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We audited A Plus Mortgage, Inc. (A Plus), to determine whether (1) the fees charged to Federal Housing Administration (FHA) borrowers by A Plus were appropriate under U.S. Department of Housing and Urban Development (HUD), FHA, and Real Estate Settlement Procedures Act (RESPA) regulations and (2) the loan officers originating FHA-insured loans were employees of A Plus.

A Plus disregarded HUD FHA requirements and provisions of RESPA and engaged in deceptive lending practices. Although it informed borrowers that they could receive a lower interest rate on their loans by paying up-front points and fees, A Plus charged loan discount fees to borrowers without reducing interest rates on the mortgages. This practice allowed A Plus to generate high interest rate loans for which A Plus's sponsor lenders paid A Plus a yield spread premium when the loans closed escrow. As a result, borrowers paid excessive interest and fees for which they received no associated benefit. In addition, all 28 FHA-insured A Plus loans reviewed were originated by independent contractors, unapproved branches, or other non-FHA-approved mortgage broker firms. This occurred because A Plus ignored FHA origination requirements and submitted FHA loans originated by unapproved entities in exchange for a percentage of the loan origination fees, loan discount fees, and yield spread premiums generated by the loans.

We recommend that HUD require A Plus to (1) return unearned and excess yield spread premiums, loan discount fees, and other fees, totaling $153,110, to the borrowers; (2) review and analyze all other FHA-insured loans generated by A Plus with loan discount points when no interest rate reduction occurred, report the results to the Mortgagee Review Board, and issue refunds to the borrowers; (3) discontinue charging loan discount fees when it receives yield spread premiums on a loan; (4) cease changing the names of fees from the initial disclosure to the final HUD-1 settlement statement; (5) instruct its loan officers to ensure that the borrowers clearly understand the nature of all charges associated with their loans; (6) return all loan origination fees, totaling $32,036, to the borrowers on all loans that were originated by third-party independent contractors; (7) only submit loans for FHA insurance that were originated by A Plus employees; and (8) register all of its branch offices with FHA.