We audited the mortgage origination and business practices of First Magnus Financial Corporation’s (First Magnus) corporate office in Tucson, Arizona. The objective of the audit was to determine whether First Magnus violated U.S. Department of Housing and Urban Development (HUD) requirements by paying its brokers volume-based incentives for originating and processing Federal Housing Administration (FHA) mortgages. We determined that First Magnus violated the Real Estate Settlement Procedures Act (RESPA) when it paid quality incentives, also known as volume-based incentives, to brokers for originating and processing FHA mortgages. As a result, First Magnus paid brokers $58,571 in quality incentives, also known as volume-based incentives, to originate and process 169 FHA mortgages totaling more than $24 million.

We recommend that HUD’s Assistant Secretary for Housing require First Magnus, for any current or future FHA mortgage operations for which First Magnus may exercise management control, to ensure that the practice of issuing incentive payments to brokers for originating and processing FHA mortgages is discontinued. In addition, we recommend that First Magnus have their active status and approval to perform FHA business removed. Finally, we recommend that the HUD’s Acting Director for the Departmental Enforcement Center pursue administrative actions against the principal owners and management of First Magnus for allowing the improper practice of issuing incentive payments to brokers for originating and processing FHA mortgages.