We audited Prudential Huntoon Paige Associates, LTD’s underwriting of a $22.8 million mortgage loan to refinance Lafayette Towers Apartments, a 584-unit highrise multifamily project in Detroit, MI. We initiated the review based on the early default, assignment, and significant amount of the project. Our objective was to determine whether Prudential underwrote and processed the loan for Lafayette Towers according to the U.S. Department of Housing and Urban Development’s (HUD) requirements.
Prudential exposed the Federal Housing Administration (FHA) insurance fund to unnecessary risk and a loss of more than $15 million because it did not underwrite and process the loan for Lafayette in accordance with HUD’s guidelines and regulations. Specifically, Prudential did not ensure that the project capital needs assessment was complete and accurate, adequately assess the borrower’s eligibility, adequately assess the property’s financial capacity, and ensure that the appraisal report was supported.
We recommend that the Director of the Detroit Office of Multifamily Housing Programs refer Prudential to the Mortgagee Review Board to take appropriate action for violations that caused a more than $15 million loss to HUD’s FHA insurance fund or other administrative action as appropriate. We also recommend that HUD’s Office of General Counsel for Program Enforcement pursue civil remedies, if legally sufficient, against responsible parties. Additionally, we recommend that the Departmental Enforcement Center pursue administrative actions, as appropriate, against the responsible party for the material underwriting deficiencies cited in this report.