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HUD OIG audited Meridian Lending, Inc., a Federal Housing Administration (FHA)-approved direct endorsement lender. The objectives were to determine whether it followed the U.S. Department of Housing and Urban Development's (HUD) requirements for (1) borrower eligibility and creditworthiness and property eligibility when underwriting loans and (2) implementing a quality control program.

Meridian did not follow HUD requirements in originating two of the eight FHA-insured loans reviewed. As a result, Meridian placed HUD's insurance fund at risk for as much as $271,750. In addition, Meridian did not review its early defaulting loans in a timely manner and did not review all early defaulting loans. As a result, the lender adversely impacted the goals of HUD's quality control program, which is designed to protect the lender and HUD from unacceptable risk.

OIG recommended that the Assistant Secretary for Housing-Federal Housing Commissioner require Meridian to indemnify HUD for the potential loss on the loan with a significant deficiency and reimburse HUD for the claim loss on the other loan. Also require Meridian to conduct its quality control reviews in a timely manner and reviews all early defaulting loans as required by HUD regulations.