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Report Fraud, Waste and Abuse
August 29, 2016
  • Housing
2016-LA-1010
2016-LA-1010.pdf

We reviewed Sun West Mortgage Company’s loan underwriting activities, including quality controls, based on a citizen complaint alleging that the mortgage company was deficient in underwriting its loans.  The complaint further alleged that the mortgage company used unauthorized staff in another country and shared user identification numbers to “pre-underwrite” Federal Housing Administration (FHA)-insured loans.  Our objective was to determine whether Sun West followed U.S. Department of Housing and Urban Development (HUD) requirements related to underwriting, responsibilities for its employees, and control over and access to Computerized Homes Underwriting Reporting System identification numbers.

Sun West did not always meet HUD underwriting requirements when underwriting its FHA-insured loans.  Of 16 loans reviewed, 2 had significant deficiencies.  HUD paid a claim of $144,891 for one loan, and the borrower for the second loan was in bankruptcy.  Therefore, the HUD-FHA insurance fund was at an increased risk of an additional loss of $97,937.  Sun West also did not always obtain all documentation required for review of loans that defaulted early, and did not follow up on unanswered reverifications for its routine quality control reviews.  In addition, it did not include all items required by HUD in its branch office reviews.

We could not substantiate the complaint allegation that Sun West used unauthorized employees in another county to underwrite its FHA-insured loans.  Although Sun West used an affiliated company in another country for services, the services provided were for quality control, not mortgage underwriting.  The lender also maintained reasonable policies and procedures for its employees’ user identification numbers and passwords.

We recommend that HUD require Sun West to reimburse the FHA insurance fund for the $144,891, the claim amount paid by HUD for one loan.  The lender should also indemnify HUD against potential losses of $97,937 for one FHA-insured loan that did not comply with underwriting requirements.  In addition, the lender should improve its policies and procedures to ensure that responsible employees are aware of HUD-FHA underwriting requirements and policies related to HUD’s quality control program requirements.