We audited the mortgage origination and business practices of the First Magnus Financial Corporation’s (First Magnus) corporate office in Tucson, Arizona. The objective of the audit was to determine whether First Magnus violated U.S. Department of Housing and Urban Development (HUD) requirements by paying builders and real estate companies marketing fees and non-competition fees in exchange for the referral of Federal Housing Administration (FHA) mortgage business. We determined that First Magnus violated the Real Estate Settlement Procedures Act (RESPA) when it paid marketing fees and non-competition fees to builders and real estate companies in exchange for the referral of FHA mortgage business. As a result, First Magnus paid builders and real estate companies $32,154 in marketing fees and noncompetition fees in exchange for the exclusive referral of 236 FHA-insured mortgages totaling more than $30 million.

We recommend that HUD’s Assistant Secretary for Housing-Federal Housing Commissioner require First Magnus, for any current or future FHA mortgage operations for which First Magnus may exercise management control, to ensure that the practice of paying marketing fees and non-competition fees to real estate companies and builders for referrals of FHA mortgages is discontinued. In addition, we recommend that First Magnus have their active status and approval to perform FHA business removed. Finally, we recommend that HUD’s Acting Director for the Departmental Enforcement Center pursue administrative actions against the principal owners and management of First Magnus for allowing the improper practice of paying marketing fees and non-competition fees to real estate companies and builders in exchange for referrals of FHA mortgage business.