HUD Hands Out FHA Fines, Suspensions

The fines, handed out by the U.S. Department of Housing and Urban Development, or HUD, ranged from $3,000 to $500,000, according to a Federal Register notice dated Oct. 7.

HUD reported that last November, the Board issued a letter to Capitol State Mortgage Corp. of Houston, Texas, permanently withdrawing it from the FHA program and voting to impose a civil money penalty of 5,500. The company reportedly submitted false financial statements which were not audited by a licensed certified public accountant and employed a person who was suspended or debarred.

The most recent settlement agreement listed on the notice with a fine of at least $100,000 was signed Aug. 12, 2004, by Chapel Mortgage Corp. The New Jersey-based wholesale lender did not admit fault or liability, but agreed to pay the administrative fine and indemnify HUD for any losses incurred on 19 FHA loans that violated HUD/FHA origination requirements.

HUD’s Mortgagee Review Board found seven causes for enforcement action against Chapel: failure to identify and/or provide an analysis of prior sales that occurred within one year of the appraisal report; falsely certifying FHA loan insurance eligibility; failure to include/evaluate borrower debt and/or document satisfactory explanations of derogatory credit; approving loans with ratios exceeding government standards without significant compensating factors; inadequate documentation of source of funds for downpayment and or closing costs; failure to provide HUD requested quality control reviews and to ensure that borrowers who were charged a commitment fee executed a commitment agreement guaranteeing discount points at least 15 days prior to the loan’s closing date.

The 19 loans were originated around five years ago — 16 of them by one broker — according to Chapel chief financial officer Tom Burke. Based on the company’s review of the loans, “we may have been the victim of a property flipping scheme,” he said.

“We came across a bad broker…but, obviously as the mortgagee we bear responsibilities and entered into a settlement agreement.”

The executive pointed out the wholesale lender was initially approved as an FHA lender in 1991 and has remained on the program since then.

Flagstaff Bank FSA was fined $198,000 in March for processing violations and also agreed to indemnify the FHA for any losses on 13 government-insured loans, according to the notice. The Michigan-headquartered thrift failed to remit timely upfront mortgage insurance premium payments on 1,310 loans and did not submit 1,035 loans for insurance endorsement within 60 days of the closing.

A Dallas-based lender reportedly punished by HUD was Crest Mortgage Co. The Mortgage Review Board not only issued a letter to the company withdrawing it from the HUD/FHA approval for five years, it also imposed a civil money penalty in the amount of $206,500. HUD listed several origination violations by the lender such as falsely certifying loan application information, failure to verify transfer of gift funds, source of funds, income, and permitting loan documents to be “hand-carried by an interested third party.”

About six months before it reportedly shut down in March, Advantage Investors Mortgage Corp. agreed to pay a civil money penalty of $247,500 and for any losses on 29 loans, HUD reported. Action was taken against the net branch operation for reasons including failure to verify sources of funds, include all liabilities of borrower and resolve outstanding delinquent federal debt, and for inadequate borrower employment or income data to qualify mortgagors.

California Housing Finance Agency, in Sacramento, agreed to an administrative fine of $322,500 about a year ago as a result of failure to perform property inspection on government-insured multifamily projects, the notice said.

Best Mortgage Inc. was fined $400,000 for failing to comply with the terms of three indemnification agreements executed with HUD in July 2001. The Gladstone, Mo., company agreed to pay the amount this August without admitting fault or liability, HUD reported.

The largest settlement agreement amount on the notice was by Alliance Mortgage Banking Corp. The lender did not admit to fault or liability, but last year agreed to pay an administrative fine of $500,000 and for any losses on three loans. HUD said the causes for enforcement were for violating several origination requirements such as failure to identify and/or resolve false or conflicting documentation prior to loan approval, approving a loan where the appraiser’s estimate of the property’s market value was significantly inflated, improper quality control and insufficient documentation to verify downpayment or closing costs.

Alliance did not return a call for comment before press time.