We audited Prudential Huntoon Paige Associates, LTD’s underwriting of a $19.9 million mortgage loan to develop Amaranth at 544, a senior multifamily project located in Lewisville, TX.  We initiated the review based on the early default, assignment, and significant amount of the project.  Our objective was to determine whether Prudential underwrote and processed the loan for Amaranth according to the U.S. Department of Housing and Urban Development’s (HUD) requirements.

Prudential exposed the Federal Housing Administration (FHA) insurance fund to unnecessary risk and a loss of more than $10 million because it did not underwrite and process the loan for Amaranth in accordance with HUD’s guidelines and regulations.  Specifically, Prudential did not ensure that adequate cash reserves were provided at loan closing; the appraisal report was supported; the market analysis included support to reflect the present economic conditions; and the project revenue was not overstated.  In addition, Prudential failed to obtain support for the borrower’s financial capacity.

We recommend that the Director of the Fort Worth Office of Multifamily Housing Programs refer Prudential to the Mortgagee Review Board to take appropriate action for violations that caused a more than $10 million loss to HUD’s FHA insurance fund, or other administrative action as appropriate.  Additionally, we recommend that the Departmental Enforcement Center pursue administrative actions, as appropriate, against the responsible party for the material underwriting deficiencies cited in the report.