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We reviewed lenders in the State of Connecticut that had Federal Housing Administration (FHA) loans with secondary financing from the Connecticut Housing Finance Authority as part of our annual audit plan. The objective was to determine whether the lenders inappropriately gave borrowers using secondary financing from the Connecticut Housing Finance Authority cash back at closing in excess of their total cash deposit and other closing costs paid outside of closing.

In general, the lenders reviewed, with one exception, did not give borrowers using secondary financing from the Connecticut Housing Finance Authority cash back at closing in excess of their total cash deposit and other costs paid outside of closing. However, we did find seven loans originated by GMAC Mortgage in which the borrowers received excess cash back at closing totaling $1,471. This practice resulted in the U.S. Department of Housing and Urban Development’s
(HUD) over insuring the loans.

We recommend that HUD’s Assistant Secretary for Housing - Federal Housing Commissioner require GMAC Mortgage to pay down the principal balances of the over insured loans by the amounts of excess cash back paid to the borrowers at closing. We also recommend that GMAC Mortgage implement controls in its loan closing policies and procedures to ensure that it follows HUD’s requirements regarding cash back to the borrower.