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We performed an audit of WR Starkey Mortgage, LLP (WR Starkey), located in Plano, TX, a Federal Housing Administration (FHA) direct endorsement lender. We selected WR Starkey for audit because of its high default rate of nearly 4.5 percent as compared to the average default rate for all FHA loans in Fort Worth, TX, of 4.1 percent. Our objective was to determine whether WR Starkey complied with U. S. Department of Housing and Urban Development (HUD) and FHA loan origination requirements for loans endorsed between April 1, 2008, and April 30, 2010.

WR Starkey did not follow HUD/FHA underwriting requirements in 13 of 14 loan originations reviewed. This noncompliance occurred because WR Starkey’s underwriters failed to exercise due diligence in underwriting the loans and its internal control system did not detect or prevent the underwriters from originating the faulty loans. As a result, WR Starkey improperly originated four loans that resulted in losses to FHA’s Mutual Mortgage Insurance Fund of $360,032 and nine loans that increased the risk to the insurance fund by $905,803.

We recommended that the Deputy Assistant Secretary for Single Family require WR Starkey to (1) reimburse the FHA insurance fund $360,032 in actual losses on four loans and (2) indemnify nine loans that placed the FHA insurance fund at unnecessary risk with unpaid balances of $905,803, thereby putting an estimated $543,482 in funds put to better use.