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We completed an audit of Ameritrust Mortgage Bankers, Inc., a nonsupervised lender* located in Lake Success. Our audit objectives were to determine whether Ameritrust officials (1) approved FHA-insured loans in accordance with the requirements of the U.S. Department of Housing and Urban Development (HUD)-FHA, and (2) implemented a quality control plan in accordance with HUD-FHA requirements.

Ameritrust officials did not always approve FHA-insured loans in accordance with HUD-FHA requirements. Specifically, 11 of the 20 loans reviewed exhibited material underwriting deficiencies, such as inadequately verified and documented borrowers’ income, assets, liabilities, and credit histories. As a result, the FHA insurance fund incurred actual losses of $183,327 on 1 loan and faces potential losses of more than $2.7 million on 10 loans, for total losses of more than $2.9 million. Ameritrust officials also charged the borrowers $3,843 in unallowable fees, namely excessive loan discount and second appraisal fees, without providing written justification. In addition, Ameritrust officials did not ensure that their quality control plan was implemented in accordance with HUD-FHA requirements. Consequently, the quality control plan provided no assurance that deficiencies in the loan origination and underwriting processes were promptly identified and appropriate corrective actions were taken to prevent recurrences.

We recommend that HUD’s Acting Deputy Assistant Secretary for Single Family Housing require Ameritrust officials to (1) indemnify HUD against future losses related to the 10 loans, which were underwritten in violation of HUD-FHA requirements; (2) reimburse HUD $183,327 for the claim and related fees paid on one loan; (3) ensure that borrowers have been reimbursed $3,843 for unallowable excessive loan discount and second appraisal fees; and (4) establish procedures to ensure that the quality control plan is implemented in accordance with HUD-FHA requirements. If the lender officially ceases its operations, the recommendations applicable to the quality control finding are not warranted.

* A nonsupervised lender is a HUD-FHA approved lending institution, the principal activity of which involves lending or investing funds in real estate mortgages.