We audited Prudential’s underwriting of a $49 million mortgage loan to develop the Preserve at Alafia, a multifamily project located in Riverview, FL.  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 the Preserve of Alafia according to the U.S. Department of Housing and Urban Development’s (HUD) requirements.

Prudential did not underwrite and process the loan for the Preserve at Alafia in accordance with HUD’s guidelines and regulations.  Specifically, Prudential did not properly analyze the appraisal and market study, accurately estimate the project income and rental rates, completely disclose all debts related to the property, adequately analyze the eligibility of the participants, and properly document prepaid costs.  This condition was caused by Prudential’s failure to practice prudent underwriting and its failure to conduct a sufficient review of related documents and third party reports that HUD relied on.  As a result, Prudential exposed the Federal Housing Administration insurance fund to unnecessary risk and a loss of more than $20 million.

We recommend that the  HUD (1) refer Prudential to the Mortgagee Review Board to take appropriate action against its noncompliance, (2) take appropriate enforcement actions against the responsible parties and pursue civil remedies under the False Claims Act, if legally sufficient, and (3) pursue administrative actions against Prudential officials, if warranted.