oversight

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




                                              September 29, 2016
                                                                                                 MEMORANDUM NO:
                                                                                                 2016-LA-1802


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

                 //SIGNED//
FROM:            Tanya E. Schulze
                 Regional Inspector General for Audit, 9EGA

SUBJECT:         Final Civil Action: DHI Mortgage Company Ltd. Settled Allegations of Making
                 False Certifications Regarding Federal Housing Administration Loans


                                               INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), audited DHI Mortgage Company Ltd. (DHIM) and found that it underwrote Federal
Housing Administration (FHA)-insured loans with prohibited restrictive addenda to the purchase
contracts. 1 The addenda prevented the borrower from renting or reselling the property and
violated FHA regulations. OIG referred the violations to HUD’s Office of Program Enforcement
for action under the Program Fraud Civil Remedies Act.

                                                BACKGROUND

FHA was created by Congress in 1934 and is the largest mortgage insurer in the world. FHA
mortgage insurance also encourages lenders to approve mortgages for otherwise creditworthy
borrowers that might not be able to meet conventional underwriting requirements by protecting
the lender against default. Lenders are responsible for complying with all applicable HUD
regulations and are protected against default by FHA’s Mutual Mortgage Insurance Fund, which
is sustained by borrower premiums. The insurance fund pays claims to lenders in the event of a
homeowner default.




1
    OIG audit reports 2009-LA-1018 and 2010-LA-1009, issued on September 10, 2009 and March 19, 2010,
    respectively.
                                                  Office of Audit (Region 9)
                             300 North Los Angeles Street, Suite 4070, Los Angeles, CA 90012
                                         Phone (213) 894-8016, Fax (213) 894-8115
                             Visit the Office of Inspector General Web site at www.hudoig.gov.
DHIM, a nonsupervised lender, was approved in 1981 to originate FHA loans. It was a wholly
owned subsidiary of D.R. Horton, Inc., a national homebuilder, and an affiliate of DHI Title
Company, another wholly owned subsidiary of D.R. Horton, Inc. DHIM provided mortgage-
financing services principally to purchasers of D.R. Horton, Inc., homes.

                                   RESULTS OF REVIEW

On February 2, 2016, HUD filed a complaint, and an amended complaint on June 7, 2016, under
the Program Fraud Civil Remedies Act of 1986, 31 U.S.C. (United State Code) 3801-3812, as
implemented by 24 CFR (Code of Federal Regulations) Part 28, against DHIM. The actions
were based upon the alleged submission of false statements to HUD by DHIM in its application
for FHA insurance for 168 mortgage loans. Of the 168 loans, HUD alleged that an improper
restriction on conveyance was recorded for 67 properties contrary to FHA requirements. The
remaining 101 loan applications allegedly falsely stated that there was no affiliation between
DHIM and D.R. Horton, which are affiliated companies.

DHIM disputed HUD’s claims. On July 6, 2016, DHIM entered into a settlement agreement
with the HUD. To arrive at a mutually satisfactory resolution of the matter without the time and
expense of further administrative proceedings, DHIM agreed to pay HUD $180,000 for alleged
violations concerning but not limited to the 168 loans. The settlement agreement did not
constitute an admission of liability or fault by any party.

                                   RECOMMENDATION

OIG recommends that HUD’s Office of General Counsel, Office of Program Enforcement,

1A.    Acknowledge that the attached settlement agreement for $180,000 represents an amount
       due HUD.

       As of the date of this memorandum, the amount due HUD had been paid in full.
       Therefore, no further action is required by the Office of General Counsel. At issuance of
       this memorandum, 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 final action was completed.




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