In response to requests from the U. S. Department of Housing and Urban Development (HUD) and Senator James Inhofe, we audited the property owner's application and the loan processing and underwriting of the HUD-insured mortgage loan to Greystone Apartments, Inc., for Cypress Ridge Apartments. Harry Mortgage Company, the lender, processed and recommended loan approval under the multifamily accelerated processing (MAP) program.

The audit objective was to determine whether the lender satisfied HUD requirements for processing and underwriting the $5.87 million mortgage loan to rehabilitate Cypress Ridge Apartments.

The MAP lender's underwriting analysis did not assess, as required, the financial wherewithal of the owner and general contractor, which are related entities, or the construction capabilities of the general contractor. As a result, the MAP lender did not identify risk and take necessary corrective action before recommending the loan for approval. Based on the lender's recommendation, HUD approved the project and general contractor. The project failed, resulting in a $3.7 million loss on the mortgage loan insured by the Federal Housing Administration (FHA).

We recommended that the Acting Director of HUD's Kansas City multifamily hub request that the Mortgagee Review Board take action against Harry Mortgage Company for negligence that resulted in a default and a resulting FHA insurance claim on Cypress Ridge Apartments.