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We performed a survey of Evergreen Moneysource Mortgage Company, doing business as Evergreen Home Loans, regarding its Federal Housing Administration (FHA) loan origination process.  The review was part of our efforts to improve the integrity of single-family insurance programs.  We selected Evergreen’s Las Vegas branch because of its compare ratio.  Our audit objective was to determine whether Evergreen’s Las Vegas branch complied with U.S. Department of Housing and Urban Development (HUD) requirements in the origination of FHA-insured loans.

Evergreen did not always originate FHA-insured loans in accordance with HUD regulations.  Specifically, it did not identify unacceptable restrictive covenants on 14 FHA loans that received downpayment assistance.  Also, 3 additional loans reviewed included significant underwriting deficiencies, which would have affected the insurability of the loans.  These deficiencies resulted in potential losses to the FHA insurance fund of more than $1.1 million. 

We recommend that HUD’s Acting Deputy Assistant Secretary for Single Family Housing require Evergreen to (1) work with HUD to nullify the restrictions on conveyance that violate HUD policy or indemnify HUD against future losses of $867,134 for the 14 loans; (2) indemnify HUD for 3 actively insured loans, which could cause potential losses of $304,871 if they are foreclosed upon and resold; (3) develop procedures to ensure that it reviews all closing documents, including closing documents for second mortgages associated with downpayment assistance, before closing the loan; and (4) ensure that it has adequately trained its employees regarding HUD underwriting requirements, including unallowable restrictions on conveyance.  We also recommend that HUD’s Associate General Counsel for Program Enforcement pursue civil and administrative remedies if legally sufficient.