We completed a review of Provident Bank’s servicing of Federal Housing Administration (FHA)-insured mortgages and its implementation of the U.S. Department of Housing and Urban Development’s (HUD) Loss Mitigation program. We selected Provident Bank based on an Office of Inspector General risk assessment of single-family lenders. The objective of the audit was to determine whether Provident Bank properly serviced FHA-insured mortgages and specifically whether it (1) properly implemented HUD’s Loss Mitigation program, (2) accurately reported borrower and loan status data for FHA-insured mortgages it serviced, and (3) implemented an effective quality control plan.

Our review determined that Provident Bank did not adequately implement HUD’s Loss Mitigation program for loans that went into default.  Specifically, Provident Bank did not (1) adequately document its loss mitigation efforts for nine loans with original mortgage amounts of more than $1.9 million (2) accurately report default status data in HUD’s Single Family Default Monitoring System, and (3) implement an effective quality control plan.

We recommend that Provident Bank provide evidence to support that its servicing practices were acceptable for seven active loans with mortgages insured by HUD that were identified in this audit, which could result in $696,185 in funds to be put to better use.  HUD should take appropriate administrative actions to indemnify any of these loans for which it determines that Provident Bank’s servicing practices or forbearance procedures were inadequate. In addition, Provident Bank should reimburse the HUD FHA insurance fund $359,514 for two loans for which the required loss mitigation options were not made available to the borrower. Further, Provident Bank should implement verification procedures to ensure that information in HUD data systems is accurately reported.  Additionally, Provident Bank should modify its quality control plan to ensure that its loss mitigation policies and procedures are complete and objectively evaluate how its policies are written and applied to FHA borrowers to ensure that they follow HUD FHA regulations and guidelines.