Issue Date: August 3, 2010
Report No.: 2010-BO-1007
File Size: 1.42MB
Title: New England Regional Mortgage Corporation, Salem, NH, Generally
Complied With HUD Requirements for Loan Origination but Did Not
Properly Underwrite One Loan
We audited New England Regional Mortgage Corporation (Corporation),
a Federal Housing Administration (FHA) lender approved to underwrite
and close mortgage loans without prior FHA review or approval. We
selected the Corporation because its early payment default rate
for insured single-family loans originated between January 1, 2008,
and December 31, 2009, was significantly higher than the default
rate in the local area in which it does business. Our audit objectives
were to determine whether (1) the Corporation acted in a prudent
manner and complied with U.S. Department of Housing and Urban Development
(HUD) regulations, procedures, and instructions for the origination,
underwriting, and closing of the FHA-insured single-family loans
selected for a detailed review and (2) its quality control plan,
as implemented, fulfilled HUD's requirements.
The Corporation generally complied with HUD requirements in the
origination of FHA-insured single-family loans. In addition, the
Corporation's quality control plan, as implemented, fulfilled HUD's
requirements. However, one loan had significant underwriting deficiencies
that negatively affected the insurability of the loan. The underwriting
deficiencies included improperly documented borrower income, an
omitted liability, undervalued debt-to-income ratios, and failure
to notify HUD of an employee loan transaction. These deficiencies
occurred because the lender did not act in a prudent manner when
it approved this loan. The loan was not eligible for FHA mortgage
insurance and placed the FHA insurance fund at risk for a potential
loss of more than $221,000.
The Corporation was also incorrectly listed as the holding lender
for 43 active loans and the servicing lender for 8 active loans.
These errors occurred because the Corporation was not aware of HUD
requirements regarding mortgage record changes after it sold loans
to investing lenders. Inaccurate or untimely reporting of mortgage
record changes directly affects the payment of claims for insurance
benefits. HUD will not pay a claim for insurance benefits for which
the information on the claim and HUD's FHA insurance system do not
We recommend that HUD's Deputy Assistant Secretary for Single Family
Housing require the Corporation to indemnify HUD for a loss that
may be incurred related to the loan that did not meet FHA insurance
requirements. The projected loss to HUD of $221,590 is based on
an actuarial review of FHA's insurance fund prepared for HUD; a
loss rate of 60 percent of the unpaid principal balance of the loan
(see appendix C). We also recommend that the Corporation update
its remaining mortgage records in HUD's system to reflect the appropriate
mortgage holder and implement procedures to ensure the timely submission
of mortgage record changes for future loans sold to investing lenders.
Date: November 18, 2008
Report No.: 2009-BO-1003
File Size: 78.10KB
New Hampshire Housing Finance Authority Generally Administered Its
Cost Allocation, Operating Reserves, and Technology Expenditures
our review of the New Hampshire Housing Finance Authority’s (Authority)
cost allocation, operating reserves, and technology expenditures.
We initiated this survey at the request of the U.S. Department of
Housing and Urban Development’s (HUD) Office of Public Housing.
Our objective was to determine whether the Authority properly allocated
costs, maintained appropriate reserves, and managed its technology
equipment and information services. Due to the nature of cost allocation,
our review was expanded and examined the allocations to five major
programs The Housing Choice Voucher, Section 8 New Construction/Substantial
Rehabilitation, Section 8 Housing Assistance Payments – Special
Allocations, HOME Investment Partnerships, and Section 8 Moderate
Rehabilitation programs. funded by HUD.
Authority generally administered its cost allocation, operating
reserves, and technology expenditures in accordance with HUD requirements.
However, its decision to operate its Information Services and Technology
Division on an in-house basis was not supported by a cost analysis.
We addressed this issue in a separate memorandum to HUD management.
report contains no formal recommendations, and no further action
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