We audited single-family loan originations at Eagle Home Mortgage (Eagle Mortgage), located in Kirkland, Washington, to determine whether it originated Federal Housing Administration (FHA)-insured loans in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. Eagle Mortgage did not always originate FHA insured loans in accordance with HUD requirements. Specifically, Eagle Mortgage did not follow HUD's underwriting requirements for 15 of the 36 FHA insured loans reviewed, three of which had deficiencies that affected the insurability of the loan. In addition, Eagle Mortgage did not adequately follow its HUD-approved quality control plan when reviewing loans with early payment defaults when it failed to review one loan which defaulted after only four payments. Further, four of seventeen quality control reviews performed by Eagle Mortgage did not find observable deficiencies in the loans. As a result, Eagle Mortgage management did not always have the accurate feedback needed to improve its loan origination process.
We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner (1) require Eagle Mortgage to reimburse or indemnify HUD for actual and potential losses on three loans with underwriting deficiencies, (2) review loans recently underwritten by Eagle Mortgage to verify that the underwriting deficiencies noted during our review are no longer an issue, (3) review Eagle Mortgage's monthly quality control reports to ensure that they include all FHA-insured loans that defaulted within the first six months, and (4) require Eagle Mortgage to conduct training on its quality control plan.