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The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) reviewed 20 Federal Housing Administration (FHA) loans that Mac-Clair Mortgage Corporation (Mac-Clair) underwrote as an FHA direct endorsement lender. Our review objective was to determine whether Mac-Clair underwrote the 20 loans in accordance with FHA requirements. This review is part of “Operation Watchdog”, an OIG 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. Mac-Clair did not properly underwrite 7 of the 20 loans reviewed because its underwriters did not follow FHA’s requirements. As a result, FHA’s insurance fund suffered actual losses of $562,551. Further, Mac-Clair’s direct endorsement underwriters incorrectly certified that due diligence was used in underwriting the seven loans.

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 against Mac-Clair and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of seven loans that resulted in losses to HUD totaling $562,551 which could result in affirmative civil enforcement action of approximately $1,177,602. We also recommend that HUD’s Deputy Assistant Secretary for Single Family take appropriate administrative action against Mac-Clair and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action cited in Recommendation 1A is completed.