We completed an audit of All American Home Mortgage Corp., a nonsupervised lender located in Brooklyn, NY. Our audit objectives were to determine whether All American officials (1) approved Federal Housing Administration (FHA)-insured loans in accordance with the requirements of the U.S. Department of Housing and Urban Development (HUD)-FHA, and (2) implemented a quality control plan in accordance with HUD-FHA requirements.
All American officials did not always approve FHA-insured loans in accordance with HUD-FHA requirements. Specifically, material underwriting deficiencies were noted regarding 6 of the 20 loans reviewed, such as inadequate verification of gift funds, the statutory minimum investment, source of funds, improper calculation of income and inconsistent information not reconciled etc. As a result, loans were approved for potentially ineligible borrowers, which caused HUD-FHA to incur an unnecessary insurance risk. All American officials also charged the borrowers $680 in unallowable fees, such as wire and courier fees. In addition, All American officials did not ensure that their quality control plan was implemented in accordance with HUD-FHA requirements. Consequently, the effectiveness of the plan was impaired, resulting in a lack of assurance that loan origination problems were identified and appropriate corrective action was taken to prevent similar occurrences.
We recommend that HUD’s Acting Deputy Assistant Secretary for Single Family Housing require All American officials to (1) indemnify HUD against future losses related to the five loans, which were underwritten in violation of HUD-FHA requirements; (2) reimburse HUD $181,515 in claims and associated fees paid on one loan; (3) ensure that borrowers have been reimbursed $680 for unallowable wire and courier fees; (4) establish procedures to ensure HUD-FHA underwriting requirements are properly implemented and documented; and (5) implement quality control procedures to ensure that management responses and planned corrective action are adequately documented and quality control reviews are always conducted in accordance with HUD-FHA requirements.