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Report Fraud, Waste and Abuse
November 23, 2009
  • Housing
2010-NY-1004
ig1021004.pdf

We completed an audit of Ark Mortgage, Incorporated (Ark Mortgage), a nonsupervised direct endorsement lender located in North Brunswick, New Jersey. The audit objectives were to determine whether Ark Mortgage officials (1) originated insured loans in accordance with U.S. Department of Housing and Urban Development/Federal Housing Administration (HUD/FHA) requirements and (2) developed and implemented a quality control plan that complied with HUD/FHA requirements.

Ark Mortgage officials did not always comply with HUD/FHA requirements in originating 11 of 12 loans reviewed during the audit. Specifically, (1) four loans exhibited significant underwriting deficiencies such as inadequate verification of funds to close, insufficient cash reserve for certain property, and inadequate verification of income and liabilities; (2) two loans, including one loan with a significant underwriting deficiency, were not closed as they were underwritten; and (3) six remaining loans had technical deficiencies. As a result, lenders were approved for potentially ineligible borrowers, causing HUD/FHA to incur an unnecessary insurance risk.

Ark Mortgage officials also did not ensure that its quality control plan had been implemented in accordance with HUD/FHA requirements. Consequently, the effectiveness of Ark Mortgage’s quality control plan, which was designed to ensure accuracy, validity, and completeness in its loan origination and underwriting processes, was lessened.

We recommend that the Deputy Assistant Secretary for Single Family Housing require Ark Mortgage to (1) indemnify HUD against future losses on four loans with significant underwriting deficiencies, (2) buy down one loan so that the value of insurance equals 75 percent of the value of the property if HUD is not provided with the additional documents to support that the property was owner occupied, and (3) implement its quality control plan to fully comply with HUD’s requirements. We also recommend that HUD’s Homeownership Center’s Quality Assurance Division follow up with Ark Mortgage officials within six months to ensure that quality control reviews have been properly implemented.