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Report Fraud, Waste and Abuse
January 20, 2010
  • Housing
2010-PH-1004
ig1031004.pdf

We audited Residential Home Funding Corporation, a nonsupervised lender approved to originate Federal Housing Administration (FHA) single-family mortgage loans. Residential Home Funding Corporation has one office located in Gaithersburg, Maryland. We selected Residential Home Funding Corporation because its default rate was significantly higher than the average default rate for the State of Maryland. Our objective was to determine whether Residential Home Funding Corporation complied with U.S. Department of Housing and Urban Development (HUD) regulations, procedures, and instructions in the origination of FHA loans.

Residential Home Funding Corporation did not always comply with HUD requirements in its origination of FHA loans. For five loans reviewed, Residential Home Funding Corporation did not properly verify or support the borrowers’ income. These deficiencies stemmed from Residential Home Funding Corporation’s misinterpretation of HUD requirements related to verification of employment/income. As a result, the FHA insurance fund was exposed to an unnecessarily increased risk.

We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing require Residential Home Funding Corporation to indemnify more than $1.6 million for five loans, which it issued contrary to HUD’s loan origination requirements and refer Residential Home Funding Corporation’s principals and underwriting staff to HUD’s Mortgagee Review Board for administrative sanctions as appropriate.