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We audited AmericaHomeKey, Inc., a Federal Housing Administration (FHA) direct endorsement lender in Dallas, TX. We selected AmericaHomeKey for audit because during our review of Gold Financial Services (2011-FW-1002), an AmericaHomeKey branch office, we identified three loans originated by one of its underwriters that contained underwriting and valuation deficiencies. Our objective was to determine whether AmericaHomeKey originated manufactured home loans in accordance with U. S. Department of Housing and Urban Development (HUD) and FHA requirements for loans with beginning amortization dates between March 1, 2008, and February 28, 2010.

AmericaHomeKey did not follow HUD-FHA underwriting requirements in 13 of 20 loan originations reviewed. This deficiency occurred because its quality control procedures were not adequate to consistently identify and correct underwriting deficiencies. As a result, AmericaHomeKey originated more than $1.7 million in ineligible loans that resulted in losses to FHA’s Mutual Mortgage Insurance Fund totaling $538,132 and increased the risk to the insurance fund by more than $680,000.

We recommend that the Acting Deputy Assistant Secretary for Single Family Housing require AmericaHomeKey to (1) indemnify HUD for the eight ineligible FHA loans with an estimated potential loss of more than $680,000, (2) support or repay the FHA insurance fund $23,803 for claims paid as of July 31, 2011, or the current total amount of claims paid for four insured loans, (3) reimburse the FHA insurance fund $514,329 for actual losses incurred on five insured loans and (4) improve its quality control procedures to ensure that it consistently identifies and corrects underwriting deficiencies in a timely manner. We also recommend that HUD refer AmericaHomeKey to the Mortgagee Review Board for consideration of administrative actions against the lender for not having a compliant quality control program in place and take appropriate administrative actions against the underwriter responsible for the 13 questioned loans. We further recommend that the Director, Departmental Enforcement Center take appropriate administrative sanctions, including possible debarment or other remedies, against the underwriter responsible for the 13 questioned loans.