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July 08, 2009
  • Housing
2009-KC-1007
ig0971007.pdf

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Midwest Mortgage Capital (Midwest). Our audit objectives were to determine whether Midwest followed HUD requirements for underwriting loans and performing its quality control program for single-family production. We concluded that Midwest did not properly underwrite 7 of the 29 defaulted loans reviewed. These loans had material underwriting deficiencies that affected the insurability of the loans. In addition, Midwest's quality control reviews were inadequate and did not meet HUD's requirements.

We recommended that HUD require Midwest to indemnify HUD against future losses for seven loans with unpaid principal balances totaling more than $1 million. Further, we recommended that HUD verify that Midwest provides its underwriters with additional training on FHA requirements and that Midwest properly performs its quality control function.