The Department of Housing and Urban Development wants All American Home Mortgage Corp. to indemnify the FHA against future losses on five loans that violated agency guidelines.
The loans have a combined balance just north of $1 million. HUD wants the Brooklyn, N.Y.-based lender to reimburse the agency for $181,515.
HUD's Office of Inspector General decided to audit the firm – an FHA lender since 1993 -- because the company had an 8.8% default rate on 500 single-family loans it originated between September 2008 and August 2010. The failure rate was more than double the 3.57% state average during this two-year period.
The audit found that 6 out of 20 loans that were reviewed did not comply with HUD-FHA underwriting requirements such as verification of gift funds, the statutory minimum investment, source of funds, improper calculation of income and inconsistent information not being reconciled.
These deficiencies led to the approval of loans for potentially ineligible borrowers, causing HUD to incur an unnecessary insurance risk, the government said.
HUD says the firm also charged borrowers $680 in unallowable fees, including wire and courier fees.
Salvatore Cefalu, president of All American Home Mortgage, told National Mortgage News that the lender did commit some “minor underwriting infractions” but it should not be blamed for all of the defaulted loans.
“I think we were one of the first auditees where the FHA's TOTAL scorecard and manual underwriting were on a collision course,” Cefalu said. “When you manually underwrite a loan, you have to ask for much more documentation than you would with FHA Scorecard. We feel that the OIG's noticeable discomfort or preconceived opinions towards the deployment of FHA's TOTAL mortgage scorecard has a different interpretation than HUD of the regulatory standards that were in effect for the time period and activities examined.”
Cefalu also said that his company originates 70% of its loans to low- and moderate-income level borrowers, noting that some of these customers lost their jobs when the economy began to struggle.
