We performed a review of 20 Federal Housing Administration (FHA) loans underwritten by Assurity Financial Services, LLC (Assurity). Our review objective was to determine whether Assurity underwrote the 20 loans in accordance with Federal Housing Administration (FHA) requirements. This review is part of Operation Watchdog, an Office of Inspector General (OIG) initiative to review the underwriting of 15 direct endorsement lenders at the suggestion of the FHA Commissioner. The FHA Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans. Assurity did not follow HUD requirements when underwriting 8 of the 20 FHA-insured loans. The loans reviewed contained significant underwriting deficiencies that impacted the insurability of the loans. This noncompliance occurred because the lender failed to exercise due diligence in underwriting these loans. As a result, FHA’s insurance fund suffered actual losses totaling $968,954 for six loans and estimated potential losses of $212,043 for two loans.

We recommend that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Assurity and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of eight loans that resulted in losses to HUD totaling $1,180,997, which could result in affirmative civil enforcement action of approximately $2,421,992. We also recommend that HUD’s Deputy Assistant Secretary for Single Family take appropriate administrative action against Assurity and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action cited in recommendation 1A is completed.