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Report Fraud, Waste and Abuse
April 18, 2011
  • Housing
2011-LA-0002
ig1190002.pdf

We audited the U.S. Department of Housing and Urban Development’s (HUD) preclosing and postclosing loan review of new Federal Housing Administration (FHA) direct endorsement lenders to determine whether HUD followed its guidance when (1) reviewing the initial loans underwritten by new FHA direct endorsement lenders and (2) performing the postendorsement technical review of all of the initial loans endorsed by newly approved direct endorsement lenders. This audit was conducted as part of the HUD Office of Inspector General’s (OIG) fiscal year 2010 annual audit plan and was designed to follow up on selected findings in the Government Accountability Office’s November 2004 audit report on HUD’s oversight of FHA lenders.

We found that, although improvements had been made, HUD continued to grant unconditional direct endorsement authority to some new FHA direct endorsement lenders (new lenders) that did not successfully complete HUD’s requirements for unconditional direct endorsement authority. Specifically, 7 of the 155 lenders reviewed did not successfully complete the 15 required test cases but, nevertheless, were granted unconditional direct endorsement authority.

We also found that HUD did not follow its guidance for the postendorsement technical review of all loans initially endorsed by new lenders that were approved for unconditional direct endorsement authority (newly approved lenders). HUD only performed the required reviews on approximately half of the initial loans endorsed. In addition there was no single report available to properly monitor newly approved lenders, but officials were working to create one.

We recommend that the Deputy Assistant Secretary for Single Family Housing require HUD’s Homeownership Centers to improve controls to ensure that they follow the guidance for granting new lenders unconditional direct endorsement authority. Additionally, we recommend that the Deputy Assistant Secretary for Single Family Housing ensure that the required number of cases endorsed by newly approved lenders is selected for review and establish a report that could be used by the Homeownership Centers to properly monitor the performance of these lenders.