We reviewed NTFN, Inc., based on the U.S. Department of Housing and Urban Development (HUD) Office of Inspector General’s (OIG) goal to protect the integrity of the Federal Housing Administration’s (FHA) housing insurance and guarantee programs.  We selected NTFN because its loan default rate was the second highest in the Dallas-Fort Worth metropolitan area from July 2012 through June 2014.  NTFN originated 3,046 FHA loans in the metropolitan area during this period, 23 of which became seriously delinquent during the first year.  The unpaid principal balance of the 23 loans totaled more than $3.1 million as of June 2014.  Our objective was to determine whether NTFN complied with HUD and FHA requirements when originating and underwriting single-family FHA loans.

NTFN did not (1) comply with all HUD and FHA requirements when underwriting 5 of 10 loans or (2) perform adequate early payment default and quality control reviews.  We identified other deficiencies that should be corrected, but they did not affect the insurability of the loans.  The noncompliance noted above occurred because NTFN did not always exercise due diligence when underwriting loans and did not have an adequate internal control system.  As a result, HUD insured an ineligible loan and NTFN did not properly fulfill its requirement to review early payment defaults or properly perform quality control reviews.  Thus, NTFN did not ensure the accuracy, validity, and completeness of its loan origination operations, resulting in an increased risk to the FHA insurance fund.

We recommended that HUD take actions up to requiring NTFN to indemnify HUD for the loan for which HUD sold the property and incurred a loss totaling $84,811.  We also recommend that HUD require NTFN to (1) support the eligibility of $61,419 in claims paid or execute an indemnification agreement requiring any unsupported amounts to be repaid, for claims paid on two loans for which HUD had paid claims, but had not sold the properties; (2) implement policies and procedures to ensure that its underwriters adequately review appraisals; (3) implement internal controls to ensure that it follows HUD regulations regarding early payment default reviews and quality control reviews; and (4) place signs designating its office in a space shared with another entity.