Cendant's High Default Rate in KC & St. Louis Spur HUD Audit
HUD seeking indemnification on some FHA loans
January 7, 2003
By CHRISTY ROBINSON
|After completing an audit of Cendant Mortgage Corp. because of its high default rate in certain cities, the U.S. Department of Housing and Urban Development (HUD) has asked the lender to indemnify more than 1,000 loans that were improperly endorsed for federal insurance coverage.
HUD also recommended that the federal Mortgage Review Board require Cendant and the Office of Housing to begin protecting the insurance fund against future losses.
The intention of the audit, spurred by a high default rate in St. Louis, Mo., and Kansas City, Kan., was to see how many of Cendant's late requests for endorsement violated HUD's payment requirements, HUD said.
HUD reviewed all of the lender's Federal Housing Administration (FHA) loans within the two cities' jurisdiction for a two-year period. The agency concluded that Cendant improperly submitted 1,307 loans, totaling almost $111 million for late endorsement during that period. These loans were submitted more than 60 days after closing when the borrowers had delinquent payments prior to submission, HUD said.
HUD also reviewed 80 FHA defaulted loans, totaling almost $5.3 million, and found that Cendant only originated seven of them in accordance with HUD's requirements. HUD said Cendant's loan files contained potential fraud indicators, inadequate ratios, undocumented gifts, conflicting W-2 forms, and inconsistent and unverified income.
The housing agency said it assumed abnormally high risk on the loans in question and lost $594,591 on the properties sold.
A Cendant representative did not readily return telephone calls for comment.
Cendant said in September that it would take a $175 million write-down on the carrying value of its mortgage servicing rights asset. The non-cash write-down was attributed to a steep decline in the interest rates that caused mortgage loan prepayments and refinancings to increase to record levels.
In early afternoon trading, Cendant shares were down $0.30 at $10.95, according to CBSMarketwatch.com.
Christy Robinson is the editor of MortgageDaily.com. She received a bachelor's degree in news-editorial journalism from The University of Texas at Arlington. Her work has previously been published in The Dallas Morning News.
email Christy at: [email protected]