We audited Mid America Mortgage’s, dba 1st Tribal Lending’s, Section 184 Indian Home Loan Guarantee program based on a previous U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audit and corrective action verification of the Section 184 program, which determined that HUD lacked proper oversight of the program and lenders did not always underwrite loans in accordance with HUD’s requirements.  The lender was selected because it is the largest Section 184 program lender.  Our audit objective was to determine whether the lender underwrote Section 184 loans in accordance with HUD’s requirements.

The lender did not always follow HUD’s Section 184 program requirements.  Specifically, it did not always (1) underwrite Section 184 loans in accordance with program requirements and (2) follow HUD’s quality control requirements when reviewing loan files.  This condition occurred because the lender did not always exercise due diligence when underwriting loans and did not strictly follow HUD’s underwriting and quality control requirements.  As a result, there was an increased risk to the Section 184 program and HUD’s Loan Guarantee Fund.  There were 11 loans with material underwriting deficiencies and we recommend indemnification for 7 of these loans.  The seven loans had a total unpaid mortgage balance of $1.3 million with an estimated potential loss to HUD of $607,598.

We recommend that the Deputy Assistant Secretary for Native American Programs (1) request indemnification for 7 of the 11 loans  that had material underwriting deficiencies and had an unpaid mortgage balance of $1.3 million with an estimated potential loss to HUD of $607,598, (2) require the lender to develop and implement enhanced policies and procedures to ensure electronic signatures from borrowers are properly supported, and (3) require the lender to fully implement its quality control plan with respect to reverifications and provide HUD with periodic reports for 12 months to ensure that its quality control reviews are conducted in accordance with the requirements.