HUD Finds Underwriting Issues with Homebuilder Loans

The HUD Office of Inspector General has found significant underwriting deficiencies in Federal Housing Administration-insured loans originated by a subsidiary of homebuilder D. R. Horton Inc. The Department of Housing and Urban OIG auditors also discovered that DHI Mortgage placed "unallowable" covenants on FHA loans that restricted the sale or rental of the property for one year. The Fort Worth, Texas, builder strongly disagrees with the auditors' findings and claims the anti-flipping covenants were recorded "without its knowledge or approval." The builder also said the covenants on eight FHA-insured properties were unenforceable and presented no harm to the homebuyer. The OIG auditors reviewed 20 FHA loans at DHI Mortgage and spotted improper calculation of borrowers' income, inadequate documentation of income, inadequate determination of credit and/or debt, and inadequate compensating factors when the debt-to-income ratio exceeded FHA's benchmark ratio. DHI Mortgage strongly disagrees with the OIG findings and filed a 22-page comment letter in response. The HUD IG is recommending that HUD Mortgagee Review Board require DHI Mortgage to indemnify FHA for possible losses of $1.2 million on seven loans and reimburse HUD for $265,000 for losses on three loans. The company had not responded to a request for comment by press time.