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Allen Mortgage, LLC, Centennial Park, AZ, Did Not Comply With HUD Requirements for Underwriting FHA Loans and Fully Implement Its Quality Control Program in Accordance With HUD’s Requirements

The U.S. Department of Housing and Urban Development, Office of Inspector General audited Allen Mortgage, Limited Liability Company, a Federal Housing Administration (FHA) nonsupervised lender. We selected Allen Mortgage for audit based on its high default and claim rate for the FHA-insured loans sponsored in Region 5. Our objectives were to determine whether (1) Allen Mortgage complied with HUD’s regulations, procedures, and instructions in the underwriting of FHA-insured loans and (2) its quality control plan, as implemented, met HUD’s requirements.

Allen Mortgage did not comply with HUD’s regulations, procedures, and instructions in the underwriting of FHA-insured loans. Specifically, of the 73 streamline refinanced loans reviewed, 23 (32 percent) contained material underwriting deficiencies. Allen Mortgage also allowed borrowers to (1) skip mortgage payments due on their previous loans and (2) close their loans without paying settlement costs. Further, Allen Mortgage (1) did not always ensure that FHA case binders sent to HUD contained complete and accurate information, (2) provided mortgage services to borrowers, such as paying their mortgage payments, to prevent them from defaulting on their mortgages within the first six payments. However, it sought reimbursement from the borrowers for the advanced payment, and (3) did not fully implement its quality control program in accordance with HUD’s requirements.

As a result of the improperly underwritten loans, the risk to FHA’s Mutual Mortgage Insurance Fund was increased by more than $2 million. Additionally, HUD lacked assurance that Allen Mortgage acted in the best interests of FHA borrowers. Also, the risk to the FHA’s Mutual Mortgage Insurance Fund was increased due to the lack of assurance of the accuracy, validity, and completeness of its loan underwriting activities.

We recommend that HUD’s Deputy Assistant Secretary for Single Family require Allen Mortgage to (1) reimburse the FHA insurance fund $811,163 for losses incurred on eight loans, and for any future losses for $199,391 in claims paid on one loan, (2) indemnify HUD for 11 loans with material underwriting deficiencies, and (3) implement adequate policies and procedures and controls to address the issued cited in this audit report.