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HUD OIG audited Nationwide Mortgage & Associates, Inc., a Federal Housing Administration (FHA)-approved non-supervised direct endorsement lender located in Fort Lauderdale, FL. We selected this lender because its default rate of 4 percent was higher than the Miami U.S. Department of Housing and Urban Development (HUD) area average default rate of 2 percent. The audit objectives were to determine whether the lender followed HUD requirements when (1) originating and underwriting loans and (2) implementing its quality control program.

Nationwide did not follow HUD requirements when it underwrote three of six loans reviewed for FHA insurance based on inaccurate and unsupported information. This condition occurred because the lender did not exercise due care when originating and underwriting these loans for FHA insurance. As a result, Nationwide increased the risk to the FHA insurance fund by $378,858.

In addition, Nationwide had not implemented a quality control program that complied with HUD requirements. It did not conduct quality control reviews in compliance with requirements, and its written quality control plan did not contain the required provisions. These conditions occurred because Nationwide relied on the expertise of its contractors to draft its quality control plan and perform its quality control reviews. As a result, the effectiveness of Nationwide’s quality control program to guard against errors, omissions, and fraud and to protect HUD from unacceptable risk was diminished. Specifically, Nationwide increased the risk to the FHA insurance fund because it did not have assurance regarding the accuracy, validity, and completeness of its loan origination and underwriting operations.

We recommend that the Deputy Assistant Secretary for Single Family Housing require Nationwide to indemnify HUD for the three ineligible FHA loans with an estimated potential loss of $378,858. We also recommend that HUD review Nationwide within 9 months to determine whether its quality control program is being administered in accordance with HUD requirements. Finally, we recommend that Nationwide develop, implement, and enforce (1) written controls to ensure that loans are originated and underwritten in accordance with HUD requirements and (2) a quality control program that complies with HUD requirements.