We reviewed Selene Finance, LP’s servicing of its Federal Housing Administration-insured loans and its implementation of the U.S. Department of Housing and Urban Development’s (HUD) Loss Mitigation program.  Our audit objective was to determine whether Selene processed delinquent loans in accordance with HUD’s requirements, especially Loss Mitigation program requirements.

Except for communicating with borrowers, Selene generally complied with applicable HUD servicing requirements.  Selene did not communicate in a timely manner with delinquent borrowers for 7 of 14 loans reviewed and did not comply with Federal bankruptcy laws for 1 additional loan.  These conditions occurred because of lapses in Selene’s internal controls.  Although Selene failed to communicate in a timely manner with the seven delinquent borrowers, the borrowers did not express an interest in participating in the Loss Mitigation program.  However, if Selene does not correct its internal controls, other delinquent borrowers could miss the opportunity to participate in the program.  Further, it improperly made repeated collections calls to one borrower who was under bankruptcy protection.

We recommended that the Deputy Assistant Secretary for Housing require Selene to evaluate and make changes to its internal controls to ensure that it communicates with delinquent borrowers in a timely manner and that it maintains accurate borrower account status information.