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Mountain States Mortgage Center, Sandy, UT, Did Not Follow HUD’s Underwriting, Quality Control, and Advertising Requirements

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The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited Mountain States Mortgage Center to determine whether it underwrote insured loans in compliance with HUD requirements and whether its quality control plan met HUD requirements.

Mountain States underwrote 41 loans that did not comply with FHA requirements. Of the 41 FHA-insured loans reviewed, one of the loans had a significant underwriting deficiency, and all 41 loans contained minor underwriting deficiencies. For the loan with the significant underwriting deficiency, Mountain States underwrote the mortgage based on an overstated appraisal. Additionally, Mountain States did not adequately develop or implement its quality control plan. Specifically, its quality control plan did not contain all of the required elements, and it did not ensure that its monthly quality control reviews met HUD requirements. Mountain States also used misrepresentative advertising when marketing its streamline refinance mortgages. Some borrowers relied on a mailer used by Mountain States to advertise its streamline refinance loans. Based on information in the mailer, some borrowers did not know they were working with Mountain States and believed that the new refinanced loan would contain no fees or costs.

We recommend that the Associate Deputy Assistant Secretary for Single Family Housing require Mountain States to (1) indemnify HUD for the potential loss on the one improperly underwritten loan, (2) implement adequate policies and procedures to ensure that loans are underwritten in accordance with HUD requirements, (3) provide documentation showing that it followed HUD requirements in the use of lender advances and lender credits for the loans identified, (4) develop and implement a written quality control plan in accordance with HUD requirements, and (5) ensure that advertising complies with HUD requirements.

Finally, we recommend that HUD refer Mountain States to the Mortgagee Review Board for consideration of taking appropriate administrative action against the lender for its noncompliance in underwriting FHA loans, disregard for HUD’s quality control requirements, and misrepresentative advertising.