Cunningham and Company Settled Alleged Violations of Failing To Comply With Federal Housing Administration Loan Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-08.

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

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

                                                September 8, 2016
                                                                                                  MEMORANDUM NO:

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

FROM:             Christeen Thomas
                  Director, Joint Civil Fraud Division, GAW

SUBJECT:          Final Civil Action: Cunningham and Company Settled Alleged Violations of
                  Failing To Comply With Federal Housing Administration Loan Requirements


The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), investigated Cunningham and Company 1 to determine whether it violated HUD
requirements when underwriting loans insured by the Federal Housing Administration (FHA).
Cunningham is an FHA mortgage lender, formerly located in Greensboro, NC.


FHA is a component of HUD. Cunningham was approved to participate in FHA’s direct
endorsement program on April 30, 1990. The program authorizes private-sector mortgage
lenders to approve mortgage loans for insurance by FHA. Lenders approved for the program
must follow FHA requirements and provide annual and per loan certifications that the lender
complied with these requirements when underwriting and approving loans for FHA insurance.
HUD’s FHA program encourages lenders to lend to borrowers by insuring qualifying mortgages
against loss. To qualify for mortgage insurance, borrowers must satisfy cash investment,
income, and credit requirements. When a borrower defaults on an FHA-insured loan, HUD pays
the insurance claim submitted by or on behalf of the lender.

    On December 30, 2011, Cunningham was sold to Capital Markets Cooperative, LLC, and is now known as CMC
    Funding, Inc., with a “doing business as” name of Cunningham and Company.
                                                   Joint Civil Fraud Division
                                    400 State Avenue, Suite 501, Kansas City, KS 66101
                              Visit the Office of Inspector General Web site at www.hudoig.gov.
                                     RESULTS OF INVESTIGATION

Based on OIG’s review, HUD contends that Cunningham may be liable under the Program Fraud
Civil Remedies Act of 1986, 31 U.S.C. (United States Code) 3801-3812, 2 as implemented by 24
CFR (Code of Federal Regulations) Part 28, for material violations of HUD’s underwriting
requirements for an FHA-insured mortgage loan originated and underwritten by Cunningham.
HUD contended that Cunningham failed to document any effective income on behalf of the
borrower. Additionally, income documentation used to qualify the borrower indicated fraud. An
underwriter has an obligation to be aware of indications of fraud and resolve conflicting
information, which may indicate fraud. HUD further contended that these underwriting failures
made Cunningham’s certification of due diligence and eligibility false, resulting in a false claim
on the FHA insurance fund.

On December 8, 2015, Cunningham entered into a settlement agreement with HUD to avoid
expense and administrative proceedings and to reach a satisfactory resolution. Cunningham
agreed to pay $77,527 to HUD to satisfy all claims in the matter, which it paid at the time of
settlement. The settlement agreement did not constitute an admission of liability or fault on the
part of any party.


We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,
1A.   Acknowledge that the attached settlement agreement for $77,527 represents an amount
      due HUD.

          As of the date of this memorandum, the settlement amount due HUD was paid in full.
          Therefore, no further action is required by the Office of General Counsel. At issuance of
          this memorandum, HUD OIG will enter a management decision into HUD’s Audit
          Resolution and Corrective Action Tracking System, along with the supporting payment
          information to show that the final action was completed.

    The Program Fraud Civil Remedies Act establishes remedies for false statements and false claims valued at a
    $150,000 or less that are submitted to Federal authorities or their agents.