HUD OIG performed an audit of Lendamerica Home Loans, Inc., a Federal Housing Administration approved direct endorsement lender located in Coral Gables, Florida. The review was performed based on the lender’s high default rates. The purpose of the audit was to determine whether the lender followed the U.S. Department of Housing and Urban Development’s (HUD) requirements for (1) originating and underwriting loans and (2) implementing its quality control program.

Lendamerica Home Loans did not follow HUD requirements when underwriting all five loans reviewed. HUD insured five loans that unnecessarily placed the FHA insurance fund at risk for more than $1 million. Lendamerica Home Loans did not ensure the accuracy, validity, and completeness of its loan originations. In addition, Lendamerica Home Loans did not implement a quality control program that complied with HUD requirements. As a result, the effectiveness of Lendamerica’s quality control program to guard against errors, omissions, and fraud and to protect HUD from unacceptable risk was diminished. In addition, the noncompliance could result in an increased risk to the FHA insurance fund.

OIG recommended that the Deputy Assistant Secretary for Single Family Housing require Lendamerica Home Loans to indemnify HUD more than $1 million for the five insured loans with significant deficiencies, pay down the loan balance for the two overinsured loans, and implement and enforce controls to ensure that loans are processed in accordance with HUD requirements. OIG also recommended that HUD take appropriate measures to ensure that Lendamerica develops and implements a quality control program that complies with HUD requirements and refer it to the Mortgagee Review Board for consideration of taking appropriate administrative actions.