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Nationwide Home Loans, Miami, FL, Did Not Follow HUD Requirements in Approving FHA Loans and Implementing Its Quality Control Program

HUD OIG performed an audit of Nationwide Home Loans, Inc. (Nationwide), a Federal Housing Administration (FHA) approved direct endorsement lender located in Miami, Florida. The review was performed based on the lender’s high default rates. 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.

Nationwide did not follow HUD requirements when it used at least 16 various independent loan officers to originate 41 loans underwritten in the Miami HUD area in 2009. These 16 loan officers were also employed by or owned businesses involved with mortgage lending or other related fields such as real estate sales and mortgage processing. As a result, Nationwide approved loans that were not eligible for FHA insurance and increased the risk to the FHA insurance fund by more than $4 million.

In addition, Nationwide did not follow HUD requirements when originating and underwriting loans for FHA insurance. It used inaccurate and unsupported information to qualify borrowers for five of six FHA loans reviewed. As a result, Nationwide approved loans that did not qualify for FHA insurance and unnecessarily placed the FHA insurance fund at risk for almost $1 million.

Lastly, Nationwide 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, Nationwide 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 Nationwide to indemnify HUD for the 46 ineligible FHA loans with an estimated potential loss of $5 million. OIG also recommended that Nationwide be referred to the Mortgagee Review Board for consideration of imposing civil money penalties for the ineligible loans and taking appropriate administrative actions against the individuals and entities responsible. Finally, OIG recommended that Nationwide develop, implement, and enforce (1) written controls to ensure that loans are originated and underwritten in accordance with HUD requirements and (2) a quality control program that complies with HUD requirements.