
the restriction of its mortgage revenue bond program and had interpreted HUD’s approved
variance to include the FHA-HAMP stand-alone partial claim market rate requirement. HUD


4
    The loan was incorrectly identified as FHA-HAMP and was included in the universe of loans. However, the
    review determined that the loan was approved for a standard loan modification.
5
    Mortgagee Letter 2013-17 defines the market rate as a rate that is no more than 25 basis points greater than the
    most recent Federal Home Loan Mortgage Corporation (Freddie Mac) weekly primary mortgage market survey
    rate for 30-year fixed-rate conforming mortgages (U.S. average), rounded to the nearest 1/8 of 1 percent (0.125),
    as of the date a trial payment plan is offered to a borrower.



                                                          6
National Servicing Center, which issued the variance to the Authority in November 2009, stated
that its approval of the variance applied to the loan modifications and did not apply to the market
rate requirement for the FHA-HAMP stand-alone partial claims, clarifying that if the condition
was not met, the borrower would not be eligible for the FHA-HAMP stand-alone partial claim
option. On April 11, 2016, the Authority requested a retroactive variance exemption from the
market rate requirement to December 1, 2013, the effective date of Mortgagee Letter 2013-32.
In response to the Authority’s request, HUD stated that the Authority’s bond documentation did
not justify an approval for a variance associated with the FHA-HAMP stand-alone partial claim.
Based on HUD’s response, the Authority’s FHA-insured loans that were approved for the FHA-
HAMP stand-alone partial claim were not exempted from the market rate requirement.
In addition, the Authority had 124 loans that were processed between January 1, 2014, and
September 30, 2015 with a stand-alone partial claim that may not be in compliance with the
market rate requirement. Mortgagee Letter 2013-17 defines the market rate as a rate that is no
more than 25 basis points greater than the most recent Federal Home Loan Mortgage
Corporation (Freddie Mac) weekly primary mortgage market survey rate. The weekly market
rates published by Freddie Mac showed that the market interest rates ranged from 3.34 to 4.58
percent for 2013, 3.80 to 4.53 percent for 2014, and 3.59 to 4.09 percent for 2015. The 124
partial claim loans had interest rates ranging from 3.125 to 7.375 percent, with the majority of
the loans (98 of 124) having interest rates above 5 percent. Our review indicated that most of the
124 loans would not be eligible for an FHA-HAMP stand-alone partial claim because the
mortgage interest rates for the loans were above the market interest rates. Therefore, the
Authority received $60,000 for incentive fees and approved $881,770 in partial claims that may
not have complied with HUD requirements. Appendix E contains a table detailing the
information for the 124 partial claim loans.
The Authority did not ensure or support that the 132 6 loans it approved for the FHA-HAMP
stand-alone partial claim option met the market rate requirement. This condition occurred
because the Authority mistakenly thought that its FHA-insured loans were exempt from the
requirement. As a result, HUD paid $116,777 in partial claims and incentive fees for eight loans
that were not eligible for an FHA-HAMP stand-alone partial claim and $941,770 for partial
claims and incentive fees for 124 loans that may not have met the market rate requirement for
FHA-HAMP stand-alone partial claims.

Successful Completion of the Trial Payment Plan Not Met
The Authority did not ensure that the borrowers successfully completed the trial payment plan in
accordance with the agreements. For two loans, the records showed that the Authority approved
the borrowers for the FHA-HAMP loss mitigation option without ensuring that they successfully
completed the trial payments according to the time schedule of the trial period plan agreement.
It also did not document its reason for allowing the borrowers to continue with the FHA-HAMP
loss mitigation option when they did not make the payments in a timely manner. Mortgagee
Letter 2011-28 requires that the trial payment plan be for a minimum period of 3 months and the
borrower make at least three full, consecutive monthly payments before final execution of the

6
    The 132 loans included eight loans that did not meet the market rate requirement and 124 loans that may not
    have met the market rate requirement.



                                                         7
loan modification or the partial claim. A trial payment plan is considered to have failed when the
borrower does not make the scheduled payment within 15 days of the trial payment plan due
date. According to Mortgagee Letter 2013-32, if a borrower failed to complete the trial payment
plan, the lender must reevaluate the borrower’s eligibility for other loss mitigation options. If the
borrower’s financial circumstances have not changed, then the lender must evaluate for loss
mitigation home disposition options before initiating foreclosure. As a result of the deficiencies
described above, HUD paid $43,236 for partial claims and incentive fees for two loans with
unpaid principal balance of $102,241 that did not meet the requirement for successful completion
of the trial payment plans and were not eligible for FHA-HAMP actions. Summary details for
the two loans can be found in appendix D of this report.
Loss of Income and Increase in Expenses Not Adequately Supported or Verified
For seven loans, the Authority did not support or verify that the borrowers experienced a loss of
income or increase in living expenses as required for the FHA-HAMP loss mitigation options.
The standard financial information the Authority obtained from the borrowers was not always
sufficient to verify and substantiate that the borrowers had experienced a loss of income or an
increase in living expenses as indicated in their hardship statements. The Authority staff stated
that it considered the borrower eligible for FHA-HAMP if its analysis of the borrower’s current
monthly financial condition indicated excessive obligations or met the surplus income
requirement. Therefore, it did not see the need to obtain additional documentation to verify
whether the borrower had experienced a loss of income or an increase in living expenses. For
instance, the Authority did not request proof of a reduction in income from a borrower who
stated in his hardship letter that he had received workers compensation wages that were
significantly less than his normal wages. It also did not ask for proof of payments from a
borrower who stated that one of the reasons her expenses had increased was because she helped
pay for her daughter-in-law’s and grandchildren’s rent and utilities. The requirements in
Mortgagee Letters 2012-22 and 2013-32 state that to qualify for FHA-HAMP, the household or
borrower(s) must experience a verifiable loss of income or increase in living expenses. Without
verifiable documentation, the Authority could not have properly determined that the borrowers
were qualified for the FHA-HAMP loss mitigation options.
In addition, the Authority did not always independently verify the borrowers’ large expense
payments to accurately calculate and determine their household monthly financial position.
These large dollar expenses may impact the borrowers’ loss mitigation options or whether they
qualify for the program. For two of the seven loans, the Authority’s calculations of the
borrowers’ monthly living expenses did not have proper supporting documentation in the loss
mitigation loan files. For example, the Authority did not request proof of payment or have
support for a reported $1,690 monthly childcare expense when the borrower’s bank statements
and other documents the Authority obtained did not support payments for the expense.
Authority staff stated that it used the borrower’s prior-year tax return’s claim and the Internal
Revenue Service (IRS) standard amount for childcare fees to substantiate its reason for not
requesting proof of payment. The IRS standard can be referenced for the reasonableness of the
cost, but it is not a form of verification or support for the expense that the borrower incurred.
Mortgagee Letter 2009-23 states that regardless of how the borrower’s financial information was
secured, the lender must independently verify the financial information. Summary details for the
seven loans can be found in appendix D of this report.


                                                  8
Incorrect Partial Claim and Loan Modification Calculations
The Authority did not properly calculate the partial claim and loan modification amounts for two
loans. For one loan, the Authority submitted a partial claim amount of $30,646 that exceeded the
maximum allowable by $2,378. Mortgagee Letter 2012-22 states that the maximum partial
claim amount must be the lesser of: (1) the sum of arrearages, legal fees and foreclosure costs,
and the principal deferment; or (2) 30 percent of the unpaid principal balance less existing partial
claim amounts. Our calculation showed that the result for (1) was $28,268, and the result for (2)
was $30,854. Thus, the partial claim amount should not have exceeded $28,268 as it was the
lesser of the two options. In addition, we calculated a different gross monthly income for the
mortgagor as the one calculated by the Authority cannot be supported. Our gross monthly
income for the borrower resulted in a different modified loan balance and monthly mortgage
payment. The Authority’s calculation showed a modified loan balance and monthly mortgage of
$77,514 and $615, respectively. We calculated a modified loan balance and monthly mortgage
of $81,299 and $635, respectively. The Authority did not agree with our calculation of the
partial claim amount, but agreed that it cannot support its calculation for the borrower’s gross
monthly income.
For the other loan, the Authority modified the borrower’s loan balance to $109,277 with a
monthly payment of $748. While the modified loan balance was correct, the monthly payment
should have been $745. As a result, the borrower had a $3 monthly overpayment. The Authority
agreed with our calculation. It adjusted the borrower’s principal and interest and applied the
total overpayment to reduce the borrower’s unpaid principal balance. Summary details for the
two loans can be found in appendix D of this report.

Adequate Written Policies and Procedures Were Not Establish For FHA-HAMP
The loss mitigation deficiencies identified above occurred because the Authority did not
establish adequate written policies and procedures to ensure that HUD’s requirements for FHA-
HAMP were properly implemented. The Authority integrated HUD’s general FHA loss
mitigation guidance and requirements into its loss mitigation procedures. However, its
procedures lacked written processes for verifying, calculating, and evaluating the borrowers’
financial information to ensure proper determination for FHA-HAMP option. For instance, its
procedures did not stipulate verification of the borrowers’ loss of income or increase in living
expenses. It also did not specify how the income should be calculated or require documentation
of the method applied and sources used to determine the gross and net income. In addition, the
Authority’s policies and procedures did not include an adequate program requirement checklist
to ensure that all qualifying criteria are met before approving the borrowers for the FHA-HAMP.
Further, the Authority’s loss mitigation procedures did not include an effective date or referenced
sources to ensure changes and updates to the program requirements were properly applied when
determining eligible FHA-HAMP options.

Conclusion
The Authority did not adequately implement FHA-HAMP in accordance with HUD
requirements. This condition occurred because the Authority (1) mistakenly thought that its
FHA-insured loans were exempted from one of the qualifying requirements for FHA-HAMP and
(2) did not have adequate written policies and procedures to ensure that its implementation of
FHA-HAMP complied with HUD’s requirements. The following table summarizes the actual


                                                 9
claims and incentive fees paid and unpaid principal balance of active modified loans associated
with the loss mitigation deficiencies cited above.

                                                         Ineligible costs
                                                                                    Unpaid
             FHA case              Partial claim         Incentive fee             principal
              number                   paid                  paid                   balance
            105-6387683                   $19,902                  $500
            105-5539870                     27,136                  500
            105-5804221                     26,515                  500
            105-2105142                      7,699                  500
            105-2747341                      5,214                  500
            105-5798660                     11,086                  500
            105-2912604                      7,946                  500
            105-6446384                      7,279                  500
            105-2822097                     30 646                1,250                   $74,857
            101-8481635                     10,090                1,250                    27,384
                                          153,513                 6,500
                Totals 7                                        160,013                   102,241
                                                       Unsupported costs
            105-7394963                       9,682                 500
            105-7377414                       6,413                 500
            105-7534978                      56,422               1,250                   138,790
                                             72,517               2,250
                Totals                                           74,767                   138,790

As a result of the loss mitigation servicing deficiencies identified above, HUD paid (1) $160,013
for partial claims and incentive fees for 10 loans that were not eligible for FHA-HAMP,
including two active modified loans with unpaid principal balances of $102,241 (2) $941,770 for
124 loans (appendix E) that may not have been eligible for the FHA-HAMP stand-alone partial
claim, and (3) $74,767for partial claims and incentive fees for three loans that the Authority did
not properly support as eligible for FHA-HAMP, including one active modified loan with an
unpaid principal balance of $138,790.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require the
Authority to

         1A.      Reimburse HUD $116,777 for claims and incentive fees paid on eight loans that
                  were not eligible for the FHA-HAMP stand-alone partial claim due to
                  noncompliance with the market rate requirement.


7
    One of the 14 loans (FHA #105-3589300) that were identified with loss mitigation deficiencies did not contain
    questioned costs.



                                                         10
         1B.      Reimburse HUD $43,236 for claims and incentive fees paid on two loans that
                  were not eligible for FHA-HAMP due to a failure to successfully complete the
                  trial payment plans.

         1C.      Indemnify HUD for two active modified loan agreements with total unpaid
                  balance of $102,241 8 that were not eligible for FHA-HAMP due to a failure to
                  successfully complete the trial payment plans.

         1D.      Support or reimburse HUD $941,770 for claims and incentive fees paid on 124
                  loans that may not have been eligible for the FHA-HAMP stand-alone partial
                  claim due to noncompliance with the market rate requirement.

         1E.      Support or reimburse HUD $74,767 for claims and incentive fees paid for three
                  loans for which the Authority did not have adequate support for the borrower’s
                  verifiable loss of income or increase in living expenses.
         1F.      Support or indemnify HUD for one active modified loan agreement with unpaid
                  balance of $138,790 9 for which the Authority did not have adequate support for
                  the borrower’s verifiable loss of income or increase in living expenses.

         1G.      Improve written policies and procedures to include (1) requiring loss mitigation
                  staff to obtain adequate documentation to ensure that the borrower’s financial
                  information is properly verified and evaluated and (2) ensuring that all qualifying
                  program criteria are met before approving the borrower for FHA-HAMP loss
                  mitigation options.




8
    Fifty percent loss severity rate is applied to the unpaid principal balance of $102,241 for funds to be put to better
    use. See appendix A.
9
    Fifty percent loss severity rate is applied to the unpaid principal balance of $138,790 for funds to be put to better
    use. See appendix A.



                                                            11
Scope and Methodology
Our audit period generally covered January 1, 2014, through September 30, 2015. We
performed our audit work from November 2015 through April 2016 at the Authority’s office
located at 60 Executive Park South NE, Atlanta, GA, and our offices located in Jacksonville and
Miami, FL.
To accomplish our objective, we
     •    Reviewed Federal regulations, HUD handbooks, and mortgagee letters;
     •    Reviewed the Authority’s quality control plan and policies and procedures related to loss
          mitigation;
     •    Reviewed the Authority’s loss mitigation loan files, notes, and account activity
          statements;
     •    Interviewed Authority officials and staff;
     •    Consulted with HUD officials and staff from the National Servicing Center and Quality
          Assurance Division.
We used the data from HUD’s FHA Connection 10 system obtained from the Authority to select
our loan samples. The data included 1,355 records of FHA loans that had incentive claims
processed between January 1, 2014, and September 30, 2015. We narrowed our universe to 375
loans by including only loans with FHA-HAMP incentive claims that were serviced by the
Authority.
During the audit, we selected 25 loans from our universe of 375 loans. The first 10 loans were
selected based on the following conditions. The loans (1) were not found on the Authority’s
internal list of FHA-HAMP loss mitigation loans, (2) had the oldest unpaid date that occurred
after the claim processed date, (3) had more than two claims, (4) had an insurance claim due to
foreclosure, and (5) had unpaid principal balances of $100,000 or more. For the other 15 loans,
we selected 10 loans with an FHA-HAMP partial claim incentive and 5 loans with an FHA-
HAMP combination of partial claim and loan modification incentives processed in 2015 with the
highest unpaid principal balance. We reviewed 22 of the 25 selected loans. We performed a
detailed review of 16 of the 22 loans, including (1) 7 loans with an FHA-HAMP combination
partial claim and loan modification, (2) 7 loans with an FHA-HAMP stand-alone partial claim,
and (3) 2 loans with a standard loan modification. 11 Due to the market rate issue, we performed a
limited review of the remaining six loans with an FHA-HAMP stand-alone partial claim to
determine the Authority’s compliance with the requirement. We reviewed only 22 of the 25


10
     The FHA Connection provides FHA-approved lenders and business partners with direct, secure, online access to
     HUD’s computer systems.
11
     The loans were identified as FHA-HAMP; however, the review determined that the loans were approved for a
     standard loan modification.



                                                         12
loans because the results of review were sufficient to accomplish our objective and did not
require additional testing of the remaining three loans.
In addition, we included 124 FHA-HAMP stand-alone partial claim loans identified from our
universe of 375 loans to review for compliance with the market rate requirement. We used
HUD’s Single Family Data Warehouse 12 to obtain the borrowers’ mortgage interest rate and the
Neighborhood Watch 13 data to compare the mortgage interest rate for accuracy and to obtain the
claim and incentive fee amounts for the 124 FHA-HAMP stand-alone partial claim loans. The
market rate requirement is met when the borrower’s mortgage interest rate is at or below the
weekly market rate published by Federal Home Loan Mortgage Corporation (Freddie Mac) plus
25 basis points as established in Mortgagee Letter 2013-32. For the review of the market rate
requirement, we used the historical weekly market rates obtained from the Freddie Mac’s
primary mortgage market survey web page to determine the market rates applicable to the loans
reviewed and compare the rates to the borrowers’ mortgage interest rate.
We based our conclusions for the 22 loans reviewed on our review of original source documents
found in the Authority’s FHA loss mitigation loan files and other documents from the
Authority’s system. We used computer-processed data and verified the data by reviewing
hardcopy supporting documentation and comparing data from other systems. We found the data
to be adequate to meet our objective. Our results apply only to the loans reviewed and are not
projected to the portion of the population we did not test.
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 finding and conclusion based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our finding and
conclusion based on our audit objective.




12
     Single Family Data Warehouse (also referred as Single Family Housing Enterprise Data Warehouse) is a large
     and extensive collection of database tables organized and dedicated to support the analysis, verification, and
     publication of Single Family Housing data. The warehouse consists of datamarts developed to support specific
     business units/communities within the HUD family.
13
     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 objective:

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

•   Relevance and reliability of information - Policies and procedures that management has
    implemented to reasonably ensure that operational and financial information used for
    decision making and reporting externally is relevant and reliable and fairly disclosed in
    reports.

•   Compliance with laws and regulations - Policies and procedures that management has
    implemented to reasonably ensure that program implementation is consistent with laws and
    regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   The Authority did not ensure that its implementation of FHA-HAMP complied with HUD’s
    requirements (finding).




                                                  14
Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
         Recommendation                                    Funds to be put
                             Ineligible 1/ Unsupported 2/ to better use 3/
             number
                 1A             $116,777
                 1B               43,236
                 1C                                                      $51,121
                 1D                                  $941,770
                 1E                                    74,767
                 1F                                                       69,395

               Totals            160,013             1,016,537           120,516



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.
2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, the funds to be put to better use represent
     savings by the FHA insurance fund realized by not having to pay future claims on loans
     that default.




                                                15
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation


Comment 1


Comment 2




                               17
Comment 3




            18
19
Comment 4




            20
Comment 5




            21
Comment 6




            22
Comment 7




            23
Comment 8




Comment 9




            24
Comment 10




             25
Comment 11




             26
Comment 12




             27
Comment 13




             28
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority stated that one of the nine loans (FHA Case #105-6340952) cited
            for not meeting the market rate condition for a stand-alone partial claim was an
            FHA-HAMP combination and requested that we remove it from the finding.
            We agree with the Authority based on further review of the loan’s loss mitigation
            file and have removed the loan from the finding.
Comment 2   The Authority explained that it did not consider the condition that the
            mortgagor’s current interest rate is at or below market rate, in its HAMP
            eligibility review because the Authority operated under the variance approved by
            HUD on November 3, 2009, which the Authority believed to have covered all
            HAMP loss mitigation options including the stand-alone partial claims.
            As stated by the HUD National Servicing Center, which issued the variance to the
            Authority in November 2009, the approval of the variance applied to the loan
            modifications referenced to in Mortgagee Letter 2009-35 and did not apply to the
            FHA-HAMP stand-alone partial claim. In addition, HUD did not approve the
            Authority’s April 11, 2016 variance request to retroactively exempt it from the
            market rate requirement. Therefore, these loans did not meet the market rate
            requirement and are not eligible for the FHA-HAMP stand-alone partial claim.
Comment 3   The Authority agreed with our recommendation to improve its policies and
            procedures.
            We acknowledge the Authority willingness to look for opportunities to improve
            and enhance its processes and procedures, which will be handled during the audit
            resolution process.
Comment 4   FHA Case Number: 105-6387683
            The Authority disagreed with our assessment. It stated that the borrower had a
            history of delinquency dating back to 2012 and that her original delinquency was
            due to medical issues supported by medical collection accounts. In April 2013,
            she submitted her initial loss mitigation application after receiving a notice that
            the monthly payment was scheduled to increase by $560 (from $1,428.03 to
            $1,987.81) in June 2013. The Authority considered the payment increase as
            verifiable, which qualified the loan to be considered for FHA-HAMP. The
            Authority disputed that the borrower’s monthly expense for Okinus Inc. was
            counted twice and stated that it verified the borrower’s utilities.
            We did not dispute that the borrower had a history of delinquency or that she had
            a medical issue. The credit report from the loss mitigation file showed that the
            borrower had medical accounts in collections, but the loss mitigation file did not
            contain supporting documentation for the medical payments or that the borrower
            paid the medical costs.



                                              29
            The Authority’s financial calculation sheet dated October 28, 2013, showed the
            borrower’s mortgage monthly payment was $1,428.03. Therefore, the $560
            increase did not occur at the time the Authority reviewed the borrower for loss
            mitigation.
            The Authority overstated the borrower’s expenses by counting a payment of $285
            to Okinus Inc. twice, once for the installment loans expense category and again
            for credit cards expense category.
            The Authority showed a monthly utility payment of $800 for a household of two
            members in its calculations of the borrower’s expenses. The signed financial
            worksheet and utility statements provided in the loss mitigation file did not total
            $800. The Authority was unable to identify the itemized costs that made up the
            $800 monthly utility payment.
            Therefore, the Authority did not support or verify that the borrower experienced a
            loss of income or increase in living expenses as required for the FHA-HAMP loss
            mitigation options.
Comment 5   FHA Case Number: 105-5539870
            The Authority disagreed with our assessment. The Authority stated that it
            verified the borrower’s loss of income using information from previous loss
            mitigation applications dating back to 2011. The Authority stated in a December
            2011 application, the borrower’s spouse provided check stubs from his employer,
            a marriage certificate, and the borrower’s bank statements with his pay deposits.
            In the 2013 application, no income was reported by the spouse. The Authority
            verified this by reviewing bank statements that showed no additional deposits.
            The Authority stated that there is no requirement that the mortgagee overburden
            the borrower with unnecessary requests of documentation or that any specific
            documentation is needed to verify a loss of income.
            The loss mitigation file the Authority provided for the audit review did not
            contain documentation from any of the previous loss mitigation applications.
            When we requested for proof of a loss of income from the borrower’s spouse, the
            Authority staff did not inform us of the previous applications or how it verified
            that the borrower’s spouse had lost his job or had no income.
            In the borrower’s 2012 tax return, the borrower reported her filing status as head
            of household with one dependent [her son], and never married for her marital
            status. Thus, the 2012 tax return information conflicted with the marriage
            information the borrower’s spouse provided to the Authority in the December
            2011 application. There was no documentation in the loss mitigation file that
            showed the Authority addressed the conflicting information with the borrower.
            In addition, the loss mitigation file contained bank statements from four different
            accounts, and none of the account statements included the borrower’s spouse
            name. The borrower’s bank statements also contained unexplained deposits of



                                              30
            $800 on May 22, $540 on June 17, and $580 on July 16, 2013 and other small
            deposits of online banking transfers from another bank account that was not
            included in the loss mitigation file.
            It is not unreasonable to ask for a document to verify the borrower’s spouse
            unemployment nor will it overburden the borrower especially when the borrower
            was seeking assistance with her delinquent mortgage because her spouse had lost
            his job.
            Therefore, the Authority did not support or verify that the borrower experienced a
            loss of income or increase in living expenses as required for the FHA-HAMP loss
            mitigation options.
Comment 6   FHA Case Number: 105-5804221
            The Authority disagreed with our assessment. The Authority stated its review of
            the loan file showed that (1) the borrower was being garnished for child support
            through April 2012, (2) the borrower’s spouse was furloughed from 1 to 2 days
            per month for three continuous years that ended in December 2011, (3)
            bankruptcy payments were deducted weekly from the borrower’s pay, and (4) the
            bank statements supported the borrower’s increase in grocery expenses from an
            average of $300 to $500 per month. According to the Authority that all hardships
            listed prove that the borrower experienced both an increase in expenses and a
            reduction in net income due to temporary furloughs and garnishments in addition
            to family obligations.

            The information from the loss mitigation file the Authority provided for the audit
            review did not contain information dated back to April 2012 and before with the
            exception of the borrower’s 2012 tax return. The borrower’s 2012 tax return did
            not show information on child support payments, and the file did not contain any
            additional information supporting child support payments.

            The loss mitigation file also did not contain a letter for the spouse’s furlough that
            ended in December 2011. It did not appear that the borrower was married during
            the furlough period as the borrower reported his filing status as “single” in his
            2012 tax return. The borrower also stated that he was the sole borrower of the
            loan.

            We did identify a bankruptcy deduction for $34.62 per week from the borrower’s
            pay statements. The bankruptcy payments were offset by the delay of payments
            for other expenses that the borrower owed, which reduced the borrower’s overall
            monthly expenses.

            The loss mitigation file did not contain bank statements dated from February to
            April 2012. The file provided for the audit review only included three bank
            statements (covering from July 12 through October 10, 2013). Additionally, the
            Authority’s financial calculation worksheet showed the borrower had a monthly


                                               31
            food expense of $587.97 that conflicts with the Authority’s statement of average
            $300 per month for grocery expense.

            Therefore, the Authority did not support or verify that the borrower experienced a
            loss of income or increase in living expenses as required for the FHA-HAMP loss
            mitigation options.

Comment 7   FHA Loan Number: 105-2822097
            The Authority disagreed with our assessment. It acknowledged that Mortgagee
            Letter 2011-28 requires the borrower to make at least three full consecutive
            monthly payments before final execution of the loan modification or partial claim.
            The Authority reasoned that by making the payments on November 15, 2012,
            December 14, 2012, and January 31, 2013, the borrower made the three full
            consecutive payments.

            The trial payment plan, executed between the Authority and the borrower, became
            effective August 1, 2012. According to the plan, the borrower agreed to pay the
            trial payment amount on or before August 1, 2012, September 1, 2012, and
            October 1, 2012, respectively. Mortgagee Letter 2011-28 states that a trial
            payment plan is considered to have failed when the borrower does not make the
            scheduled payment within 15 days of the trial payment plan due date. However,
            payments were received on August 28, 2012, September 27, 2012, and November
            15, 2012. Therefore, the Authority did not ensure that the borrower successfully
            completed the trial payment plan in compliance with the trial payment plan or the
            Mortgagee Letter.

Comment 8   FHA Loan Number: 101-8481635
            The Authority disagreed with our assessment. It referred to the February 16,
            2012, note which indicated that the borrower received a tax return refund and sent
            State Home Mortgage $2,288.26. The Authority stated that the borrower
            attempted to make all the trial payments with the refund and requested by letter to
            make six payments. After the Authority posted the six payments, the borrower
            made the three consecutive trial payments, on August 4, 2012, September 14,
            2012, and October 10, 2012.
            The trial payment plan, executed between the Authority and the borrower, became
            effective March 1, 2012. According to the plan, the borrower agreed to pay the
            trial payment amount of $245.90 on or before March 1, 2012, April 1, 2012, and
            May 1, 2012, respectively. Mortgagee Letter 2011-28 states that a trial payment
            plan is considered to have failed when the borrower does not make the scheduled
            payment within 15 days of the trial payment plan due date. Of the borrower’s
            $2,288.26 payment to the Authority as noted on February 16, 2012, 3 payments of
            $409.53 were posted to decrease the borrower’s delinquency with the remaining




                                             32
                    $1,059.67 applied to the borrower’s suspense account. 14 On March 9, 2012, and
                    May 16, 2012, it posted $367.30, the previous monthly mortgage amount, from
                    the suspense account to pay down the mortgage. The Authority posted no
                    payments toward the trial payments. The $245.90 trial payment amounts were not
                    posted until August 4, 2012, September 14, 2012, and October 10, 2012. Thus,
                    the Authority did not timely post the trial payment amounts to comply with the
                    trial payment plan. Therefore, the Authority did not ensure that the borrower
                    successfully completed the trial payment plan in compliance with the trial
                    payment plan or the Mortgagee Letter.

Comment 9           FHA Loan Number: 101-8481635
                    The Authority disagreed with our assessment. It stated that it used the borrower’s
                    credit report, pay stubs, bank statements, utility bills, and tax return to support
                    borrower’s claim of loss of income and increase in expenses. Specifically, the
                    credit report and financial information provided by the borrower showed that the
                    borrower had excessive obligations as supported by accounts with high
                    outstanding balances and collection accounts. In addition, the Authority pointed
                    out that the borrower’s monthly gross income when she purchased the house was
                    $1,207, and was $789 when the loan was modified, for a decrease of $418.

                    Mortgagee Letter 2013-32 states that a defaulted mortgagor or a mortgagor facing
                    imminent default must have experienced a verifiable loss of income or increase in
                    living expenses in order to qualify for a FHA-HAMP. Mortgagee Letter 2009-23
                    states that mortgagees will be required to maintain records of key data points for
                    verification or compliance reviews. The borrower explained in the hardship letter
                    that she was behind on her mortgage payment because she was working part time.
                    However, the loss mitigation loan file did not contain documentation to verify that
                    the borrower’s part-time status created a loss in income or that the borrower went
                    from a full-time to a part-time status, which led to a hardship in paying the
                    mortgage. The Authority’s statement that the borrower’s monthly gross income
                    decreased by $418 compares the borrower’s gross income over a 13-year lapse, as
                    the borrower closed on the house in December 18, 1998, and the Authority
                    reviewed the borrower’s information for FHA-HAMP in February 8, 2012. The
                    information in the file did not support a reduction in income. The file also did not
                    contain documentation to support an increase in living expense. Therefore, the
                    Authority did not maintain documentation to support that the borrower
                    experienced a verifiable loss of income or increase in expense.

Comment 10 FHA Case Number: 105-7394963
           The Authority disagreed with our assessment. The Authority stated that it
           determined the borrower had a reduction of income during the month of
           November 2014. The Authority based its determination from the borrower’s
           average weekly net income of $1,008.26 as of February 13, 2015 versus the

14
     The $2,288.26 is calculated as [($409.53 x 3) + $1,059.67].



                                                            33
              average weekly income from November 2014 of $731.53 identified from the
              borrower’s bank statement. The Authority also stated that independently
              verifying the borrower’s claim of the $1,690 a month for childcare was
              unnecessary. The Authority stated that there is no requirement that every
              household expense is verified. The Authority believed the amount was reasonable
              and appropriate, as it was in the range for a household with three small children.
              The Authority stated that even if the expense amount was removed from the
              calculations, the borrower still would have qualified for FHA-HAMP.

              The borrower stated in his hardship letter that he had a work related injury that
              kept him out of work for approximately three weeks in October 2014 and received
              workers compensation wages at a reduced rate. The Authority did not request
              documentation to verify the workers compensation wages. The bank statements in
              the loss mitigation file showed the borrower received direct deposit payments of
                  • $707.02 on October 24, 2014 [for pay period from October 12 to October
                      18, 2014],
                  • $1,107.74 on October 31, 2014 [for pay period from October 19 to 25,
                      2014], and
                  • $843.12 on November 7, 2014 [for pay period from October 26 to
                      November 1, 2014].
              These payments conflict with the borrower’s claim of income reduction in
              October 2014. Instead, the Authority assumed that the borrower had a reduction
              of income during the month of November 2014 based on its comparison with the
              borrower’s year-to-date income as of February 13, 2015 without considering the
              borrower’s income before November 2014 and the number of overtime hours the
              borrower worked during the months of January and February 2015. The
              borrower’s pay statements for January and February 2015 showed the borrower
              had an average of more than $400 in gross weekly earned overtime income which
              may contribute to the difference in pay. The increase in pay for January and
              February 2015 appeared to result from an increase in income due to overtime
              hours earned and not that he had a reduction of income in November 2014.

              There is no requirement that required the Authority to verify every household
              expense. However, it would be prudent to verify a household expense with a high
              dollar amount, and specifically in this case, no payment was found for childcare
              in the borrower’s bank statements. We did not dispute the Authority’s
              reasonableness determination of the childcare expense. However, the Authority
              did not verify that the borrower incurred the costs for the childcare. Therefore,
              the borrower’s income and expenses should be properly verified before
              determining the borrower’s qualification for FHA-HAMP option based on the
              waterfall calculations.

Comment 11 FHA Loan Number: 105-7377414
           The Authority disagreed with our assessment. It stated that while it did not verify
           the borrower’s garnishment of wages with specific documentation, it assessed that



                                               34
              the borrower had a reduction in income based on other records. The Authority
              explained that the records showed that the loan first became delinquent in June
              2013 and the delinquency continued 13 of the 18 months thereafter. Additionally,
              the Authority stated that the worksheet used in its loss mitigation review, which
              showed the borrower as not having a verifiable loss of income, was an error.
              Further, the Authority said it verified an increase in the borrower’s mortgage
              payment from $961 to $1,017, for an increase of $55.

              Mortgagee Letter 2009-23 states that mortgagees will be required to maintain
              records of key data points for verification or compliance reviews. The borrower
              explained in the hardship letter that her hardship began in the summer of 2013
              when 2 months of her wages were garnished, and after falling behind, had
              difficulty improving her financial situation. However, the loss mitigation loan file
              contained no documentation to verify the garnishment of borrower’s wages or to
              support how the garnishment in wages led to a hardship in paying the mortgage.
              The Authority acknowledged that it did not verify the garnishment of borrower’s
              wages because the event occurred more than a year ago. It explained that the
              borrower’s loss of income can be supported by records showing when the loan
              first became delinquent and the subsequent delinquencies. As the documentation
              to verify the hardship was not obtained, it is necessary for the Authority to
              document the rationale it used to justify that a verifiable loss of income existed
              thereby supporting the Authority’s overall approval of the loss mitigation action.
              To address recommendation 1E for this loan, the Authority needs to include in the
              loss mitigation loan file documentation sufficient to support the key data points
              for verification such as but not limited to the records mentioned in its comments
              and written explanations.

Comment 12 FHA Case Number: 105-7534978
           The Authority disagreed with our assessment. The Authority stated that it
           deemed the borrower's hardship to be an excessive obligation, which ultimately
           equaled to increase in expenses. It stated that the borrower became delinquent on
           several debts around August and September 2013. The Authority identified two
           payments to Midland Mortgage from the borrower’s bank statements that was not
           her own debt. It also stated that the borrower’s cash withdrawals in various
           amounts ranging from $102 to $1,600 between September and December 2013
           demonstrated additional expenses.

              As stated in the report, the documents from the loss mitigation loan file did not
              support that the Authority independently verified that the borrower had
              experienced a reduction of income or an increase in expenses. The credit report
              showed the various debts the borrower had and the number occurrences that the
              payments were late by 30, 60, or 90 days, but it did not specify when the borrower
              became delinquent. The bank statements showed the borrower made two
              payments to Midland Mortgage for which the Authority assumed were not the
              borrower’s debt. However, without supporting documentation for the payments



                                                35
              we could not determine whether these payments were for the borrower or other
              expenses. The cash withdrawals shown on the bank statements were made from
              September 3, 2013 to January 21, 2014 totaling $4,189. Specifically, the $1,600
              withdrawal was made on January 21, 2014 after the borrower’s hardship letter
              dated in December 2013. In addition, there were cash deposits made to the
              borrower’s bank account ranging from $120 to $1,400 that totaled $3,580.
              Without supporting documentation, we cannot determine whether the withdrawals
              were for the borrower’s additional expenses or the source of deposits.

              Therefore, the Authority did not support or verify that the borrower experienced a
              loss of income or increase in living expenses as required for the FHA-HAMP loss
              mitigation options.

Comment 13 FHA Case Number: 105-3589300
           The Authority agreed with our assessment. During the audit, the Authority
           adjusted the borrower’s principal and interest amount and applied the
           overpayment to reduce the borrower’s unpaid principal balance.

              We acknowledge the Authority’s willingness to make the necessary corrections to
              address the deficiency.




                                               36
Appendix C
                                       Relevant Criteria

Mortgagee Letter 2009-23, Making Home Affordable Program: FHA’s Home Affordable
Modification Loss Mitigation Option, Issued July 30, 2009

This Mortgagee Letter announces a new FHA loss mitigation option, FHA-HAMP. FHA-HAMP
provides homeowners in default a greater opportunity to reduce their mortgage payments to a
sustainable level and became effective August 15, 2009.

The new FHA-HAMP authority will allow the use of a partial claim of up to 30 percent of the
unpaid principal balance as of the date of default, combined with a loan modification.

To confirm whether the borrower is capable of making the new FHA-HAMP payment, the
borrower must successfully complete a trial payment plan. The trial payment plan will be for a
3-month period, and the borrower must make each scheduled payment on time.

Under FHA-HAMP, the lender may receive an incentive fee of up to $1,250. This total includes
$500 for the partial claim and $750 for the loan modification.

Mortgagee Letter 2011-28, Trial Payment Plan for Loan Modifications and Partial Claims
under Federal Housing Administration’s Loss Mitigation Program, Issued August 15, 2011

A trial payment plan is considered to have failed and is deemed broken when any of the
following occurs:

   •   The borrower vacates or abandons the property or
   •   The borrower does not make the scheduled trial plan payment within 15 days of the trial
       payment plan due date.

Mortgagee Letter 2012-22, Revisions to FHA’s Loss Mitigation Home Retention Options,
Issued November 16, 2012

This Mortgagee Letter includes revised requirements for FHA’s loss mitigation home retention
options in an effort to reduce the number of full claims against the FHA Mutual Mortgage
Insurance Fund by assisting a greater number of qualified, distressed borrowers in retaining their
homes. The lenders must begin implementation of the priority order and policies referenced in
the Mortgagee Letter no later than 90 days from the issuance date.

Before a lender considers a delinquent borrower for one of FHA’s loss mitigation home retention
options, the lender must first evaluate the borrower for both informal and formal forbearance
plans. Forbearance plans are arrangements between a lender and borrower that may allow for a
period of reduced or suspended payments and may provide specific terms for repayment.
Informal forbearance plans are oral agreements relating to a period of 3 months or less. Formal


                                                 37
forbearance plans are written agreements with a period of greater than 3 months but not more
than 6 months. Mortgagee Letter 2013-32 made no change to the criteria.

Informal and formal forbearance plans are the only options available for delinquent borrowers
without verifiable losses of income or increases in living expenses. After evaluating a delinquent
borrower for informal and formal forbearance plans, FHA’s loss mitigation home retention
options must be considered in the following order: (1) special forbearances, 15 (2) loan
modifications, and (3) FHA-HAMP. Mortgagee Letter 2013-32 made no change to the criteria.

A change to FHA’s existing loss mitigation options includes expanding FHA-HAMP to consist
of a stand-alone modification, a stand-alone partial claim, or a combination of a loan
modification and partial claim. The change was not affected by Mortgagee Letter 2013-32.

A lender may use an FHA-HAMP stand-alone partial claim without an accompanying loan
modification, provided the following three conditions are met: “(i) the mortgagor’s [borrower’s]
current interest rate is at or below Market Rate; (ii) the mortgagor’s current mortgage payment is
at or below the target monthly payment; and (iii) the mortgagor otherwise qualifies for FHA-
HAMP.” Mortgagee Letter 2013-32 made no changes to the three conditions.

The market rate is defined as a rate that is no more than 50 basis points greater than the most
recent Freddie Mac weekly primary mortgage market survey rate for 30-year fixed-rate
conforming mortgages (U.S. average), rounded to the nearest 1/8 of 1 percent (0.125 percent), as
of the date the permanent modification is executed. The permanent modification is defined as of
the time a trial payment is approved by the servicer.

Mortgagee Letter 2013-32, Update to FHA’s Loss Mitigation Home Retention Options,
Issued September 20, 2013

This Mortgagee Letter supersedes Mortgagee Letter 2012-22 and requires that lenders implement
the policies in the Mortgagee Letter no later than December 1, 2013.

The market rate is defined as a rate that is no more than 25 basis points greater than the most
recent Freddie Mac weekly primary mortgage market survey rate for 30-year fixed-rate
conforming mortgages (U.S. average), rounded to the nearest 1/8 of 1 percent (0.125 percent), as
of the date a trial payment plan is offered to a borrower.

To qualify for FHA-HAMP, a defaulted borrower or a borrower facing imminent default must
meet all of the following criteria: Unless otherwise indicated, the criteria were the same in
Mortgagee Letter 2012-22.

     •   The household or borrower(s) has experienced a verifiable loss of income or increase in
         living expenses;

15
     A special forbearance, available only to borrowers who are unemployed, is a written agreement between a
     lender and borrower to reduce or suspend mortgage payments.



                                                         38
     •   One or more borrowers receives continuous income in the form of employment income
         (for example, wages, salary, or self-employment earnings), Social Security, disability,
         veterans benefits, child support, survivor benefits, or pensions; 16
     •   The borrower’s surplus income is less than $300 or less than 15 percent of his or her net
         monthly income;
     •   The borrower has not received a stand-alone loan modification or FHA-HAMP in the
         previous 24 months;
     •   The borrower meets all applicable eligibility criteria in Mortgagee Letters 2009-23 and
         2010-04, which do not conflict with this Mortgagee Letter’s guidance, 17
     •   The borrower has successfully completed a 3-month trial payment plan, based on the
         reduced mortgage payment amount, or a 4-month trial payment plan in cases of imminent
         default; 18 and
     •   The borrower(s) of record must provide a signed hardship affidavit.




16
     This criterion replaced the criterion in Mortgagee Letter 2012-22, requiring that one or more borrower(s) be
     currently employed.
17
     The criterion in Mortgagee Letter 2012-22 did not include the phrase “which do not conflict with this
     Mortgagee Letter’s guidance.”
18
     The criterion was not included in Mortgagee Letter 2012-22 to qualify for FHA-HAMP.



                                                          39
Appendix D
                 FHA Loss Mitigation Loan File – Summary of Deficiencies


 FHA loan                                        Unpaid principal balance
 number:                105-6387683              as of 4/28/2016:                $181,445
 FHA-HAMP                                        Date partial claim and
 option approved:       Partial claim            incentive fee paid:             04/18/14
 Partial claim
 amount paid:           $19,902                  Incentive fee paid:             $500

Condition for Stand-Alone Partial Claim Not Met
Mortgagee Letter 2012-22 requires the borrower receiving an FHA-HAMP stand-alone partial
claim to meet three conditions. One condition is that the borrower’s current interest rate be at or
below the market rate. The market rate was defined as no more than 25 basis points greater than
the Freddie Mac weekly primary mortgage market survey rate for a 30-year fixed rate mortgage
as of the date the trial payment plan was offered to the borrower. The Authority offered the trial
payment plan to the borrower in a letter, dated October 29, 2013. The October 24, 2013, weekly
rate from the Freddie Mac Web site covering the October 29, 2013, date was 4.13 percent. Thus,
the market rate should not be more than 4.38 percent (4.13 + .25). However, the borrower’s
interest rate at time of review was 5.25 percent. As the borrower’s 5.25 percent interest rate was
not at or below the 4.38 percent market rate, the Authority should not have approved the FHA-
HAMP stand-alone partial claim option.

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2012-22 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. In the
initial hardship letter in April 2013, the borrower stated that she was out of work due to surgery
in July 2011, she had unexpected medical expenses, her utilities had increased, and her other
expenses had increased by an additional $773 due to student loan payments. In her follow-up
hardship letter in September 2013, the borrower stated that she used her 2012 tax return to catch
up on her mortgage and was able to get the student loan payments deferred. The borrower
explained that she had fallen behind on her mortgage again because she felt her mortgage was
unaffordable and requested a loan modification. The borrower indicated that she had not had a
raise in 3 years and her expenses had increased. However, the borrower’s income information
from the loss mitigation loan file did not show that she had experienced a verifiable loss of
income. Her income documents showed that she had a gradual increase in income each year.
Her gross income was $78,611 for 2011, $80,763 for 2012, and an estimated $89,246 for 2013.
The loss mitigation loan file did not contain supporting documentation for the medical expense
payments or the $773 student loan payments. Also, the utility bills from the file were not
sufficient to determine that the borrower’s power bills had increased.




                                                 40
Further, the Authority’s calculation of the borrower’s monthly expenses was inaccurate and not
supported by the documentation in the loss mitigation loan file. The Authority overstated the
borrower’s expenses by $203 because it included a payment of $285 twice and excluded two
payments of $57 and $25 from the credit report in its calculation. The Authority showed that the
borrower had a monthly utility payment of $800 for a household of two, but the amount could
not be substantiated by the utility bills in the loss mitigation loan file.




                                                41
                  FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                         Unpaid principal balance
 number:                105-5539870               as of 4/28/2016:                $126,349
 FHA-HAMP                                         Date partial claim and
 option approved:       Partial claim             incentive fee paid:             05/10/14
 Partial claim
 amount paid:           $27,136                   Incentive fee paid:             $500

Condition for Stand-Alone Partial Claim Not Met
Mortgagee Letter 2012-22 requires the borrower receiving an FHA-HAMP stand-alone partial
claim to meet three conditions. One condition is that the borrower’s current interest rate be at or
below the market rate. The market rate was defined as no more than 25 basis points greater than
the Freddie Mac weekly primary mortgage market survey rate for a 30-year fixed rate mortgage
as of the date the trial payment plan was offered to the borrower. The Authority offered the trial
payment plan to the borrower in a letter, dated October 16, 2013. The October 10, 2013, weekly
rate from the Freddie Mac Web site covering the October 16, 2013, date was 4.23 percent. Thus,
the market rate should not be more than 4.48 percent (4.23 + .25). However, the borrower’s
interest rate at the time of the review was 5.125 percent. As the borrower’s 5.125 percent
interest rate was not at or below the 4.48 percent market rate, the Authority should not have
approved the FHA-HAMP stand-alone partial claim option.

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2012-22 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. The
borrower stated in her hardship letter that she and her spouse were behind on their bills and could
not make the mortgage payments because her spouse was hurt on the job, released from his job,
and unemployed. The borrower did not state that she had an increase in expenses in the hardship
letter nor on the hardship affidavit form. The loss mitigation loan file did not contain a verifiable
document to confirm that her spouse was unemployed or released from work due to injury.




                                                  42
                     FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                               Unpaid principal balance
 number:                   105-5804221                  as of 4/28/2016:                  n/a 19
 FHA-HAMP                                               Date partial claim and
 option approved:          Partial claim                incentive fee paid:               08/29/14
 Partial claim
 amount paid:              $26,515                      Incentive fee paid:               $500

Condition for Stand-Alone Partial Claim Not Met
Mortgagee Letter 2013-32 requires the borrower receiving an FHA-HAMP stand-alone partial
claim to meet three conditions. One condition is that the borrower’s current interest rate be at or
below the market rate. The market rate was defined as no more than 25 basis points greater than
the Freddie Mac weekly primary mortgage market survey rate for a 30-year fixed rate mortgage
as of the date the trial payment plan was offered to the borrower. The Authority offered the trial
payment plan to the borrower in a letter, dated February 28, 2014. The February 27, 2014,
weekly rate from the Freddie Mac Web site covering the February 28, 2014, date was 4.37
percent. Thus, the market rate should not be more than 4.62 percent (4.37 + .25). However, the
borrower’s interest rate at the time of the review was 5.375 percent. As the borrower’s 5.375
percent interest rate was not at or below the 4.62 percent market rate, the Authority should not
have approved the FHA-HAMP stand-alone partial claim option.

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2013-32 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. The
borrower stated in his hardship letter in September 2013, that he was behind on his mortgage
because he trusted his spouse to make the monthly mortgage payment and was not aware that
payments were not being made until recently. The borrower stated that he filed for bankruptcy
(Chapter 13) in August 2012, thinking that he would be able to keep his home and make a lower
monthly mortgage payment, but the bankruptcy only deferred the past-due payments. The
borrower stated that the ultimate cause of his hardship was the increase in living expenses with
no annual raises to offset his household expenses. He added that other family members had
come to stay in his home, which caused an added expense for his household. The documentation
provided in the loss mitigation loan file was not sufficient to determine that the borrower had
experienced a verifiable increase in living expenses.




19
     This loan was foreclosed upon and conveyed to HUD on May 15, 2015. The property was sold on August 13,
     2015.



                                                       43
                 FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                        Unpaid principal balance
 number:               105-2822097               as of 4/28/2016:               $74,857
 FHA-HAMP              Partial claim and         Date partial claim and
 option approved:      loan modification         incentive fee paid:            01/26/2014
 Partial claim
 amount paid:          $30,646                   Incentive fee paid:            $1,250

Successful Completion of Trial Payment Plan Not Met
Mortgagee Letter 2011-28 requires that the trial payment plan be for a minimum period of 3
months and the borrower make at least three full, consecutive monthly payments before final
execution of the loan modification or the partial claim. A trial payment plan is considered to
have failed when the borrower does not make the scheduled payment within 15 days of the trial
payment plan due date. The borrower’s trial payment plan became effective on August 1, 2012.
According to the plan, the three payments were to be due on or before August 1, September 1,
and October 1, 2012. However, payments of $600 were not received from the borrower until
August 28, September 27, and November 15, 2012, respectively. Additionally, there was no
documentation or notation in the loss mitigation loan file to show why the Authority considered
the borrower to have successfully completed the trial payment plan to justify its approval of the
FHA-HAMP options.

Partial Claim and Modified Loan Amounts Not Accurate
The Authority submitted and HUD paid a partial claim of $30,646 that exceeded the maximum
allowable by $2,378. The Authority calculated the amount by taking the maximum partial claim,
which is 30 percent of the unpaid principal balance, and subtracting the $208 in the borrower’s
account. Mortgagee Letter 2012-22 stated that the maximum partial claim amount must be the
lesser of (1) the sum of arrearages, legal fees, foreclosure costs, and the principal deferment or
(2) 30 percent of the unpaid principal balance less existing partial claim amounts. Our
calculation showed that the result for (1) was $28,268, and the result for (2) was $30,854. Thus,
the partial claim amount should not have exceeded $28,268 as it was the lesser of the two
options.

                       Authority’s calculation
 Unpaid principal balance                                      $102,847
 30% of Unpaid principal balance                                 30,854
 Less: amount of cash in mortgagor’s account                      (208)
                                                                 30,646




                                                 44
                           OIG’s calculation
 Partial claim amount is lesser of:

 (1) sum of:                                                    $5,595
    arrearages;                                                  1,125
     legal fees or foreclosure costs; and                       21,548
     principal deferment.                                       28,268

 (2) Unpaid principal balance                                $102,847
     30% of unpaid principal balance                           30,854
    less: previous partial claim                                - 0
                                                               30,854


 Maximum allowable partial claim:                               28,268

In addition, it calculated modified loan and monthly mortgage amounts of $77,514 and $615,
respectively. The gross monthly income amount used by the Authority was not supported;
therefore, we recalculated the gross monthly income amount based on the pay stubs in the loss
mitigation loan file. Our recalculation resulted in modified amounts of $81,299 and $635,
respectively.




                                               45
                 FHA Loss Mitigation Loan File – Summary of Deficiencies


 FHA loan                                       Unpaid principal balance
 number:               101-8481635              as of 4/28/2016:               $27,384
 FHA-HAMP              Partial claim and loan   Date partial claim and
 option approved:      modification             incentive fee paid:            09/14/2015
 Partial claim
 amount paid:          $10,090                  Incentive fee paid:            $1,250

Successful Completion of Trial Payment Plan Not Met
Mortgagee Letter 2011-28 requires that the trial payment plan be for a minimum period of 3
months and the borrower make at least three full, consecutive monthly payments before final
execution of the loan modification or the partial claim. A trial payment plan is considered to
have failed when the borrower does not make the scheduled payment within 15 days of the trial
payment plan due date. The borrower’s trial payment plan became effective March 1, 2012,
requiring the three trial payments to be due on or before March 1, April 1, and May 1, 2012.
However, payments of $246 were not received from the borrower until August 4, September 14,
and November 14, 2012. The borrower did not pay consecutively in compliance with
requirements. There was no documentation or notation in the loss mitigation loan file to explain
why the Authority considered the borrower to have successfully completed the trial payment
plan to justify its approval of the FHA-HAMP options.

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2013-32 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. In the
hardship letter, the borrower explained that she was behind on her mortgage payment because
she was working part time. The loss mitigation loan file contained the borrower’s pay stubs and
a previous tax return listing a wage amount that supported a part-time status. However, the loss
mitigation loan file did not contain documentation to show that working part time created a loss
in income, which led to the hardship in paying the mortgage. Thus, the Authority did not obtain
sufficient documentation to validate that the borrower had experienced a loss of income or
increase in expenses to qualify her for FHA-HAMP.




                                                46
                 FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                        Unpaid principal balance
 number:                105-7394963              as of 4/28/2016:                $155,840
 FHA-HAMP                                        Date partial claim and
 option approved:       Partial claim            incentive fee paid:             09/28/15
 Partial claim
 amount paid:           $9,682                   Incentive Fee Paid:             $500

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2013-32 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. The
borrower stated in his hardship letter in January 2015 that his family was behind on the mortgage
because of an unforeseen hardship. The borrower stated that (1) he was not working for 3 weeks
in October 2014 due to a work-related injury and received workers compensation wages at a
greatly reduced rate in comparison to his regular hourly income and (2) the family vehicle had
issues and repair costs increased his expenses. The loss mitigation loan file did not contain
payment statements from the workers compensation or other documentation to support the
borrower’s claim of a reduction in income. There was no documentation showing the repair
costs in the loss mitigation loan file. Additionally, the borrower’s income information in the file
showed that he had an increase in income from $68,494 in 2013 to $75,817 in 2015 (based on the
Authority’s calculated estimated gross income for 2015). The Authority considered the borrower
eligible for the FHA-HAMP option because its analysis of the borrower’s current monthly
financial condition indicated that the he had excessive obligations and, therefore, the Authority
did not require verification of loss of income or increase in living expenses.

Further, the Authority showed that the borrower had a deficit monthly income of $953 based on
its analysis, which included a $1,690 monthly payment for daycare and preschool tuitions. There
was no payment for the tuitions found in the bank statements from the loss mitigation file. The
file did not contain third-party confirmation of the daycare and preschool tuitions to support that
the Authority independently verified the $1,690 monthly payment.




                                                 47
                 FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                       Unpaid principal balance
 number:               105-7377414              as of 4/28/2016:               $126,781
 FHA-HAMP                                       Date partial claim and
 option approved:      Partial claim            incentive fee paid:            05/24/2015
 Partial claim
 amount paid:          $6,413                   Incentive fee paid:            $500

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2013-32 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. In the
hardship letter, the borrower explained that her hardship began in the summer of 2013 when 2
months of her wages were garnished. After falling behind, the borrower had difficulty righting
her financial situation. However, the loss mitigation loan file contained no documentation to
support her garnishment of wages that led to her falling behind on her mortgage payments. In
addition, the Authority acknowledged when performing its loss mitigation review that the
borrower did not have a verifiable loss of income or increase in expense. Thus, the Authority did
not obtain sufficient documentation to support that the borrower had experienced a loss of
income or increase in expenses to qualify her for FHA-HAMP.




                                                48
                  FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                         Unpaid principal balance
 number:                105-7534978               as of 4/28/2016:                $138,790
 FHA-HAMP               Partial claim and loan    Date partial claim and
 option approved:       modification              incentive fee paid:             02/06/15
 Partial claim
 amount paid:           $56,422                   Incentive Fee Paid:             $1,250

Loss of Income or Increase in Expenses Not Verified
Mortgagee Letter 2013-32 states that a defaulted borrower or a borrower facing imminent default
must have experienced a verifiable loss of income or increase in living expenses to qualify for
FHA-HAMP. Without a verifiable loss of income or increases in living expenses, the only
options available to the delinquent borrower are informal and formal forbearance plans. The
borrower stated in her hardship letter in December 2013 that within the past 6 months, she (1)
had travel expenses due to two deaths in the family, (2) paid rent and utilities for her daughter-in-
law for a couple of months, (3) helped her grandchildren and daughter-in-law with moving
expenses, (4) helped pay for her grandchildren’s medications, and (5) took care of a friend’s two
children for about a month. The borrower also stated that her salary was reduced.

The documents from the loss mitigation loan file did not support that the Authority
independently verified that the borrower had experienced a reduction of income or an increase in
expenses as required for the FHA-HAMP option. The file did not contain documentation
supporting payments for the travel, rental, and utility expenses that the borrower described in the
hardship letter. The borrower’s income information in the file did not show that she had a loss of
income. On the contrary, the borrower’s income information indicated a steady increase from
$20,064 in 2011 to $27,934 in 2012, $35,255 in 2013, and estimated income of $37,281 based on
her latest pay statement in 2014.




                                                  49
                      FHA Loss Mitigation Loan File – Summary of Deficiencies

 FHA loan                                                   Unpaid principal balance
 number:                     105-3589300                    as of 4/28/2016:                     $106,633
 FHA-HAMP                    Standard loan                  Date partial claim and
 option approved:            modification 20                incentive fee paid:                  07/05/2014
 Partial claim
 amount paid:                Not applicable                 Incentive fee paid:                  $750

Partial Claim or Modified Loan Amount Not Accurate
The Authority modified the borrower’s loan balance to $109,277 with a monthly principal and
interest amount of $589. Our recalculation of the amounts supported the modified loan balance
but not the monthly principal and interest amount. The recalculation showed a monthly principal
and interest amount of $587, resulting in a $3 ($589.30 - $586.62) monthly overpayment by the
borrower. The difference was due to the Authority’s mistakenly not subtracting the amount in
the borrower’s account, which was used to deduct from the unpaid principal balance. The
Authority agreed with our recalculation, adjusted the borrower’s principal and interest amount,
and applied the overpayment of $56 for the 21 months ($2.69 x 21 months) to reduce the
borrower’s unpaid principal balance.




20
     Although the loan was approved for a standard loan modification, it was included in the universe of loans as it
     was identified as FHA-HAMP.



                                                            50
Appendix E
                Unsupported Costs: Stand-Alone Partial Claim Loans


                                                Partial
     FHA case       Borrower’s     Date HUD                  Incentive   Total claim
 #                                               claim
      number       interest rate   paid claim               fee amount      paid
                                                amount
 1   105-7674223      3.125        07/04/2015      $2,683         $500        $3,183
 2   105-7300841      3.500        10/04/2014       4,946          500         5,446
 3   105-6991415      4.125        02/09/2015       1,750          500         2,250
 4   105-6195665      4.125        06/29/2015       3,099          500         3,599
 5   105-6192494      4.125        04/26/2015       3,835          500         4,335
 6   105-6172544      4.125        12/27/2014      22,449          500        22,949
 7   105-6042728      4.250        04/20/2015       6,660          500         7,160
 8   105-6094941      4.375        09/11/2014       3,705          500         4,205
 9   105-6141145      4.375        05/18/2015       4,295          500         4,795
10   105-6962670      4.375        07/21/2014       4,301          500         4,801
11   105-6210958      4.375        05/16/2014       3,043          500         3,543
12   105-8015199      4.375        09/07/2015       4,985          500         5,485
13   105-5333042      4.625        03/08/2015       3,197          500         3,697
14   105-6279430      4.625        05/22/2014       8,403          500         8,903
15   105-5986510      4.625        10/04/2014      26,126          500        26,626
16   105-6317994      4.625        09/20/2015       4,936          500         5,436
17   105-6720758      4.625        08/04/2014      11,491          500        11,991
18   105-6010000      4.625        07/21/2014       1,948          500         2,448
19   105-6306332      4.750        08/15/2015       4,002          500         4,502
20   105-5995614      4.875        11/23/2014      10,557          500        11,057
21   105-6765987      4.875        05/30/2015       6,299          500         6,799
22   105-6931008      4.875        03/29/2014       5,193          500         5,693
23   105-6744392      4.875        04/26/2014       4,577          500         5,077
24   105-6655190      5.000        03/03/2014       6,180          500         6,680
25   105-1804993      5.000        03/21/2014       2,598          500         3,098
26   105-6580136      5.000        07/21/2014       5,556          500         6,056
27   105-5822718      5.125        10/31/2014       3,054          500         3,554
28   105-1123553      5.125        02/01/2015       5,986          500         6,486
29   105-5786895      5.125        04/10/2015       3,502          500         4,002
30   105-6637180      5.125        10/04/2014       1,582          500         2,082
31   105-5681789      5.125        11/02/2014      17,188          500        17,688
32   105-5407355      5.125        07/20/2014       2,515          500         3,015



                                           51
                                                Partial
     FHA case       Borrower’s     Date HUD                  Incentive   Total claim
#                                                claim
      number       interest rate   paid claim               fee amount      paid
                                                amount
33   105-5689231      5.125        08/21/2014       9,347          500         9,847
34   105-5717854      5.125        07/21/2014       4,534          500         5,034
35   105-5487478      5.125        06/29/2015      14,357          500        14,857
36   105-5496962      5.125        03/03/2014       4,467          500         4,967
37   105-5827796      5.125        05/26/2014       3,951          500         4,451
38   105-6318627      5.125        10/04/2014       4,462          500         4,962
39   105-5651735      5.125        07/31/2014       6,399          500         6,899
40   105-1842471      5.125        07/21/2014       8,809          500         9,309
41   105-2188550      5.250        09/06/2014       9,169          500         9,669
42   105-2227546      5.250        05/11/2015      10,273            0        10,273
43   105-6295564      5.250        04/20/2015       3,169          500         3,669
44   105-1600376      5.250        06/07/2015       5,142          500         5,642
45   105-6360963      5.250        09/18/2015      26,951          500        27,451
46   105-6410373      5.250        10/04/2014       7,300          500         7,800
47   105-0321608      5.250        12/27/2014       3,552          500         4,052
48   105-1629521      5.250        11/20/2014       1,813          500         2,313
49   105-6357509      5.250        08/04/2014       5,479          500         5,979
50   105-1510104      5.250        08/03/2015       4,649          500         5,149
51   105-2381968      5.250        03/30/2014      14,916          500        15,416
52   105-2635785      5.375        06/06/2014       5,256          500         5,756
53   105-2141337      5.375        06/08/2015       3,798          500         4,298
54   105-0335417      5.375        04/26/2014      11,108          500        11,608
55   105-2616422      5.375        04/26/2014       6,008          500         6,508
56   105-2599875      5.375        08/29/2014       7,099          500         7,599
57   105-5677857      5.375        07/21/2014      18,771            0        18,771
58   105-5702691      5.375        09/03/2015      11,704          500        12,204
59   105-2565002      5.375        04/26/2014       8,948          500         9,448
60   105-6400773      5.375        07/31/2014      10,492          500        10,992
61   105-6594640      5.500        06/28/2015       6,395          500         6,895
62   105-0925838      5.500        03/10/2014       9,200          500         9,700
63   105-2966307      5.500        12/25/2014       2,248          500         2,748
64   105-0290625      5.500        08/04/2014       6,102          500         6,602
65   105-6497459      5.500        08/02/2015       3,759          500         4,259
66   105-6552339      5.500        12/25/2014       3,438          500         3,938
67   101-9874327      5.500        03/29/2015       3,203          500         3,703
68   105-6631142      5.500        09/26/2014       4,426          500         4,926



                                           52
                                                 Partial
      FHA case       Borrower’s     Date HUD                  Incentive   Total claim
 #                                                claim
       number       interest rate   paid claim               fee amount      paid
                                                 amount
 69   105-2691610      5.500        02/27/2015       3,607          500         4,107
 70   105-6468968      5.500        10/12/2014       8,123          500         8,623
 71   105-2948247      5.500        07/11/2015       7,087          500         7,587
 72   105-6590757      5.500        12/26/2014       4,912          500         5,412
 73   105-6489288      5.500        08/22/2014       4,594          500         5,094
 74   105-0269169      5.500        02/20/2015       4,197          500         4,697
 75   105-2872280      5.625        04/07/2014      16,688          500        17,188
 76   105-2922568      5.625        04/18/2015      26,356          500        26,856
 77   105-2944035      5.625        03/30/2014      20,148          500        20,648
 78   105-2956634      5.625        11/28/2014       6,162          500         6,662
 79   105-0742052      5.750        09/19/2014       6,669          500         7,169
 80   105-3035191      5.750        02/14/2015       2,793          500         3,293
 81   105-2823188      5.875        06/15/2015       4,558          500         5,058
 82   105-2688170      5.875        07/20/2014       5,969          500         6,469
 83   101-8787976      5.875        04/20/2015       9,277          500         9,777
 84   105-0153168      5.875        01/17/2014      12,089          500        12,589
 85   105-3611496      5.875        10/11/2014       3,470          500         3,970
 86   105-5480303      5.875        05/03/2014       6,759          500         7,259
 87   101-8865988      5.875        03/10/2014       6,355          500         6,855
 88   105-4163262      6.000        05/03/2015       6,184          500         6,684
 89   105-0628565      6.000        07/20/2014       7,157          500         7,657
 90   105-3864432      6.000        08/04/2014      11,608          500        12,108
 91   105-0606206      6.000        06/08/2014      23,128          500        23,628
 92   105-2731726      6.000        05/03/2014       7,248          500         7,748
 93   105-3644698      6.000        09/26/2014       3,348          500         3,848
 94   105-3685850      6.000        04/18/2014       6,609          500         7,109
 95   105-3406573      6.125        01/03/2015      18,083          500        18,583
 96   101-9776134      6.125        03/08/2015       2,457          500         2,957
 97   105-3329068      6.250        10/24/2014       6,644          500         7,144
 98   105-3946922      6.250        09/19/2015       6,310          500         6,810
 99   105-5257836      6.250        04/26/2014       1,333          500         1,833
100   105-4855312      6.250        05/22/2015       3,048          500         3,548
101   105-5032225      6.250        05/30/2015       6,790          500         7,290
102   105-4970198      6.250        03/02/2015       4,607          500         5,107
103   105-3931747      6.250        04/18/2015      28,552            0        28,552
104   105-5067463      6.250        10/04/2014      13,528          500        14,028



                                            53
                                                 Partial
      FHA case       Borrower’s     Date HUD                  Incentive    Total claim
 #                                                claim
       number       interest rate   paid claim               fee amount       paid
                                                 amount
105   105-3915166       6.250       05/23/2014      10,993           500        11,493
106   105-5118732       6.250       10/23/2014       3,596           500         4,096
107   105-5016382       6.250       06/14/2014       6,306           500         6,806
108   105-3188189       6.375       07/13/2015       2,325           500         2,825
109   105-3259420       6.375       03/01/2015       9,191           500         9,691
110   105-3861544       6.375       10/04/2014       3,943           500         4,443
111   105-3955805       6.375       05/07/2015       4,332           500         4,832
112   101-7273317       6.500       10/23/2014       1,518           500         2,018
113   101-8077785       6.500       06/07/2015       2,658           500         3,158
114   101-7972744       6.750       09/19/2014       4,262           500         4,762
115   105-4333420       6.750       07/20/2014       4,878           500         5,378
116   101-7263746       6.750       08/04/2014       5,366           500         5,866
117   101-9500951       6.875       07/21/2014       5,805           500         6,305
118   101-9457348       7.000       04/26/2015       3,221           500         3,721
119   101-9506750       7.125       09/13/2015       4,045           500         4,545
120   105-4486503       7.250       04/07/2014       5,550           500         6,050
121   101-7534934       7.375       08/04/2014       3,625           500         4,125
122   101-9286482       7.375       04/18/2014       3,093           500         3,593
123   101-7864616       7.375       03/24/2014       2,531             0         2,531
124   101-9523815       7.375       04/26/2014       6,756           500         7,256
                    Totals                         881,770        60,000       941,770




                                            54
    Appendix F
                         Estimated Losses to HUD From Loss Mitigation Deficiencies

                                                  Unpaid                               Recommendations
                      Partial                    principal
  FHA case                        Incentive
                       claim                    balance as
   number                          fee paid                      1A          1B         1C 21         1D          1E           1F 22
                       paid                      of April
                                                 28, 2016
105-6387683 23         $19,902         $500                    $20,402
105-5539870 24          27,136          500                     27,636
105-5804221 25          26,515          500                     27,015
 105-2105142             7,699          500                      8,199
 105-2747341             5,214          500                      5,714
 105-5798660            11,086          500                     11,586
 105-2912604             7,946          500                      8,446
 105-6446384             7,279          500                      7,779
105-2822097 26          30 646        1,250        $74,857                 $31,896     $37,429
101-8481635 27          10,090        1,250         27,384                  11,340      13,692
 105-7394963             9,682          500                                                                     $10,182
 105-7377414             6,413          500                                                                       6,913
 105-7534978            56,422        1,250        138,790                                                       57,672       $69,395
See appendix E         881,770       60,000                                                        $941,770
    Totals           1,107,800       68,750        241,031     116,777      43,236       51,121     941,770      74,767        69,395




    21
         Fifty percent loss severity rate applied to the unpaid principal balances of $74,857 and $27,384.
    22
         Fifty percent loss severity rate applied to the unpaid principal balances of $138,790.
    23
         Review of the loan identified two loss mitigation deficiencies. See appendix D for details of the deficiencies.
         Though each deficiency is separate, the loan is only included in recommendation 1A and not in recommendation
         1E to prevent duplication.
    24
         See footnote 23 above.
    25
         See footnote 23 above.
    26
         Review of the loan identified two loss mitigation deficiencies. See appendix D for details of the deficiencies.
         Though each deficiency is separate, the loan is only included in recommendations 1B and 1C. We did not
         separately recommend the Authority to reimburse HUD $2,378 in excess of the partial claim amount as
         recommendation 1B already required repayment of the total partial claim amount. In addition, we did not
         separately recommend the Authority to revise the loan modification agreement to reflect the correct unpaid
         principal balance, adjust the borrower’s principal and interest to the correct amount, and re-amortize the loan to
         reflect the correct amounts. These steps would be nulled by recommendation 1C to indemnify the loan.
    27
         Review of the loan identified two loss deficiencies. See appendix D for details of the deficiencies. Though each
         deficiency is separate, the loan is only included in recommendations 1B and 1C and not in recommendations 1E
         and 1F to prevent duplication.



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