oversight

James B. Nutter & Company, Kansas City, MO, Did Not Always Follow HUD's Rules and Regulations for Loss Mitigation

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-05-16.

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

            James B. Nutter & Company
                 Kansas City, MO
                   HUD’s Loss Mitigation Program




Office of Audit, Region 7          Audit Report Number: 2016-KC-1003
Kansas City, KS                                          May 16, 2016
To:            Kathleen Zadareky, Deputy Assistant Secretary for Single Family Housing, HU

               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       James B. Nutter & Company, Kansas City, MO, Did Not Always Follow HUD’s
               Rules and Regulations for Loss Mitigation


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of James B. Nutter & Company.
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
913-551-5870.
                    Audit Report Number: 2016-KC-1003
                    Date: May 16, 2016

                    James B. Nutter & Company, Kansas City, MO, Did Not Always Follow
                    HUD’s Rules and Regulations for Loss Mitigation




Highlights
What We Audited and Why
We audited James B. Nutter & Company, a Federal Housing Administration (FHA) lender
located in Kansas City, MO. We selected James B. Nutter based on data analysis showing that
the servicer might be completing foreclosures faster than the industry standard, which would
suggest that it might not be fully using the U.S. Department of Housing and Urban
Development’s (HUD) loss mitigation tools. Our audit objective was to determine whether
James B. Nutter complied with HUD’s Loss Mitigation program requirements.

What We Found
James B. Nutter did not always comply with HUD’s Loss Mitigation program requirements.
Specifically, it did not always (1) properly evaluate loans for loss mitigation, (2) properly
determine the borrower’s ability to support the mortgage payment, (3) calculate the borrower’s
cash reserve contributions for loans approved for standard preforeclosure sale, and (4) start
foreclosure in accordance with HUD requirements. We found significant deficiencies in 11 of
25 (44 percent) FHA loan files reviewed. These deficiencies occurred because James B. Nutter’s
loss mitigation policy (1) did not implement all of HUD’s requirements and (2) lacked detailed
operating procedures that included steps for implementation, such as detailed checklists. As a
result, HUD incurred losses of $287,922, and the FHA Mutual Mortgage Insurance Fund faced
an increased risk of $289,960.

What We Recommend
We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require
James B. Nutter to (1) reimburse HUD $287,922 for the loss incurred on five loans that did not
receive active and proper loss mitigation or were improperly denied loss mitigation; (2)
indemnify HUD for six loans that were not properly evaluated for loss mitigation, with a
potential loss of $289,960; (3) update its policies and procedures for loss mitigation to include
requirements found in HUD’s mortgagee letters; (4) update its procedures to implement
checklists to ensure that it considers all loss mitigation options before starting foreclosure and
follows all HUD requirements for those options; and (5) provide training to loss mitigation staff
on the new policies and procedures.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
           Finding: J.B. Nutter Did Not Always Comply With HUD’s Loss Mitigation
           Program Requirements .................................................................................................... 4

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................12

Appendixes ..............................................................................................................13
A. Schedule of Questioned Costs and Funds To Be Put to Better Use ................................... 13

B. Auditee Comments and OIG’s Evaluation .......................................................................... 14

C. Criteria .................................................................................................................................... 26

D. Estimated Losses to HUD From Loss Mitigation Deficiencies .......................................... 30

E. Case Narratives ...................................................................................................................... 31




                                                                         2
Background and Objective
James B. Nutter & Company, a nonsupervised lender based in Kansas City, MO, received approval
as a Federal Housing Administration (FHA) lender on July 22, 1957. On February 17, 1984, J.B.
Nutter became an unconditional FHA direct endorsement lender, which permits a lender to
underwrite Single Family Mortgages without FHA’s prior review and submit them directly for FHA
insurance endorsement. J.B. Nutter also originates and services the U.S. Department of Veteran
Affairs and conventional loans. J.B. Nutter services more than 17,000 FHA loans.
As an agency within the U.S. Department of Housing and Urban Development (HUD), FHA
provides mortgage insurance on loans made by FHA-approved lenders. This insurance provides
lenders with protection against losses as the result of homeowners defaulting on their mortgage
loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a
homeowner’s default. Loans must meet certain requirements established by FHA to qualify for
insurance.
HUD established the Loss Mitigation program in 1996 to provide relief to borrowers in default.
Participation in the Loss Mitigation program is not optional. HUD requires servicers to (1) evaluate
all defaulted borrowers for loss mitigation options eligibility, (2) quickly activate appropriate loss
mitigation options, (3) provide housing counseling availability information, (4) consider all
reasonable means to assist the borrower in addressing the delinquency, and (5) retain written
documentation of compliance with loss mitigation requirements. The program consists of
reinstatement options to promote retention of home ownership and disposition options, which assist
borrowers in default transition to lower cost housing.
The reinstatement options are special forbearance, loan modification, partial claim, and the Home
Affordable Modification Program (HAMP). A special forbearance is a written repayment
agreement between a lender and borrower, containing a plan to reinstate a delinquent loan. A loan
modification is a permanent change in one or more of the terms of a loan, allows the loan to be
reinstated, and results in a payment the borrower can afford. A partial claim consists of an interest-
free loan to the borrower in the amount needed to reinstate the mortgage, thereby becoming a
subordinate mortgage payable to HUD. The FHA-HAMP loss mitigation, which became effective
August 15, 2009, combines the loan modification and partial claim loss mitigation options.
The disposition options are preforeclosure sale and deed in lieu of foreclosure. The preforeclosure
sale option allows a borrower in default to sell his or her home and use the sale proceeds to satisfy
the mortgage debt, even if the proceeds are less than the amount owed. A deed in lieu of
foreclosure allows a borrower to turn over his or her home to HUD in exchange for a release from
all mortgage obligations.
Our objective was to determine whether James B. Nutter complied with HUD’s Loss Mitigation
program requirements.




                                                   3
Results of Audit

Finding: J.B. Nutter Did Not Always Comply With HUD’s Loss
Mitigation Program Requirements
J.B. Nutter did not always comply with HUD’s Loss Mitigation program requirements.
Specifically, it did not always (1) properly evaluate loans for loss mitigation, (2) properly
determine the borrower’s ability to support the mortgage payment, (3) calculate the borrower’s
cash reserve contributions for loans approved for standard preforeclosure sale, and (4) start
foreclosure in accordance with HUD requirements. We found significant deficiencies in 11 of
25 (44 percent) FHA loan files reviewed. These deficiencies occurred because J.B. Nutter’s loss
mitigation policy (1) did not implement all of HUD’s requirements and (2) lacked detailed
operating procedures that included steps for implementation, such as detailed checklists. As a
result, HUD incurred losses of $287,922, and the FHA Mutual Mortgage Insurance Fund faced
an increased risk of $289,960.

J.B. Nutter Did Not Always Comply With HUD’s Loss Mitigation Program Requirements
J.B. Nutter did not always comply with HUD’s Loss Mitigation program requirements. We
found significant deficiencies in 11 of 25 (44 percent) FHA loan files reviewed. Summary
details for these 11 loans are contained in appendix E of this report.

J.B. Nutter Did Not Always Properly Evaluate Loans for Loss Mitigation
For six loans, J.B. Nutter did not properly evaluate the loans for loss mitigation. Specifically, it
did not properly

      Evaluate two borrowers for disposition options after denying the borrowers loss
       mitigation home retention alternatives. Mortgagee Letter (ML) 2000-05 states that
       participation in the Loss Mitigation program is not optional. Servicers may not start
       foreclosure until all loss mitigation options have been considered.
      Evaluate one borrower for loss mitigation home retention alternatives before approving
       the borrower for the preforeclosure sale program. ML 2008-43 requires the servicer to
       consider home retention alternatives and determine them unlikely to succeed before
       approving the borrower for the preforeclosure sale program.
      Evaluate one borrower for an FHA-HAMP loss mitigation action when the analysis of the
       borrower’s current financial condition resulted in the borrower’s inability to support the
       current mortgage payment. According to ML 2000-05, in no case may a partial claim be
       used if the borrower’s surplus income percentage is 0 percent or less. The borrower had
       a negative surplus income percentage with the original mortgage payment. The modified
       payment reduced the borrower’s payment by only $16, which still produced a negative
       surplus income.
      Evaluate one borrower for the preforeclosure sale program by the 90th day of
       delinquency. ML 2000-05 states that servicers are required to evaluate each loan no later



                                                  4
        than the 90th day of delinquency to determine which loss mitigation options, if any, are
        appropriate. As nonoccupant owner, the borrower qualified only for a streamlined
        preforeclosure sale or deed in lieu of foreclosure. According to ML 2014-15, there are
        only two criteria for a nonoccupant owner to qualify for a preforeclosure sale. The owner
        must be 90 days or more delinquent on his or her FHA-insured loan and have a credit
        score of 620 or below. As of July 2, 2015, the owner met this criterion but was not
        evaluated and approved for preforeclosure sale until October 2015. The borrower
        submitted a preforeclosure sale application in May 2015. The servicing file did not
        support that the application had been evaluated, and J.B. Nutter did not request new
        information from the borrower until July 29, 2015. The borrower reached the 90th day of
        delinquency on July 2, 2015.
       Evaluate one borrower for a deed in lieu of foreclosure after an unsuccessful
        preforeclosure sale. According to ML 2000-05, the servicer must consider all loss
        mitigation options, including deed in lieu of foreclosure, before foreclosure. In this case,
        J.B. Nutter did not determine the borrower ineligible for a deed in lieu of foreclosure
        before starting foreclosure. As a nonoccupant owner, the borrower qualified only for a
        streamlined preforeclosure sale or deed in lieu of foreclosure. According to ML 2008-43,
        the servicer has 90 days following the end of a failed preforeclosure sale marketing
        period (in this case until January 27, 2016) to either use another loss mitigation
        alternative or start foreclosure. The marketing period for the preforeclosure sale ended
        October 29, 2015, and the borrower contacted J.B. Nutter on October 31, 2015, stating
        that she was interested in a deed in lieu of foreclosure. J.B. Nutter sent the borrower an
        email on November 4, 2015, with the requirements to complete a deed in lieu of
        foreclosure but then approved a foreclosure on November 5, 2015. J.B. Nutter did not
        follow up with the borrower concerning the deed in lieu of foreclosure or give the
        borrower adequate time to respond to its information request to complete a deed in lieu of
        foreclosure. Appendix C contains more information on related criteria.

J.B. Nutter Did Not Always Properly Determine the Borrower’s Ability To Support the
Mortgage Payment
For three loans, J.B. Nutter did not properly determine the borrower’s ability to support the
mortgage payment. Specifically, it did not

       Consider the coborrower’s expenses after using the coborrower’s income to qualify a
        borrower for a loan modification.
       Evaluate the borrower’s financial condition before approving a borrower for a special
        forbearance plan (a plan for reinstating a delinquent loan).
       Evaluate the borrower’s ability to pay the modified payment for an FHA-HAMP partial
        claim loan modification.

According to ML 2000-05, regardless of the option under consideration, the servicer must
analyze the borrower’s current and future ability to meet the monthly mortgage obligation by
estimating the borrower’s assets and surplus income. The steps include estimating the
borrower’s normal monthly living expenses (food, utilities, etc.). Further, the mortgagee letter
states that if the financial analysis determines that the borrower does not have the ability to


                                                  5
support the modified monthly payment, the modification option may not be used. Appendix C
contains more information on related criteria.

J.B. Nutter Did Not Always Calculate the Borrower’s Cash Reserve Contribution
For three loans, J.B. Nutter did not calculate the borrower’s cash reserve contribution before
approving the borrower for a standard preforeclosure sale. According to MLs 2013-23 and
2014-15, before approving the borrower to participate in a standard preforeclosure transaction,
the servicer must calculate and disclose to the borrower the amount of the borrower cash reserve
contribution that must be applied toward the standard preforeclosure transaction. The borrower
is required to contribute 20 percent of its available cash reserves (all non-retirement liquid assets)
greater than $5,000 toward the unpaid principal balance. In two instances, it did not collect the
information necessary to compute the borrower’s cash reserve contribution. In the third instance,
it had the necessary documentation to make the determination but did not determine the
contribution amount. Based on the financial information provided in the loan file, the borrower
would have been required to contribute approximately $2,700 toward principal at closing.
Appendix C contains more information on related criteria.

J.B. Nutter Did Not Always Start Foreclosure in Accordance With HUD Requirements
For one loan, J.B. Nutter did not start foreclosure in accordance with HUD requirements.
According to ML 2008-43, if no offer is made on the property at the end of the preforeclosure
sale marketing period, the servicer has 90 days to either use another loss mitigation alternative or
start foreclosure. If the servicer does receive a preforeclosure sale offer on the property, it
qualifies the servicer for a 60-day extension to the marketing period before beginning the 90-day
period to start foreclosure or complete the deed in lieu of foreclosure. In this instance, the
marketing period expired on May 9, 2015, but J.B. Nutter had received an offer at the end of the
marketing period, which qualified it for a 60-day extension. Therefore, the marketing period
expired on July 9, 2015, and J.B. Nutter had an additional 90 days (October 7, 2015) to complete
the deed in lieu of foreclosure or start foreclosure. Although J.B. Nutter had attempted to
complete a deed in lieu of foreclosure, it was not completed by October 7, 2015, and J.B. Nutter
did not start foreclosure until November 6, 2015. Appendix C contains more information on
related criteria.

The following table summarizes the identified loan deficiencies.

                                                                                    Failure to
                              Failure to         Failure to       Failure to           start
                              properly            evaluate        determine        foreclosure
         FHA case            evaluate for       borrower’s       cash reserve      in required
          number           loss mitigation     ability to pay    contribution       timeframe
        482-4115523               X
        441-9334966               X
        093-7288660               X                                                     X
        292-6467627               X
        482-4388971               X                   X
        292-6513318               X


                                                  6
                                                                                  Failure to
                              Failure to        Failure to       Failure to          start
                              properly           evaluate        determine       foreclosure
         FHA case            evaluate for      borrower’s       cash reserve     in required
          number           loss mitigation    ability to pay    contribution      timeframe
        492-8118666                                 X
        201-4241857                                 X
        093-7785357                                                   X
        291-4844789                                                   X
        105-6801323                                                   X

J.B. Nutter’s Loss Mitigation Policy Did Not Implement All of HUD’s Requirements and
Lacked Detailed Operating Procedures
J.B. Nutter’s loss mitigation policy did not include the general program requirements for
evaluating loans for all loss mitigation options found in ML 2000-05, including evaluating the
borrower’s financial condition. The policy also did not include the requirement found in ML
2008-43 to consider HUD’s home retention alternatives and determine them unlikely to succeed
before approving a loan for preforeclosure sale. Further, the policy did not include the
requirements for a standard preforeclosure sale found in ML 2013-23 and ML 2014-15. The
policy addressed requirements for the streamlined preforeclosure sale only.
J.B. Nutter’s loss mitigation policy did include guidance that a deed in lieu of foreclosure must
be completed within 90 days of a failed preforeclosure sale. However, the policy did not include
detailed procedures to implement its policy. In the loan files reviewed, J.B. Nutter’s loss
mitigation representatives did not consistently use a checklist to ensure that program
requirements were met. The representatives sometimes used checklists found in the appendixes
of ML 2000-05 that did not incorporate changes to Loss Mitigation program requirements issued
after this ML, including FHA-HAMP guidance and requirements for a standard preforeclosure
sale. Additionally, the policy did not provide procedures to ensure that J.B. Nutter’s
representatives reviewed and documented each loan for all loss mitigation options before starting
foreclosure.
HUD Incurred Losses and the Insurance Fund Faced Increased Risk
As a result of the servicing deficiencies identified above, HUD incurred losses of $287,922 on
five loans and faced an increased risk of $289,960 on six loans (appendix A). The following
table describes the loans with significant loss mitigation deficiencies cited above and the actual
or estimated loss amounts associated with the deficiencies (appendix D).

                                       Unpaid
                 FHA case             principal
                  number               balance        Loss incurred       Claim paid
                482-4115523                             $77,180
                441-9334966                             118,939
                093-7288660           $115,106
                292-6467627            115,405



                                                  7
                                            Unpaid
                   FHA case                principal
                    number                  balance          Loss incurred        Claim paid
                  482-4388971               64,864
                  292-6513318               97,919
                  492-8118666                                    43,758
                  201-4241857               65,504
                  093-7785357               121,121
                  291-4844789                                                       $11,256
                  105-6801323                                                       36,789
                     Totals                $579,9191            $239,877            $48,045

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require J.B.
Nutter to
         1A.     Reimburse HUD $287,922 for the loss incurred on five loans that did not receive
                 active and proper loss mitigation or were improperly denied loss mitigation.
         1B.     Indemnify HUD for up to six loans that were not properly evaluated for loss
                 mitigation, reducing the amount by the loss determined for recommendation 1F.
                 The potential loss on those loans is estimated to be $289,960 (appendix A).
         1C.     Update its policies and procedures for loss mitigation to include requirements
                 found in ML 2000-05 (including general requirements for all loss mitigation
                 options, such as the 90-day review requirement, monthly evaluation, evaluation of
                 the borrower’s financial condition, and requirements for the borrower’s ability to
                 support mortgage payments for loan modification and partial claim), ML 2008-43
                 (including requirements to consider loss mitigation home retention alternatives
                 before evaluating the borrower for disposition options and requirements for loss
                 mitigation review after a failed preforeclosure sale), and ML 2014-15 (including
                 requirements for the standard preforeclosure sale). Effective March 2016, these
                 MLs have been superseded by HUD Handbook 4000.1, and the servicer should
                 update its policies in accordance with the new Handbook requirements.
         1D.     Update its procedures to include checklists to ensure that it considers all loss
                 mitigation options before starting foreclosure and follows all HUD requirements
                 for those options.
         1E.     Provide training to loss mitigation staff on the new policies and procedures
                 updated as a result of 1C and 1D.




1
    This number appears as $579,919 here due to rounding each number in the table. The actual sum with no
    rounding is $579,920.38. Therefore, we reported this number as $579,920 throughout the report.



                                                        8
We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing
      1F.    Determine the loss for FHA loans 093-7288660, 292-6467627, 292-6513318, and
             093-7785357 that went to claim after our review and seek reimbursement for the
             loss from J.B. Nutter.




                                            9
Scope and Methodology
Our audit period generally covered June 1, 2012, through July 31, 2015. We performed our audit
work from August 2015 through January 2016 at J.B. Nutter’s office located at 4153 Broadway,
Kansas City, MO, and our office located in Kansas City, KS.
To accomplish our objective, we
      Reviewed HUD handbook 4330.1, REV-5 and mortgagee letters,
      Reviewed J.B. Nutter’s loss mitigation and collection policies and procedures,
      Reviewed J.B. Nutter’s hardcopy loan servicing files,
      Interviewed J.B. Nutter’s employees, and
      Interviewed HUD staff from the National Servicing Center and Homeownership Center.
During our review, we selected two different samples using data maintained in HUD’s Single
Family Data Warehouse system. Single Family Data Warehouse is an integrated data warehouse
that contains critical Single Family business data from 14 sources, mostly from FHA Single
Family automated systems.
We based our conclusions on our review of 25 sample items. For our preliminary sample, we
randomly selected 5 of 109 foreclosed-upon FHA loans, which J.B. Nutter serviced during our
audit period, that received only one type of loss mitigation; 3 of 362 foreclosed-upon loans that
received no loss mitigation, and 2 of 798 loans that went into delinquency between January 1,
2014, and July 30, 2015. For our secondary sample, we randomly selected 15 of 134 FHA loans
that J.B. Nutter serviced during our audit period. We narrowed our audit universe to 134 loans
by (1) focusing on loans that initially went into default on or after July 1, 2013, (2) excluding
loans for which the default was due to the death of the principal borrower or the inability to
contact the borrower, (3) excluding bankruptcies since the loss mitigation options available are
limited, (4) including only those loans that had 62 days or fewer between the first time the loan
was reported 1 month delinquent and 3 months delinquent, and (5) including only those loans in
which the unpaid principal balance was greater than $50,000.
Due to the small universe and the time needed to review the loan files, we did not use a statistical
sample. Therefore, our results apply only to the items reviewed and cannot be projected to the
portion of the population we did not test.
We based all of our conclusions on our review of original source documents found in the
servicer’s FHA case files. We relied on electronic data in the Single Family Data Warehouse
only to select our sample and determine the costs associated with the loans detailed in our
finding. Therefore, we performed limited testing to determine the reliability of the data. We
found the data to be sufficiently reliable to meet our objectives.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit


                                                 10
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                11
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:

   Controls over loss mitigation.
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:

   J.B. Nutter’s loss mitigation policy (1) did not include all of HUD’s Loss Mitigation program
    requirements and (2) lacked detailed operating procedures to ensure that it adequately
    implemented HUD’s loss mitigation program (finding).
Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management memorandum, dated
May 16, 2016.




                                                  12
Appendixes

Appendix A
           Schedule of Questioned Costs and Funds To Be Put to Better Use
                Recommendation                     Funds to be put
                                    Ineligible 1/  to better use 2/
                     number
                         1A            $287,922
                         1B                               $289,960

                       Totals          $287,922           $289,960



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/   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 case, if the lender indemnifies HUD for the six
     loans that J.B. Nutter did not properly evaluate for loss mitigation, HUD will avoid any
     potential losses on those loans. The potential loss on those loans is estimated to be
     $289,960 (50 percent loss severity rate applied to the unpaid principal balance of
     $579,920).




                                             13
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               14
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 2




Comment 3




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 4




                               17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 5




Comment 6




                               18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 7




                               19
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 8




Comment 9




                               20
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 10




Comment 11




Comment 12




                               21
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 13




                               22
                         OIG Evaluation of Auditee Comments


Comment 1   OIG acknowledges that J.B. Nutter took our review seriously and made efforts to
            improve its loss mitigation program. We did not review changes made to J.B.
            Nutter’s policies and procedures after our field work, and therefore, cannot
            comment on whether subsequent changes satisfy our recommended changes.
Comment 2   JB Nutter denied the borrower loss mitigation home retention options in April
            2011 because the borrower did not meet income requirements. At the time of the
            denial, J.B. Nutter did not evaluate the borrower for disposition options. The
            borrower avoided foreclosure by withdrawing funds from her retirement accounts.
            Additionally, the notes in the loan diary state that the borrower was not receiving
            overtime payment opportunities and was taking care of her mother. Therefore,
            J.B. Nutter had no reason to believe that the borrower’s financial circumstances
            had improved when the borrower brought the loan current in September 2012.
            We acknowledge that J.B. Nutter attempted to make contact with the borrower
            after the borrower defaulted in October 2012; however, J.B. Nutter did not
            properly evaluate this loan for disposition options in April 2011 or imminent
            default in August 2012. Therefore, the impact on the insurance fund could have
            been reduced. We took the loss amount included in this report from Single
            Family Data Warehouse (SFDW) because it took into consideration the loss
            resulting from the sale of the HUD property. The equation SFDW used to
            calculate the loss amount was Sales Price – [Acquisition Cost + Capital
            Income/Expense (rent, repair costs, taxes, sales expenses)] = Profit/Loss.
Comment 3   At the time the borrower was denied loss mitigation home retention options, the
            borrower should have been considered for disposition options. J.B. Nutter could
            not provide evidence that this occurred. While the borrower may have made
            additional payments, the borrower’s financial condition did not improve, and the
            loan ended in foreclosure. Had a preforeclosure sale been successfully
            completed, the loss to the insurance fund could have been reduced. We took the
            loss amount included in this report from SFDW because it took into consideration
            the loss resulting from the sale of the HUD property. The equation SFDW used to
            calculate the loss amount was Sales Price – [Acquisition Cost + Capital
            Income/Expense (rent, repair costs, taxes, sales expenses)] = Profit/Loss.
Comment 4   J.B. Nutter could not provide documentation to show the loss mitigation home
            retention options were considered. In an email from J.B. Nutter, the auditors were
            told that the borrower had been approved for the preforeclosure sale based on the
            definition of imminent default and home retention options were not considered
            because the borrower had a negative surplus income. However ML 2008-43
            states that J.B. Nutter must document that they determined home retention options
            were unlikely to succeed. Additionally, we received confirmation from HUD’s
            National Servicing Center that option priority requires home retention options to
            be reviewed before disposition options are considered. J.B. Nutter did not



                                             23
            complete the deed-in-lieu within the required timeframe as stated in the audit
            report. According to ML 2008-43, J.B. Nutter is required to request an extension
            if it cannot complete the deed-in-lieu within the required timeframe. In this case,
            J.B. Nutter did not request or receive approval of an extension. Based on the
            auditee comments, the deed-in-lieu has been completed, and the property was
            conveyed to HUD since our review. Therefore, we have added Recommendation
            1F for HUD to determine the loss on the loan during the audit resolution process
            and seek repayment for the loss.
Comment 5   J.B. Nutter could not provide documentation to support that it conducted a timely
            review of the loss mitigation packet received in May 2015. Additionally, J.B.
            Nutter could not provide any communication with the borrower to support that it
            denied the borrower for a preforeclosure sale or the reasons for denial. Lastly,
            J.B. Nutter had all of the information necessary to approve the borrower for a
            preforeclosure sale as soon as the loan was more than 90-days delinquent (July 2,
            2015). J.B. Nutter did not evaluate the loan until after it was more than 90 days
            delinquent (July 29, 2015). Based on the auditee comments, this property has
            been conveyed to HUD since our review. Therefore, we have added
            Recommendation 1F for HUD to determine the loss on the loan during the audit
            resolution process and seek repayment for the loss.
Comment 6   An FHA-HAMP modification combines the partial claim with a loan
            modification. ML 2013-32 references ML 2000-05 surplus income percentage
            requirements, which states that a partial claim option cannot be used if the
            financial analysis determines the borrower cannot support the normal monthly
            payment. It further states that in no case may partial claim be used if the
            borrower’s surplus income percentage is zero percent or less than zero percent.
            Because the FHA-HAMP modification was executed, the borrower will not be
            eligible for loss mitigation for two years. The purpose of an indemnification
            agreement is to protect the FHA insurance fund from a potential loss; if there is
            no loss on the loan, no payment would be required.
Comment 7   In e-mails to OIG, J.B. Nutter stated that it proceeded with foreclosure on
            November 6, 2015, because it had not received a response from the borrower.
            Further, a note in the diary stated no phone call was made to the borrower because
            the loan had been recommended for foreclosure. The FHA loan file contained no
            evidence to show J.B. Nutter placed a call to the borrower concerning the deed-in-
            lieu after the loan was recommended for foreclosure. While evaluating the
            auditee comments, we determined this property has been conveyed to HUD since
            our review. Therefore, we have added Recommendation 1F for HUD to
            determine the loss on the loan during the audit resolution process and seek
            repayment for the loss.
Comment 8   J.B. Nutter did not follow HUD requirements for a loan modification when it
            failed to consider the co-borrower’s expenses to support the mortgage payment,
            and the borrowers ultimately could not support the loan. We took the loss amount



                                              24
              included in this report from SFDW because it took into consideration the loss
              resulting from the sale of the HUD property. The equation SFDW used to
              calculate the loss amount was Sales Price – [Acquisition Cost + Capital
              Income/Expense (rent, repair costs, taxes, sales expenses)] = Profit/Loss.
Comment 9     In communication with J.B. Nutter to the audit team, J.B. Nutter admitted that it
              did complete the analysis of the borrower’s financial condition and did not run a
              credit report as required. The documentation in the FHA loan file did not support
              statements made by J.B. Nutter that it determined the borrower’s ability to pay
              prior to executing the special forbearance agreement. Further, ML 2000-05
              requires that a CAIVRS search be performed on all FHA loans for all loss
              mitigation options prior to approval, and J.B. Nutter did not conduct the search
              until OIG brought the matter to its attention.
Comment 10 OIG’s cash reserve contribution calculation is based on four bank accounts held
           by the borrower, in which the largest month’s balance totaled $18,517 (1,444 +
           1,159 + 3,853 + 12,061). However, the issue in this case is not the exact amount
           of the cash reserves. The issue is that J.B. Nutter failed to determine the amount
           the borrower would be required to contribute prior to approving the borrower for
           a preforeclosure sale, and therefore, the borrower did not make the required cash
           reserve contribution. While evaluating the auditee comments for this loan, we
           determined J.B. Nutter submitted a claim for this loan following our initial
           review. Therefore, we added Recommendation 1F for HUD to determine the loss
           on this loan during the audit resolution process and seek repayment of the loss.
Comment 11 J.B. Nutter did not provide documentation to support that it calculated the
           borrower’s cash reserve contribution. Further, J.B. Nutter did not collect the
           documentation required by ML 2013-23 to make the appropriate calculation;
           therefore, it cannot make the determination that the borrower would not have been
           required to make a cash contribution.
Comment 12 J.B. Nutter did not provide documentation to support that it calculated the
           borrower’s cash reserve contribution. Further, J.B. Nutter did not collect the
           documentation required by ML 2013-23 to make the appropriate calculation;
           therefore, it cannot make the determination that the borrower would not have been
           required to make a cash contribution.
Comment 13 The 50 percent loss severity rate is based on HUD’s Single Family Acquired
           Asset Management System’s “case management profit and loss by acquisition”
           computation for fiscal year 2015. We use this percentage to estimate the future
           impact of indemnified loans that have not yet resulted in a final insurance claim.




                                               25
Appendix C
                                             Criteria

Mortgagee Letter 2000-05
This mortgagee letter states that loss mitigation is not optional. While each option has specific
eligibility requirements, there are some policies that apply to all of the options and some lender
requirements, which must be met whether or not any of the loss mitigation strategies are used.
General Program Requirements
C. Prohibition on Other FHA Loans
   The mortgagor [borrower] may not own other real estate subject to FHA insurance, or have
   been the mortgagor on prior loans which an FHA claim has been paid within the past three
   years. The Credit Alert Interactive Response System (CAIVRS) must be used to assist in this
   determination, prior to use of any of the loss mitigation options.
E. 90 Day Review Requirement
   No later than when 3 full monthly installments are due and unpaid, lenders must evaluate
   each defaulted loan and consider all loss mitigation techniques to determine which, if any,
   are appropriate.
G. Monthly Evaluation Requirement
   As long as the account remains delinquent, the lender must reevaluate the status of each loan
   monthly following the 90-day review and is required to maintain documentation of the
   evaluations.
H. Evaluation of the Borrower’s Financial Condition
   The lender must independently verify the financial information by obtaining a credit report
   and any other forms of verification the lender deems appropriate. Regardless of the option
   under consideration, the lender must analyze the borrower’s current and future ability to meet
   the monthly mortgage obligation by estimating the borrower’s assets and surplus income in
   the following matter:
        Estimate the borrower’s normal monthly living expenses (food, utilities, etc.)
           including debt service on the mortgage and other scheduled obligations. Make
           necessary adjustments to reflect increased or decreased expenses for each month of
           the proposed special forbearance agreement, or in the case of all other options, for a
           minimum of three months.
        Estimate the borrower’s anticipated monthly net income for the same period, making
           necessary adjustments for income fluctuations.
        Subtract expenses from income to determine the amount of surplus income available
           each month.
        Divide the surplus income by total monthly expenses to determine the surplus income
           percentage.
J. Foreclosure



                                                 26
   Lenders may not initiate foreclosure until all loss mitigation options have been considered.
   Written documentation of this review must be available in all conveyance claim review files
   (24 CFR [Code of Federal Regulations] 203.605).
Special Forbearance
D. Financial Analysis
   The lender is required to assess the borrower’s ability to repay the default as described in
   Section H, page 10. HUD expects the lender to project the borrower’s surplus monthly
   income for the duration of the special forbearance period and to propose repayment terms
   consistent with the borrower’s ability to pay.

Loan Modification
To qualify, borrowers must be able to support the monthly mortgage debt after the terms of the
loan are modified.
D. Financial Analysis
    The lender is required to assess the borrower’s financial condition as described in Section H,
    page 10. HUD expects the lender to project the borrower’s surplus monthly income for a
    minimum of three months and use good business judgment to determine if the borrower has
    the capacity to repay the arrearage through a repayment or special forbearance plan, before
    considering modification. If the financial analysis determines that the borrower does not
    have the ability to support the modified monthly payment, the modification option may not
    be used.
Partial Claim
D. Financial Analysis
    The lender is required to assess the borrower’s financial condition as described in Section H,
    page 10. HUD expects the lender to project the borrower’s surplus monthly income for a
    minimum of three months and calculate the surplus income percentage. If the financial
    analysis determines that the borrower does not have the ability to support the normal monthly
    payment, the partial claim options may not be used. In no case may partial claim be used if
    the borrower’s surplus income percentage is 0 percent or less than 0 percent.

Mortgagee Letter 2008-43
Pre-Foreclosure Sale Introduction
HUD’s home retention alternatives such as Special Forbearance, Mortgage Modification, or
Partial Claim must first be considered and determined unlikely to succeed due to the mortgagor’s
financial situation. Mortgagees [lenders] must maintain supporting documentation to
demonstrate that a comprehensive review of the mortgagor’s financial records was completed,
and that the mortgagor did not have sufficient income to sustain the mortgage.
K. Duration of the Pre-Foreclosure Sale Period
   Unless the National Servicing Center approves an extension, mortgagees have four months
   from the date of the mortgagor’s approval to participate in the Preforeclosure Sale (PFS)
   program. Mortgagees have a pre-approved extension of two additional months to complete
   the PFS if one of the following exists:




                                                 27
            There is a signed Contract of Sale, but settlement has not occurred by the end of the
             fourth month following the date of the mortgagor’s approval to participate in the PFS
             Program.
N. Failure to Complete a PFS
   At the expiration of the PFS period, the mortgagee must re-evaluate available loss mitigation
   options. If the mortgagor’s financial condition has improved to the point that reinstatement
   is a viable option, the mortgagee may undertake one of the home retention loss mitigation
   tools. If reinstatement is not feasible, the mortgagee should try to obtain a DIL [deed in lieu]
   of foreclosure before commencing foreclosure. An alternate loss mitigation option or first
   legal action to initiate foreclosure must be completed within 90 days of the expiration of the
   PFS period. If more than 90 days are needed to complete a DIL of foreclosure or initiate
   foreclosure or resume foreclosure, mortgagees must follow HUD’s standard extension
   procedures and request an extension from the National Servicing Center.
Mortgagee Letter 2010-04
Definition of “FHA Borrower Facing Imminent Default”
FHA defines an “FHA borrower facing imminent default” to be an FHA borrower that is current
or less than 30 days past due on mortgage obligation and is experiencing a significant reduction
in income or some other hardship that will prevent him or her from making the next required
payment on the mortgage during the month that it is due.

Mortgagee Letters 2013-23 and 2014-152
Calculating Cash Reserve Contributions for Standard PFS Transactions
Prior to approving the mortgagor to participate in a standard PFS transaction, the mortgagee
must calculate and disclose to the mortgagor the amount of the mortgagor’s cash reserve
contribution to be applied toward the standard PFS transaction. To determine the cash reserve
contribution, the mortgagee must obtain the:
     mortgagor’s three most recent monthly bank statements,
     three most recent months of brokerage statements,
     mortgagor’s most recent federal tax return at the time the mortgagor requests an approval
        for a standard PFS.
Streamlined Eligibility Requirements for PFS and DIL of Foreclosure
Mortgagees may approve a mortgagor for a Streamlined PFS or DIL of foreclosure without
verifying the hardship or obtaining a complete mortgagor workout packet if each of the
conditions below exists:
For Non-Owner Occupants:
     Mortgagor(s) are 90 days or more delinquent on their FHA-insured loan as of the date of
        the mortgagee’s review, and
     Each mortgagor has a credit score of 620 or below.


2
    ML 2014-15 superseded ML 2013-23 in its entirety on October 1, 2014; however, both mortgagee letters contain
    identical criteria regarding the cash reserve contribution for standard preforeclosure sale transactions and
    Streamlined Eligibility Requirements for preforeclosure sales and deeds in lieu of foreclosure.



                                                        28
Mortgagee Letter 2013-32
FHA-HAMP
Surplus Income Percentage
The term “Surplus Income Percentage” is defined as surplus income divided by monthly net
income (i.e., net take-home income). The Surplus Income Percentage is used in the mortgagee’s
financial analysis to determine which loss mitigation options are appropriate based on the
mortgagor’s income. See Mortgage Letter 2000-05 for further guidance on Surplus Income
Percentage.
Mortgagee Letter 2014-15
Appraisal Validation Requirements for PFS Transactions
After its review of an FHA Roster appraisal, a mortgagee must submit a Request for Variance
through the Extension and Variances Automated Requests Systems (EVARS) to approve a PFS
transaction if one of the following conditions exists:
     The current appraised value of the property is less than the Unpaid Principal Balance by
        an amount of $75,000 or greater, or
     The appraised value is less than 50 percent of the Unpaid Principal Balance.
Minimum Marketing Period for all PFS Transactions
For all PFS transactions, the property must be marketed for a minimum period of 15 calendar
days and all offers must be evaluated in accordance with the Requirements for Listing Agents set
forth below in this Mortgagee Letter, even if the mortgagor has located a buyer.

Requirements for Listing Agents and Listing Brokers
The property must be listed in Multiple Listing Service for a period of 15 calendar days before
offers are being evaluated. Following this initial listing period, offers may be evaluated as they
are received.




                                                 29
Appendix D
                     Estimated Losses to HUD From Loss Mitigation Deficiencies

                         Unpaid                                           Actual or estimated losses
     FHA case                            Loss          Claim
                        principal                                  Recommendation Recommendation
      number                           incurred         paid
                         balance                                           1A                   1B3
    482-4115523                         $77,180                        $77,180
    441-9334966                         118,939                         118,939
    093-7288660         $115,106                                                             $57,553
    292-6467627          115,405                                                              57,703
    482-4388971           64,864                                                              32,432
    292-6513318           97,919                                                              48,960
    492-8118666                          43,758                          43,758
    201-4241857          65,504                                                               32,752
    093-7785357          121,121                                                             60,5604
    291-4844789                                       $11,256           11,256
    105-6801323                                       36,789            36,789
       Totals           $579,9195      $239,877       $48,045          $287,922             $289,960




3
     Unpaid principal balance * 50 percent
4
     This number appears to be rounded incorrectly here as $60,560 ($121,121 / 2 = $60,560.50, or $60,561 when
     rounded); however, with no rounding, it is $60,560.42 (the unpaid principal balance of $121,120.84 * 50% loss
     severity rate), so we have rounded down in the table above.
5
     This number appears as $579,919 here due to rounding each number in the table. The actual sum with no
     rounding is $579,920.38. Therefore, we reported this number as $579,920 throughout the report.



                                                          30
Appendix E
                                         Case Narratives

FHA case number: 482-4115523
Loan amount: $233,354
Loss incurred: $77,180
Months delinquent: 9
Status as of September 3, 2015: Terminated. Property conveyed to HUD.

Servicing deficiency: J.B. Nutter did not evaluate the loan for all loss mitigation options.
J.B. Nutter did not properly evaluate the loan for the loss mitigation disposition options after
denying the borrower the loss mitigation home retention options in April 2011. Although the
borrower faced imminent default, J.B. Nutter sent the borrower a letter on September 7, 2012,
closing the borrower’s loss mitigation file because the loan was current. However, ML 2010-04
provides guidance on loss mitigation options available to borrowers facing imminent default.
The borrower made no payments after September 2012.

FHA case number: 441-9334966
Loan amount: $163,747
Loss incurred: $118,939
Months delinquent: 36
Status as of September 3, 2015: Terminated. Property conveyed to HUD.

Servicing deficiency: J.B. Nutter did not evaluate the loan for all loss mitigation options.

J.B. Nutter did not consider all loss mitigation options to avoid foreclosure. It denied the
borrower the loss mitigation home retention options due to lack of income and did not evaluate
the borrower for the disposition options before starting foreclosure. ML 2000-05 requires the
servicer to evaluate the borrower for all loss mitigation options before starting foreclosure.

FHA case number: 093-7288660
Loan amount: $126,499
Unpaid principal balance (as of February 2, 2016): $115,106
Months delinquent: 9
Status as of October 29, 2015: Active. Foreclosure started.
Servicing deficiency: J.B. Nutter did not evaluate the loan for all loss mitigation options and did
not start foreclosure in accordance with HUD requirements.
J.B. Nutter did not evaluate the borrower for loss mitigation home retention options before
approving the borrower for the preforeclosure sale program and did not start foreclosure in
accordance with HUD requirements. According to ML 2008-43, HUD’s home retention
alternatives must first be considered and determined unlikely to succeed due to the borrower’s
financial situation. Additionally, at the end of the preforeclosure sale marketing period, if no


                                                 31
offer is made on the property, the servicer has 90 days to start foreclosure or use an alternate loss
mitigation option. The lenders have a preapproved extension of 2 additional months to complete
the preforeclosure sale if there is a signed contract of sale but settlement has not occurred by the
end of the fourth month following the date of the borrower’s approval to participate in the
preforeclosure sale program. The borrower’s initial marketing period expired on May 9, 2015.
However, J.B. Nutter had an automatic extension of 60 days because it had a signed contract
offer on the end day of the marketing period. Therefore, the marketing period expired on July 9,
2015, and the borrower had an additional 90 days (by October 7, 2015) to complete the deed in
lieu of foreclosure or start foreclosure. However, J.B. Nutter did not complete the deed in lieu of
foreclosure by October 7, 2015, and did not start foreclosure until November 6, 2015. J.B.
Nutter did not receive an approved extension from HUD’s National Servicing Center.

FHA case number: 292-6467627
Loan amount: $121,557
Unpaid principal balance (as of February 2, 2016): $115,405
Months delinquent: 7
Status as of October 29, 2015: Active. Foreclosure started.

Servicing deficiency: J.B. Nutter did not properly evaluate the borrower for loss mitigation.

J.B. Nutter did not properly evaluate the borrower for loss mitigation. The borrower submitted
an application to participate in a preforeclosure sale to J.B. Nutter in May 2015. J.B. Nutter did
not properly evaluate the application. As a nonoccupant owner, the only loss mitigation options
available to the borrower were a streamlined preforeclosure sale or deed in lieu of foreclosure.
To qualify, the borrower needed to be 90 days delinquent and have a credit score at or below
620. Additionally, ML 2000-05 states that the servicer must evaluate each defaulted loan and
consider all loss mitigation techniques no later than when three monthly installments are due and
unpaid. The borrower was 90 days delinquent as of July 2, 2015, but J.B. Nutter did not evaluate
the preforeclosure sale application sent in May 2015 or attempt to get information from the
borrower until July 29, 2015, when J.B. Nutter mailed the borrower a second loss mitigation
packet. In the meantime, J.B. Nutter’s foreclosure review board recommended foreclosure on
August 10, 2015. It took J.B. Nutter’s appraiser approximately 1 month to provide an appraisal,
which provided a marketing period of 12 days due to a previously scheduled foreclosure sale.
However, based on the information obtained in J.B. Nutter’s FHA case file, J.B. Nutter had all of
the information needed to approve the borrower for the preforeclosure sale program on July 2,
2015.

FHA case number: 482-4388971
Loan amount: $69,087
Unpaid principal balance (as of February 2, 2016): $64,864
Months delinquent: 3
Status as of December 3, 2015: Active. Borrower approved for FHA-HAMP partial claim with
loan modification.

Servicing deficiency: J.B. Nutter did not properly evaluate the loan for loss mitigation.



                                                  32
J.B. Nutter did not properly evaluate the borrower for loss mitigation. It analyzed the borrower’s
financial information and found that the borrower had a negative 51 percent surplus income
percentage with the borrower’s current mortgage payment. The analysis of the partial claim
reduced the borrower’s mortgage payment by only $16. J.B. Nutter did not analyze the
borrower’s ability to pay the modified payment, but based on information obtained in the FHA
case file, a $16 reduction in payment would not have given the borrower a positive surplus
income. According to ML 2000-05, if the financial analysis determines that the borrower does
not have the ability to support the normal monthly payment, the partial claim option may not be
used. It states further that in no case may partial claim be used if the borrower’s surplus income
percentage is 0 percent or less. J.B. Nutter should not have approved the borrower for the FHA-
HAMP partial claim with loan modification in this instance.

FHA case number: 292-6513318
Loan amount: $102,235
Unpaid principal balance: $97,919
Months delinquent: 9
Status as of December 3, 2015: Active. Foreclosure started.

Servicing deficiency: J.B. Nutter did not evaluate the loan for all loss mitigation options.

J.B. Nutter did not properly evaluate the borrower for a deed in lieu of foreclosure when it did
not give the borrower adequate time to respond to a request for information to complete a deed in
lieu of foreclosure. The borrower participated in a preforeclosure sale, but she did not receive a
successful offer before the end of the marketing period. The marketing period ended October 29,
2015, and the borrower contacted J.B. Nutter on October 31, 2015, stating that she was interested
in a deed in lieu of foreclosure. J.B. Nutter sent the borrower an email on November 4, 2015,
with the requirements to complete a deed in lieu of foreclosure, and the loan was presented and
approved to the J.B. Nutter’s foreclosure review board on November 5, 2015. The servicing file
did not support that J.B. Nutter followed up with the borrower concerning the deed in lieu of
foreclosure. According to ML 2008-43, J.B. Nutter had 90 days following the end of the
preforeclosure sale marketing period to use another loss mitigation option or start foreclosure.
Therefore, J.B. Nutter had until January 27, 2016, but started foreclosure in November 2015.

Additionally, J.B. Nutter did not determine whether the borrower owned other real estate subject
to FHA insurance before approving the borrower for a preforeclosure sale as required by ML
2000-05. Further, the appraised value was less than 50 percent of the unpaid principal balance,
and J.B. Nutter did not receive approval of the variance from HUD before approving the
borrower for a preforeclosure sale as required by ML 2014-15.

FHA case number: 492-8118666
Loan amount: $83,641
Loss incurred: $43,758
Months delinquent: 19
Status as of September 3, 2015: Terminated. Property conveyed to HUD.



                                                 33
Servicing deficiency: J.B. Nutter did not properly determine the borrower’s ability to support the
mortgage payment for a loan modification.

J.B. Nutter did not properly determine the borrower’s ability to support the mortgage payment
for a loan modification. The coborrower lived in the home after the borrower suffered a stroke.
The expenses submitted with the loss mitigation application were consistent with the borrower’s
expenses. However, the borrower’s income could not support the loan amount. Therefore, J.B.
Nutter used the coborrower’s income to support the loan modification without taking into
consideration the coborrower’s expenses. ML 2000-05 states that J.B. Nutter must analyze the
borrower’s current and future ability to meet the monthly mortgage obligation.

FHA case number: 201-4241857
Loan amount: $72,973
Unpaid principal balance: $65,504
Months Delinquent: 26
Status as of December 3, 2015: Active. Contested foreclosure.

Servicing deficiency: J.B. Nutter did not determine the borrower’s ability to pay before
executing a special forbearance agreement.

J.B. Nutter did not evaluate the borrower’s ability to pay before executing a special forbearance
agreement. ML 2000-05 states that J.B. Nutter must analyze the borrower’s current and future
ability to meet the monthly mortgage obligation by estimating the borrower’s assets and surplus
income. J.B. Nutter did not collect the information necessary to make this determination. It
collected information sufficient to verify only that the borrower was unemployed. Additionally,
J.B. Nutter did not determine whether the borrower had other real estate subject to FHA
insurance. ML 2000-05 states that to participate in the Loss Mitigation program, borrowers may
not own other real estate subject to FHA insurance or have been the borrower on prior loans, for
which an FHA claim has been paid within the past 3 years.

FHA case number: 093-7785357
Loan amount: $126,010
Unpaid principal balance: $121,121
Months delinquent: 5
Status as of October 29, 2015: Active. Preforeclosure sale completed.

Servicing deficiency: J.B. Nutter did not calculate the borrower’s cash reserve contribution
before approving the borrower for the preforeclosure sale program.

J.B. Nutter did not calculate the borrower’s cash reserve contribution before approving the
standard preforeclosure sale. Based on the financial information in the file, the borrower would
have been required to contribute $2,703 toward the principal of the loan at closing. According to
ML 2013-23, before approving the borrower to participate in a standard preforeclosure sale
transaction, J.B. Nutter must calculate and disclose to the borrower the amount of the borrower’s



                                                34
cash reserve contribution that must be applied toward the standard preforeclosure sale
transaction.

FHA case number: 291-4844789
Loan amount: $71,333
Claim paid: $11,256
Months delinquent: 4
Status as of December 3, 2015: Terminated. Preforeclosure sale completed.

Servicing deficiency: J.B. Nutter did not calculate the borrower’s cash reserve contribution.

J.B. Nutter did not calculate the borrower’s cash reserve contribution before approving the
borrower for a standard preforeclosure sale. It did not collect the proper documentation to make
the determination. According to ML 2013-23, before approving the borrower to participate in a
standard preforeclosure sale transaction, the lender must calculate and disclose to the borrower
the amount of the borrower’s cash reserve contribution that will be required to be applied toward
the standard preforeclosure sale transaction.

FHA case number: 105-6801323
Loan amount: $113,546
Claim paid: $36,789
Months delinquent: 8
Status as of December 3, 2015: Terminated. Preforeclosure sale completed.

Servicing deficiency: J.B. Nutter did not calculate the borrower’s cash reserve contribution.

J.B. Nutter did not calculate the borrower’s cash reserve contribution before approving the
borrower for a standard preforeclosure sale. It did not collect the proper documentation to make
the determination. According to ML 2013-23, before approving the borrower to participate in a
standard preforeclosure sale transaction, the lender must calculate and disclose to the borrower
the amount of the borrower’s cash reserve contribution that must be applied toward the standard
preforeclosure sale transaction.




                                                35