We conducted a review of Federal Housing Administration (FHA) loans underwritten by Sterling National Mortgage Company, Inc. (Sterling), an FHA direct endorsement lender. The review was conducted as part of the Office of Inspector General’s (OIG) Operation Watchdog initiative to review the underwriting of 15 direct endorsement lenders at the suggestion of the FHA Commissioner. The Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans. The objective of the review was to determine whether Sterling underwrote 20 loans in accordance with U.S. Department of Housing and Urban Development (HUD)/FHA requirements. Sterling officials did not underwrite 6 of the 20 loans reviewed in accordance with HUD/FHA regulations. As a result, the FHA insurance fund suffered actual losses of more than $429,703 on five loans and faces a potential loss of $79,120 on one loan for total losses of more than $508,823.
We recommend that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act and/or civil money penalties against Sterling and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of six loans that resulted in actual losses of $429,703 on five properties and a potential loss of $79,120 on one property for a total loss of $508,823. We also recommend that HUD’s Deputy Assistant Secretary for Single Family take appropriate administrative action against Sterling and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action is completed.
This electronic audit memorandum has been posted to our website and may be viewed directly via this link. This PDF version will allow you to print the report to your local printer.
The OIG yielded on approximately 60% of the issues, and withdrew 8 violations out of 15 that were in the original report. The remaining items require a legal determination.
Be sure and read Sterling's response at the end of the OIG report along with OIG's response.
Comment 17 Sterling officials believe that the recommendations for remedies under Program Fraud Civil Remedies Act, Civil Money Penalties, and/or administrative action are not appropriate and should be removed from the report. However, we did not change the recommendations because violations of FHA rules are subject to civil and administrative action. Nevertheless, the report does recommend that HUD make determinations of the legal sufficiency of the deficiencies cited and pursue remedies under the Program Fraud Civil Remedies Act, Civil Money Penalties, and/or administrative actions, if necessary
This should be an indemnification remedy and not a punitive one.
_________________ "Two things are infinite: the universe and human stupidity; and I'm not sure about the the universe." -Albert Einstein
View next topic View previous topic
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
