We reviewed 20 Federal Housing Administration (FHA) loans that Dell Franklin Financial, LLC (Dell), underwrote as an FHA direct endorsement lender. Our review objective was to determine whether Dell underwrote the 20 loans in accordance with 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 Commisioner. The Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans.

Dell did not properly underwrite 3 of the 20 loans reviewed because its underwriters did not follow
FHA's requiremetns. As a result, FHA's insurance fund suffered actual losses of more than $54,000 on the three 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 Dell and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of three loans that resulted in losses to HUD totaling $542,330, which could result in affirmative civil enforcement action of approximately $1,107,160. We also recommend that HUD’s Deputy Assistant Secretary for Single Family take appropriate administrative action against Dell and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action is completed.