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HUD OIG performed an audit of Crossfire Financial Network, Inc., d/b/a CFN Mortgage Capital (Crossfire), a Federal Housing Administration (FHA) approved direct endorsement lender located in Miami, Florida. The review was performed based on the lender’s volume of loans underwritten and its default rate. The purpose of the audit was to determine whether the lender followed the U.S. Department of Housing and Urban Development’s (HUD) requirements when (1) originating and underwriting loans and (2) implementing its quality control program.

Crossfire did not follow HUD requirements when it underwrote 10 loans for FHA insurance based on inaccurate and unsupported information. As a result, Crossfire approved loans that were not eligible for FHA insurance and increased the risk to the FHA insurance fund of more than $1.3 million.

In addition, Crossfire did not implement 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. As a result, Crossfire 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.

OIG recommended that the Deputy Assistant Secretary for Single Family Housing require Crossfire to indemnify HUD for the 9 ineligible FHA loans with an estimated potential loss of more than $1.1 million and reimburse HUD for the $210,453 in claims paid on 3 of the 10 loans. In addition, OIG recommended that HUD refer Crossfire to the Mortgagee Review Board for consideration of administrative actions against the lender for not having a compliant quality control program in place. OIG also recommended that HUD require Crossfire to develop, implement, and enforce a quality control program that complies with HUD requirements.