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We audited Nationstar Mortgage, LLC’s (doing business as Mr. Cooper (Nationstar)) compliance with the Federal Housing Administration’s (FHA) requirements for providing loss mitigation assistance to borrowers after their COVID-19 forbearance ended. We concurrently conducted a nationwide audit of servicers’ compliance with the U.S. Department of Housing and Urban Development’s (HUD) COVID-19 loss mitigation requirements (HUD Office of Inspector General (OIG) Report 2023-KC-0005). This audit complements that audit by examining how a single provider, Nationstar, provided loss mitigation for borrowers coming out of COVID-19 forbearance. We selected Nationstar after completing a risk assessment in 2021 that identified a significant volume of delinquent loans with prior COVID-19 forbearance in its portfolio and based on our awareness of complaints made about Nationstar to the Consumer Financial Protection Bureau and the HUD OIG hotline. Our audit objective was to determine whether Nationstar provided proper loss mitigation assistance to FHA-insured borrowers after the COVID-19 forbearance ended.

Nationstar did not provide proper loss mitigation assistance to more than 80 percent of borrowers with delinquent FHA-insured loans after their COVID-19 forbearance ended. Based on a statistical sample drawn from a universe of 4,288 FHA-insured forward loans totaling $767 million, Nationstar did not meet HUD’s requirements for providing assistance to an estimated 3,572. Based on our loan sample projection, more than half of the borrowers received incorrect loss mitigation assistance. In these cases, Nationstar did not provide the loss mitigation option for which borrowers were eligible, incorrectly calculated loss mitigation options, did not reinstate arrearages, or declined loss mitigation in error. More than one-third of the borrowers in our sample projection received the correct loss mitigation option; however, Nationstar did not correctly follow COVID-19 loss mitigation guidance for these borrowers.

Recommendations

Key Details
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  Open
  Closed
Funds Put to Better Use
Funds Put to Better Use

Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.

Questioned Costs
Questioned Costs

Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.

Sensitive
Sensitive

Sensitive information refers to information that could have a damaging import if released to the public and, therefore, must be restricted from public disclosure.

Priority
Priority

We believe these open recommendations, if implemented, will have the greatest impact on helping HUD achieve its mission to create strong, sustainable, inclusive communities and quality affordable homes for all.

Housing

  •   2023-KC-1001-001-A

    Review the sampled loans for which borrowers did not receive appropriate loss mitigation options to ensure that the borrowers were remedied by Nationstar, if possible, and take administrative actions if appropriate.

  •   2023-KC-1001-001-B

    Implement controls and provide employee training to help prevent noncompliance in loss mitigation.

  •   2023-KC-1001-001-C

    Update and implement controls to the Nationstar internal system to ensure the correct application of COVID-19 partial claims.

  •   2023-KC-1001-001-D

    Identify loans with COVID-19 recovery partial claims that were affected by the improper application of partial claims funds and update the accounts.

  •   2023-KC-1001-001-E

    Identify FHA borrowers who received a non-HUD-approved loss mitigation option and ensure that the borrowers receive an updated approved HUD loss mitigation option.

  •   2023-KC-1001-001-F

    Update the servicing script to include information related to the HAF program, identify borrowers who may benefit from HAF, and conduct outreach to these borrowers.