Attached is the final report on our audit of the Plymouth Meeting, Pennsylvania, branch of National City Mortgage (branch office), Audit Report Number 2008-PH-1002, dated November 20, 2007. We selected the branch office because its default rate was above the state's default rate. Our objective was to determine whether the branch office complied with U.S. Department of Housing and Urban Development (HUD) regulations, procedures, and instructions in the origination and quality control review of FHA loans. The branch office generally complied with HUD regulations, procedures, and instructions in the origination and quality control review of FHA-insured single-family loans. However, two of eight loans selected for review were not originated in accordance with HUD requirements. The branch office did not properly document borrowers' qualifying ratios and did not properly verify assets for the two loans, originally valued at more than $181,000. The deficiencies occurred because the branch office did not exercise due diligence in the underwriting of the loans, causing an unnecessary increased risk to the FHA insurance fund. In addition, the branch office charged ineligible commitment fees and/or overcharged for credit reports, contrary to HUD regulations, in six of the eight cases reviewed. As a result, borrowers incurred $857 in unnecessary costs. We recommend HUD's assistant secretary for housing - Federal Housing Commissioner require National City Mortgage to indemnify $198,389 for two loans, which it issued contrary to HUD's loan origination requirements; reimburse borrowers $857 in overcharges; and emphasize its policies, procedures, and controls to branch office staff to ensure that the underwriters consistently follow HUD's underwriting requirements.