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The U. S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) performed an audit of Gold Financial Services, Inc. (Gold Financial), a Federal Housing Administration (FHA) direct endorsement lender and a branch of AmericaHomeKey, Inc., in San Antonio, TX. We selected Gold Financial for audit because its default rate was almost 10 percent for the audit period while the average default rate in the San Antonio area was 2.2 percent. Our objective was to determine whether Gold Financial complied with HUD and FHA loan origination requirements for loans endorsed between January 1, 2008, and December 31, 2009. Gold Financial did not follow HUD/FHA underwriting requirements in two of seven loan originations reviewed.

Gold Financial's underwriter did not require two borrowers to explain recent poor credit. As a result, Gold Financial originated two ineligible loans that resulted in a loss to HUD of $71,259 and an increased risk to the FHA insurance fund of $86,885. They also originated a third loan that did not violate HUD/FHA underwriting requirements but did violate its own internal controls concerning borrowers with poor credit. Specifically, the underwriter did not require the borrower to have 3 months' reserves in accordance with Gold Financial's closing instructions.

We recommend that the Deputy Assistant Secretary for Single Family Housing require Gold Financial to (1) indemnify HUD for one ineligible loan with an unpaid principal balance of $144,808, thereby putting an estimated $86,885 to better use, and (2) reimburse the FHA mortgage insurance fund $71,259 for losses incurred on one loan.