RBC Disputes HUD Audit Findings

Inspector General questions work by lender, contractor

June 24, 2005

By PATRICK CROWLEY

HUD tested 5,123 loans totaling more than $20 million and determined that 170 were delinquent for insurance endorsement “or otherwise did not meet HUDs timely payment requirements,” according to a copy of the report.

Houston-based RBC and a contractor that handled loan authentication for the company, “also incorrectly certified that mortgage and/or escrow accounts were current.”

HUD said RBC “lacked adequate procedures and controls to ensure that it and the contractor’s employees followed HUDs requirements regarding late requests for insurance endorsement.”

“These improperly submitted loans increased the risk to the Federal Housing Administration (FHA) insurance fund,” HUD said.

RBC did not agree with all the findings in the audit, according to the company’s written response it submitted to HUD.

“We respectfully differ with certain key findings and recommendations in the…audit report,” the company said.

For instance, RBC disputed the number of loans that HUD classified as delinquent. The company said that up to 75 loans were not delinquent.

“There is no action that HUD needs take ‘to protect the public interest’,” RBC said. “The company, itself already has taken all actions that may have been required to protect the public interest.”

RBC did agree to “indemnify HUD for losses for which it is responsible.” HUD has said those costs will total $26,066.

RBC will also be required to reimburse HUD for any future losses from a $24,510 claim paid on an insured loan with a mortgage value of $227,930 once the property is sold.

But RBC said it has made recent and significant changes in the operation of the company that will prevent any future problems.

“Your audit has sharpened our focus in the area of timely and accurate submission of insurance endorsements,” RBC told HUD, “and our quality control and related procedures have been and will continue to be strengthened.”

Changes include closing its Chicago office, where problems occurred, and moving those operations to its Houston headquarters; and curtailing business with the contractor cited in the audit, which RBC blamed for the problems.

“RBC Mortgage…has undergone a total management shift and is in the process of improving its operations,” the company said.