The U.S. Department of Housing and Urban Development, Office of Inspector General, audited the lender, Berkeley Point Capital, and the underwriting for the Second and Delaware project loan.  We initiated the review of the loan underwriting based on a previous review of the Second and Delaware project, which focused on the construction and development of the project.  The almost $46 million project is Federal Housing Administration (FHA) insured and sitting substantially incomplete near downtown Kansas City, MO, with no additional work being performed. 

The lender generally underwrote the loan in accordance with HUD rules and regulations, except it did not ensure that the general contractor met FHA’s experience requirements.  The contractor did not meet the large loan requirement of mortgagee letter 2014-18.  This deficiency occurred because a previous lender that completed the underwriting did not consider the contractor’s lack of experience to be material.  As a result, this could contribute to the loan going into default if the project is not completed. 

The underwriting on this loan was completed by a different lender, which sold its FHA construction loan portfolio to Berkeley Point Capital.  As of the issue date of this report, HUD was working with a new lender to issue a new loan to fund the completion of the project.  This new loan would pay off the original loan held by Berkeley Point Capital.  With the issuance of the new loan, Berkeley Point Capital would no longer be involved with the Second and Delaware project.

We recommend that the Southwest Regional Director of Multifamily Housing require that the current or future lender ensure that the project uses a contractor that is proven to be qualified and capable of completing the project.