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Report Fraud, Waste and Abuse
October 09, 2009
  • Housing
2010-NY-1002
ig1021002.pdf

We completed an audit of Jersey Mortgage Company (Jersey Mortgage), a nonsupervised lender located in Cranford, New Jersey. The audit objectives were to determine whether Jersey Mortgage (1) approved Federal Housing Administration (FHA)-insured loans in accordance with the requirements of the U.S. Department of Housing and Urban Development (HUD)/FHA, which include adherence to prudent lending practices, and (2) developed and implemented a quality control plan in compliance with HUD/FHA requirements.

Jersey Mortgage did not always approve FHA-insured loans in accordance with the requirements of HUD/FHA. Specifically, Jersey Mortgage approved 13 loans in which there were significant underwriting deficiencies such as (1) inadequate verification of borrower’s credit, (2) inadequate compensating factors for loans with high debt-to-income ratios, (3) inadequate verification of funds to close loans, and (4) improper verification of employment and income information.

As a result, loans were approved for potentially ineligible borrowers, which caused HUD/FHA to incur an unnecessary insurance risk.Jersey Mortgage also did not ensure that its quality control plan was implemented in accordance with HUD/FHA’s requirements. Consequently, the effectiveness of its quality control plan, which was designed to ensure accuracy, validity, and completeness in its loan underwriting process, was lessened.

We recommend that the Deputy Assistant Secretary for Single Family Housing require Jersey Mortgage to (1) indemnify HUD against future losses on 12 loans with significant underwriting deficiencies, (2) reimburse HUD for the amount of claims and associated fees paid on one loan with significant underwriting deficiencies, (3) implement quality control procedures to ensure compliance with the requirements to review early defaults and rejected loans and (4) that HUD’s Homeownership Center’s Quality Assurance Division follow up with Jersey Mortgage within six months to ensure that quality control review procedures were properly implemented.