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U.S. Department of Housing and Urban Development Office of Inspector General Semiannual Report to Congress April 1, 2008, through September 30, 2008 Profile of Performance Audit profile of performance for the period April 1, 2008, through September 30, 2008 This reporting period FY 08 totals Recommendations that funds be put to better use $75,395,363 $1,297,214,463 Recommended questioned costs $157,090,205 $300,872,100 Collections from audits $59,634,565 $81,386,829 Administrative sanctions 15 21 Results Investigation profile of performance for the period April 1, 2008, through September 30, 2008 Results This reporting period FY 08 totals Funds put to better use $39,111,188 $69,667,391 Recoveries/receivables $60,621,689 $81,182,624 Indictments/informations 578 1,180 Convictions/pleas/pretrial diversions 525 969 Civil actions 50 76 Administrative sanctions1 587 1,009 Personnel actions 20 46 Arrests2 770 1,524 Search warrants 22 119 Subpoenas issued 613 1,026 Hotline profile of performance for the period April 1, 2008, through September 30, 2008 Results This reporting period FY 08 totals Funds put to better use $2,695,138 $5,051,806 Recoveries/receivables $123,784 $254,864 1 Personnel actions include reprimands, suspensions, demotions, or terminations of the employees of Federal, State, or local governments or of Federal contractors and grantees, as the result of Office of Inspector General (OIG) activities. In addition, this reporting category includes actions by Federal agencies to suspend, debar, or exclude parties from contracts, grants, loans, and other forms of financial or nonfinancial transactions with the government, based on findings produced by OIG. 2 Included in the arrests is our focus on the nationwide Fugitive Felon Initiative. Inspector General’s Message The U.S. Department of Housing and Urban Development Office of Inspector General (HUD OIG) is proud to present its Semiannual Report to the Congress for the second half of fiscal year 2008. I am very thankful to all the HUD OIG employees--auditors, agents, attorneys, and support staff--for their excellent production on behalf of the taxpayers of the United States. We have been deeply immersed in the issues, specifically activities affecting the housing industry. We at HUD OIG are grateful to the Congress for the passage of the new Housing and Economic Recovery Act (HERA) of 2008 that increased the penalties for fraud involving the Federal Housing Administration (FHA). We now have the tools to continue our pursuit of corrupt corporate executives, as well as failed and troubled lending institutions. During this reporting period, we had $67.9 million in funds put to better use, questioned costs of $154.8 million, and $60.5 million in recoveries and receivables while closing 584 cases. This exceptional work has had an impact on fraud and the misuse of taxpayer dollars, and it is with gratitude that I acknowledge the HUD OIG staff who worked so hard to achieve these results and their associated deterrent effect. With the enormous expansion of the FHA mortgage limit in the new HERA of 2008, this essential program has expanded into urban markets that have not seen FHA activity, sometimes for decades. Another particular interest and concern is the expansion in the use of FHA's home equity conversion mortgages (HECM)--better known in the media as reverse mortgages--and the new opportunities that have arisen for fraud aimed at senior citizens. The expansion of HECM and the impact of the subprime mortgage situation on the overall health of FHA have drawn our investigative and audit resources to this issue. We continue to audit at-risk lenders, and we have expanded our participation in mortgage fraud task forces across the country. The collapse of the subprime mortgage market and resultant increase in FHA loan activity have also impacted the Government National Mortgage Association (Ginnie Mae). Total outstanding Ginnie Mae mortgagebacked securities increased from $428 to $577 billion during fiscal year 2008. Due to the increased risk this poses to the Department, we have directed additional audit and investigative resources toward Ginnie Mae programs. Our high-profile audits and investigations have once again paralleled the Department's strategic initiatives. HUD OIG staff continue to work with the Department to improve its effectiveness and as a result, have developed and implemented better and more effective audit recommendations. HUD OIG Office of Investigation agents have also enhanced their association with the Department as a new source or indicator for new investigative avenues. During this reporting period, our audits recommended that HUD take appropriate actions to ensure that FHA-approved lenders comply with Federal requirements for FHA loans located in flood hazard areas. We recommended that HUD appropriately sanction violations of the Real Estates Settlement and Procedures Act and make referrals to the Mortgagee Review Board, making lenders pay back loans for which HUD underwriting Inspector General’s Message iii requirements were not followed. We further recommended that HUD develop and implement adequate oversight of and controls over the appraiser review process to address weaknesses, and we provided comments to HUD, requesting that it assess risk while implementing the FHASecure program, which is intended to assist subprime or high-risk borrowers harmed by questionable loan terms. Our investigating agents have been hard at work as well. A cross-section of the types of cases pursued during the reporting period included uncovering and prosecuting a loan origination scam that caused more than $2.3 million in losses to HUD, a civil case against an FHA lender that netted HUD $4.6 million, and prosecuting a real estate scheme involving identity fraud and false Social Security numbers that caused HUD losses in excess of $1.5 million in three States. We do all of this while maintaining our vigilance in hurricane-related and flood-related disaster relief, post-September 11 redevelopment efforts, Section 8 rental subsidy fraud, and any activity involving waste or abuse in HUD programs or operations. It is with obvious and justifiable pride that I thank the staff of HUD OIG for their tireless work. Kenneth M. Donohue Inspector General iv Inspector General’s Message Audit reports issued by program Hurricane relief oversight 2% Other programs 9% Single-family housing 22% Multifamily housing 4% Community planning and development 21% Public and Indian housing 42% Monetary benefits identified by program Hurricane relief oversight 2% Other programs 1% Single-family housing Multifamily 2% housing 5% Community planning and development 41% Public and Indian housing 49% Monetary benefits identified in millions of dollars $120.0 $114.0 $100.0 $95.4 $90.0 $80.0 $60.0 $40.0 $20.0 $0.0 Audit Charts $6.0 Single-family housing $11.4 $4.4 Multifamily housing Public & Indian housing Community planning and development Hurricane relief oversight $1.4 Other programs v Investigative cases opened by program area (total: 652) Single-family housing 12% (75) Other programs 6% (37) Community planning and development 18% (120) Multifamily housing 9% (60) Public and Indian housing 55% (360) Investigative recoveries by program area (total: $60,621,689) Other 0% ($38,345) Community planning and development 19% ($11,333,932) Multifamily housing 5% ($2,892,389) Single-family housing 52% ($37,843,857) vi Public and Indian housing 14% ($8,513,166) Investigation Charts Acronyms List AFGE American Federation of Government Employees AIGA Assistant Inspector General for Audit AIGI Assistant Inspector General for Investigation ARIGA Assistant Regional Inspector General for Audit ASAC Assistant Special Agent in Charge CDBG Community Development Block Grant CPD Office of Community Planning and Development DHAP Disaster Housing Assistance Program DHS U.S. Department of Homeland Security DOJ U.S. Department of Justice EIV Enterprise Income Verification FEMA Federal Emergency Management Agency FFI Fugitive Felon Initiative FFMIA Federal Financial Management Improvement Act of 1996 FHA Federal Housing Administration FHAP Fair Housing Assistance Program FHEO Office of Fair Housing and Equal Opportunity FISMA Federal Information Security Management Act FSS Family Self-Sufficiency GAO U.S. Government Accountability Office Ginnie Mae Government National Mortgage Association GPRA Government Performance Results Act HECM Home equity conversion mortgages HERA Housing and Economic Recovery Act (HERA) of 2008 HOME HOME Investment Partnerships Program HUD U.S. Department of Housing and Urban Development IAA Interagency agreement IG Inspector General IOI Identity of interest IRS Internal Revenue Service IT Information technology NAHASDA Native American Housing Assistance and Self-Determination Act of 1996 NAHRO National Association of Housing and Redevelopment Officials NCDF National Center for Disaster Fraud Acronyms List vii OA Office of Audit OI Office of Investigation OIG Office of Inspector General OMB Office of Management and Budget PFCRA Program Fraud Civil Remedies Act PHA Public housing agency PIH Office of Public and Indian Housing REAP Resource Estimation and Allocation Process RESPA Real Estate Settlement Procedures Act RIGA Regional Inspector General for Audit SA Special Agent SAC Special Agent in Charge SBA Small Business Administration SEMAP Section Eight Management Assessment Program SFA Senior Forensic Auditor SHP Supportive Housing Program SSA Senior Special Agent SSA Social Security Administration SSN Social Security number TEAM Total Estimation and Allocation Mechanism U.S.C. United States Code USMS United States Marshals Service USPS United States Postal Service VA U.S. Department of Veterans Affairs viii Acronyms List Table of Contents Executive Highlights 1 Chapter 1 - HUD’s Single Family Housing Programs Audits Investigations 7 8 16 Chapter 2 - HUD’s Public and Indian Housing Programs Audits Investigations 27 28 45 Chapter 3 - HUD’s Multifamily Housing Programs Audits Investigations 61 62 65 Chapter 4 - HUD’s Community Planning and Development Programs Audits Investigations 71 72 81 Chapter 5 - Hurricane Relief Oversight Introduction and Background Audits Investigations Inspections and Evaluations 87 89 92 94 102 Chapter 6 - Other Significant Audits and Investigations/OIG Hotline Audits Inspections and Evaluations Investigations OIG Hotline 105 106 109 110 111 Chapter 7 - Outreach Efforts 113 Chapter 8 - Review of Policy Directives Enacted Legislation Related to Single-Family Housing Proposed Rules 127 128 128 Chapter 9 - Audit Resolution Audit Reports Issued before Start of Period with No Management Decision Significant Revised Management Decisions Significant Management Decision with Which OIG Disagrees Federal Financial Management Improvement Act of 1996 129 130 131 133 133 Appendix 1 - Audit Reports Issued 135 Appendix 2 - Tables 143 Appendix 3 - Index 163 HUD OIG Operations Telephone Listing 167 Table of Contents ix Reporting Requirements The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by the Inspector General Act of 1988, are listed below: Source/Requirement Pages Section 4(a)(2)-review of existing and proposed legislation and regulations. 128 Section 5(a)(1)-description of significant problems, abuses, and deficiencies relating to the administration of programs and operations of the Department. 1-112, 128 Section 5(a)(2)-description of recommendations for corrective action with respect to significant problems, abuses, and deficiencies. 7-112 Section 5(a)(3)-identification of each significant recommendation described in previous semiannual report on which corrective action has not been completed. Appendix 2, Table B Section 5(a)(4)-summary of matters referred to prosecutive authorities and the prosecutions and convictions that have resulted. 7-112 Section 5(a)(5)-summary of reports made on instances in which information or assistance was unreasonably refused or not provided, as required by Section 6(b)(2) of the Act. No Instances Section 5(a)(6)-listing of each audit report completed during the reporting period and for each report, where applicable, the total dollar value of questioned and unsupported costsand the dollar value of recommendations that funds be put to better use. Appendix 1 Section 5(a)(7)-summary of each particularly significant report and the total dollar value of questioned and unsupported costs. 7-112 Section 5(a)(8)-statistical tables showing the total number of audit reports and the total dollar value of questioned and unsupported costs. Appendix 2, Table C Section 5(a)(9)-statistical tables showing the total number of audit reports and the dollar value of recommendations that funds be put to better use by management. Appendix 2, Table D Section 5(a)(10)-summary of each audit report issued before the commencement of the reporting period for which no management decision had been made by the end of the period. Appendix 2, Table A Section 5(a)(11)-a description and explanation of the reasons for any significant revised management decisions made during the reporting period. No Instances Section 5(a)(12)-information concerning any significant management decision with which the Inspector General is in disagreement. Section 5(a)(13)-the information described under section 05(b) of the Federal Financial Federal Financial Management Improvement Act of 1996. x 133 133 Reporting Requirements Executive Highlights Strategic Initiative 1 HUD Strategic Goal: Increase Homeownership Opportunities OIG Strategy: Contribute to the reduction of fraud in single-family insurance programs through - Audits uncovering single-family and loan origination abuse - Audits of the U.S. Department of Housing and Urban Development's (HUD) internal policies to determine whether controls are adequate - Audits of lenders' origination activities under the FHASecure and Hope for Homeowners programs - National strategy for single-family mortgage fraud task forces - Inspections and evaluations of program areas - Outreach to industry and consumer groups and the Department Highlights: Results or impact of significant OIG work - Disclosed more than $1.5 million in questioned costs and nearly $2.9 million in recommendations page 8 that funds be put to better use - Recommended that HUD develop and implement adequate oversight of and controls over the page 9 appraiser review process to address identified weaknesses - Recommended that HUD take appropriate actions to ensure that Federal Housing Administration page 10 (FHA)-approved lenders comply with federal requirements for FHA loans located in flood hazard areas - Recommended that HUD take appropriate sanctions for Real Estate Settlement Procedures Act page 11 violations, make referrals to the Mortgagee Review Board, and require the lender to indemnify loans for which HUD underwriting requirements were not followed - Loan origination scam causes HUD more than $2.3 million in losses page 17 - Identity fraud and false Social Security numbers cause HUD losses in excess of $1.5 million in page 21 Colorado, New Jersey, and Texas - Civil settlement with direct endorsement lender nets HUD $4.6 million page 22 - More than 300 mortgage and real estate professionals attend a mortgage fraud presentation in page 115 Michigan - Provided comments for HUD to assess risk while implementing the FHASecure program, which page 130 is intended to assist subprime or high-risk borrowers harmed by questionable loan terms Emerging Issues: Areas of OIG interest - FHASecure - Hope for Homeowners program - Home equity conversion mortgage program - Licensing and certification of mortgage professionals 2 Executive Highlights Strategic Initiative 2 HUD Strategic Goal: Promote Decent Affordable Housing OIG Strategy: Contribute to the reduction of erroneous payments in rental assistance programs through - Audits of Section 8 Housing Choice Voucher program activities - Audits of the HUD’s internal policies to determine whether controls are adequate - Investigative initiatives involving corruption in the management of troubled public housing authorities and multifamily developments - Section 8 fraud initiatives in each Office of Inspector General (OIG) region - Public Housing Fugitive Felon and Sex Offender Initiatives - locate and remove - Public and Department-wide outreach initiatives Highlights: Results or impact of significant OIG work - Disclosed nearly $73 million in questioned costs and nearly $40 million in recommendations that page 28 funds be put to better use - Recommended that HUD require a housing authority to reimburse more than $27 million in page 30 restricted funds to the proper program and establish and implement adequate procedures and controls to ensure that no interprogram advances of restricted funds are made in the future - Identified excessive assistance payments due to payments for units not meeting minimum housing page 32 quality standards, errors in tenant files, and lack of controls - Recommended that HUD require housing authorities that failed to administer its Family page 33 Self-Sufficiency program to reimburse the applicable program from nonfederal funds - Recommended that housing authorities enhance their quality controls and implement policies and page 34 procedures to prevent improper payments - Housing authority executive director and others indicted in North Carolina page 46 - New York, Miami, and Las Vegas Section 8 landlords and tenants cause HUD losses of about page 52 $800,000 - Fugitive felons residing in HUD-subsidized housing arrested in Illinois, Kansas, Missouri, Utah, page 58 and South Dakota - Multifamily management company owner indicted for embezzling more than $500,000 in HUD page 66 funds - Loan officer charged in civil complaint after hospital defaults on a $7 million HUD-insured mortgage page 69 - Public housing fraud schemes described for 475 National Association of Housing and page 120 Redevelopment officials in Massachusetts, New Jersey, California, Missouri, Arkansas, and Texas Emerging Issues: Areas of OIG interest - FHA-insured nursing homes and nursing home equity skimming - Public housing corruption and multifamily mismanagement - Landlord fraud - Implementation of Section 8 Management Assessment Program/ controls to ensure HUD's Section 8 housing stock is in material compliance with housing quality standards - Evaluation of the Housing Authority of New Orleans in carrying out its public housing activities and Section 8, procurement, and financial functions Executive Highlights 3 Strategic Initiative 3 HUD Strategic Goal: Strengthen Communities OIG Strategy: - Promote integrity, efficiency, and effectiveness of programs - Contribute to the reduction of fraud, waste, and abuse through - Audits of the Community Development Block Grant (CDBG), Supportive Housing Program, and HOME Investment Partnerships Program - Department liaison - Audits of Gulf Coast activities - Investigative initiative involving corruption in the administration of State or local community planning and development programs in each OIG region - Hurricane relief fraud in HUD CDBG-funded programs - Inspections and evaluations of program areas - Public dissemination of HUD OIG activities and outreach activities with State and local government agencies Highlights: Results or impact of significant OIG work - Disclosed more than $70 million in questioned costs and nearly $25 million in recommendations page 72 that funds be put to better use. - Recommended that HUD require the States of New Mexico and Arizona repay more than $8.4 page 73 million and ensure that the States comply with the Act in relation to set-asides for colonias. - The former executive director and treasurer of a youth-oriented nonprofit in Fairbanks, AK, sent to page 82 prison for embezzlement - The former treasurer of a HUD-funded nonprofit chose 30 days in prison in lieu of a public apology page 82 - Hurricane relief fraud involving CDBG funding for homeowners page 95 - HUD program director and contractor briefed on fraud prevention measures in the Disaster page 100 Housing Assistance program - Inspection of housing assistance overpayments to multifamily property owners after Hurricane page 102 Katrina Emerging Issues: Areas of OIG interest - Gulf Coast hurricane assistance fraud - Neighborhood Stabilization Program - Emergency Shelter and Homeless Grants - Emergency supplementals for FY 2008 natural disasters 4 Executive Highlights Strategic Initiative 4 HUD Strategic Goal: Embrace High Standards of Ethics, Management, and Accountability OIG Strategy: - Be a relevant and problem-solving advisor to the Department - Contribute to improving HUD's execution and accountability of fiscal responsibilities through - Audits of HUD's financial statements - Audits of HUD's information systems and security management - Audits of Ginnie Mae activities - Implementation of U.S. Department of Justice Procurement Fraud Task Force at HUD - FedRent data match operation - identifying Federal employees who fraudulently receive housing assistance Highlights: Results or impact of significant OIG work - HUD's Enterprise Income Verification System discovers U.S. Postal Service employees fleecing Chicago area housing authorities - Recommended that HUD take measures to enhance methods used to assess human resource needs - Recommended that HUD properly meet its information security responsibilities page 55 page 106 page 107 Emerging Issues: Areas of OIG interest - Issuer accountability in loan portfolio defaults in Government National Mortgage Association mortgagebacked securities program Executive Highlights 5 Chapter 1 HUD’s Single-Family Housing Programs Acronyms List The Federal Housing Administration’s (FHA) single-family programs provide mortgage insurance to mortgage lenders that, in turn, provide financing to enable individuals and families to purchase, rehabilitate, or construct homes. In addition to the audits and investigations described in this chapter, the U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), has conducted numerous outreach efforts (see chapter 7, page 120). Audits Strategic Initiative 1: Contribute to the reduction of fraud in single-family insurance programs Key program results Audit 20 audits Questioned costs Funds put to better use $1.5 million $2.9 million Page 9 Page 9 - HUD's appraiser review process Page 9 - HUD's oversight of the home equity conversion mortgages program Page 10 - HUD's oversight of the underwriting for Federal Housing Administration loans located in flood hazard areas Page 11 - Mortgagees, loan correspondents, and direct endorsement lenders Page 15 Our focus - HUD's Office of Single Family Housing’s control structure - Review of Government National Mortgage Association-approved issuer Chart 1.1: Percentage of OIG single-family housing audit reports during this reporting period Region 1 5% Region 7-8 32% Region 5 11% Region 2 10% Region 3 5% Region 9-10 21% Region 4 5% Region 6 11% Region 11 (Disaster Relief Oversight) %(N/A)* * This does not include hurricane relief audits. See chapter 5 for these reviews. 8 Chapter 1: HUD’s Single-Family Housing Programs HUD's Office of Single Family Housing’s Control Structure The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) audited HUD's Office of Single Family Housing (Single Family) to determine whether it had implemented an internal control structure in accordance with U.S. Government Accountability Office (GAO) internal control standards and HUD requirements. Single Family had not fully implemented an internal control structure in accordance with GAO internal control standards and HUD requirements. Specifically, it did not (1) perform a formal, systematic annual risk assessment of its programs and administrative functions, (2) plan and conduct ongoing management control reviews or alternative management control reviews of its programs, (3) establish an overall strategy regarding its risk-based monitoring of program activities and participants, or (4) identify corrective actions required to improve its management controls in a timely manner. OIG recommended that HUD ensure that Single Family fully implements an acceptable internal control structure by preparing and implementing effective written policies and procedures that comply with GAO internal control standards and HUD requirements. (Audit Report: 2008-KC-0006) HUD's Appraiser Review Process HUD OIG audited HUD's appraiser review process to determine whether homeownership centers’ appraiser review procedures and HUD's oversight of the appraiser review process were adequate to identify and remedy deficiencies associated with an appraiser and to assess the overall effectiveness of the appraiser review process. HUD's appraiser review process was not adequate to reliably and consistently identify and remedy deficiencies associated with an appraiser, and HUD did not maintain information necessary to assess the effectiveness of its review process. Each major phase of the appraiser review process contained problems such as inadequate or incomplete HUD guidance, weak quality controls over implementation of review procedures, and inconsistent application of rating standards and sanctioning timeframes. OIG recommended that HUD develop and implement adequate oversight of and controls over the appraiser review process to address the weaknesses identified and ensure that it continuously evaluates the efficiency and effectiveness of the process. (Audit Report: 2008-LA-0003) HUD's Oversight of the Home Equity Conversion Mortgages Program HUD OIG audited HUD's oversight of the Federal Housing Administration (FHA)-insured home equity conversion mortgages (HECM) program to assess elements of HUD's oversight of the program, focusing on lender notification of borrower deaths and payment of debenture interest. HUD did not ensure that FHA lenders reported borrowers' deaths in accordance with Federal requirements. For the 31 loans reviewed, HUD's contractor failed to provide documentation to support that FHA lenders notified HUD of borrowers' deaths in writing. Further, the lenders failed to notify the contractor of borrowers' deaths for 11 of the loans and for 13 loans did not report in a timely manner the dates of borrowers' deaths. HUD also failed to pay debenture interest on HECM loans. For 13 of the 30 loans on Chapter 1: HUD’s Single-Family Housing Programs 9 which HUD paid claims during the period March 1, 2006, through February 29, 2008, it did not pay debenture interest to the lenders in accordance with Federal requirements. As a result, HUD could not be assured that FHA lenders appropriately met HUD's time requirements for initiating the foreclosure process or for recording the deeds-in-lieu to take possession of the property, which impacts the amount of the lenders' insurance claims. Additionally, as a result of HUD's failure to pay lenders debenture interest on HECM loans from the loans' due date to the claim payment date, it owes lenders debenture interest on these loans. OIG recommended that HUD improve its existing procedures and controls to ensure that lenders follow its requirements for servicing HECM loans and implement adequate procedures and controls to ensure that it complies with Federal requirements in the administration of the HECM program, including the proper payment of claims, and curtail interest payments to the appropriate lenders for the loans identified that HUD determines failed to meet all of its time requirements. (Audit Report: 2008-CH-0001) HUD's Oversight of the Underwriting for FHA Loans Located in Flood Hazard Areas HUD OIG audited HUD's oversight of the underwriting of FHA-insured loans for new construction properties located in the Federal Emergency Management Agency's (FEMA) designated special flood hazard areas to determine whether HUD had adequate oversight of the underwriting of the loans. HUD did not always ensure that FHA-approved lenders complied with Federal requirements when they submitted 399 loans, totaling more than $55 million in original mortgage amounts, to HUD for insurance endorsement. The loans were to finance the purchase of newly constructed properties located in FEMA's designated special flood hazard areas. However, the lenders failed to provide evidence of a letter of map revision/amendment or flood elevation certificate when the loans were submitted to HUD for insurance endorsement. For 195 loans, totaling nearly $27 million in original mortgage amounts, the lenders did not ensure that borrowers' escrow accounts included payments for flood insurance at the time the loans closed. HUD also did not ensure that lenders servicing FHA-insured loans for 163 properties, totaling nearly $22 million in original mortgage amounts, kept apprised of whether borrowers maintained required flood insurance. In addition, 30 FHA lenders incorrectly certified to the integrity of the data supporting the underwriting deficiencies and that the loans were eligible for HUD mortgage insurance for 242 loans. As a result, HUD inappropriately approved loans for FHA mortgage insurance, and the lenders' failure to ensure that borrowers maintained flood insurance throughout the life of the loans could pose a significant risk in the event of a natural flood disaster. We recommended that HUD (1) seek appropriate administrative action for the active loans if the lenders cannot provide documentation to show that the properties are not located in FEMA's designated special flood hazard areas or the required elevation certification showing that the properties meet elevation requirements and are covered by flood insurance, (2) require the applicable lenders to reimburse HUD for any future losses from claims paid if they cannot provide the required documentation, (3) require the lenders for the loans lacking flood insurance to provide evidence showing that the properties have flood insurance or are no longer located in FEMA's designated special flood hazard areas or seek appropriate administrative action, (4) and improve existing procedures and controls to ensure that lenders follow HUD's underwriting requirements for new construction properties located in FEMA's designated special flood hazard areas. These improved 10 Chapter 1: HUD’s Single-Family Housing Programs procedures and controls should result in a potential savings to the FHA insurance fund of nearly $261,000 over the next year. We also recommended that HUD determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act (PFCRA) against the lenders with incorrect certifications. (Audit Report: 2008-CH-0002) Mortgagees, Loan Correspondents, and Direct Endorsement Lenders Audits to uncover single-family lenders and loan origination abuses continued to be a priority during this semiannual period. Lenders are targeted for audit through the use of data mining techniques, along with prioritizing audit requests from outside sources. During this period, HUD OIG reviewed 14 FHA single-family mortgage lenders. While OIG's objectives varied by auditee, the majority of the reviews were to determine whether the mortgage lender complied with HUD's regulations, procedures, and instructions for the underwriting of FHA loans and whether the mortgage lender's quality assurance plan met HUD's requirements. The following section illustrates the audits conducted in the single-family mortgage lender area. HUD OIG audited Heartland Funding Corporation in Springfield, MO, and found that Heartland Funding violated the Real Estate Settlement Procedures Act (RESPA) and HUD requirements when processing FHA loans that involved downpayment assistance. In addition, it did not follow HUD requirements when it underwrote 27 FHA loans, implemented its quality control plan, or reported staff compensation. OIG recommended that HUD (1) take appropriate sanctions against Heartland Funding for violating RESPA, (2) refer it to HUD's Mortgagee Review Board for review and appropriate actions, (3) require it to indemnify HUD on 27 loans for which it did not follow HUD underwriting requirements, and (4) verify that it fully implements a quality control program that complies with HUD requirements and has ceased improperly reporting staff compensation. (Audit Report: 2008-KC-1006) HUD OIG audited Mortgage Access Corporation in Morris Plains, NJ, doing business as Weichert Financial Services, and found that Mortgage Access Corporation did not always comply with HUD regulations. Seven loans exhibited significant underwriting deficiencies such as inadequate credit analysis, inadequate verification of funds to close, minimum cash investment not met, and inadequate verification of income/employment. As a result, loans were approved for potentially ineligible borrowers, which caused FHA to incur an unnecessary insurance risk. In addition, one of these seven loans was approved for a property that was not eligible for FHA insurance. Mortgage Access Corporation also failed to ensure that its quality control plan was implemented in accordance with HUD's requirements. Consequently, the effectiveness of the plan, which was designed to ensure accuracy, validity, and completeness in its loan underwriting process, was lessened. OIG recommended that HUD require Mortgage Access Corporation to reimburse it for one ineligible loan, indemnify it against future losses on six loans with significant underwriting deficiencies, and implement procedures to ensure compliance with HUD's and its own quality control requirements. (Audit Report: 2008-NY-1005) Chapter 1: HUD’s Single-Family Housing Programs 11 HUD OIG audited the Wells Fargo Bank NA, Rochester, NY, Branch Office, a national bank and supervised lender, and found that Wells Fargo did not always comply with HUD underwriting requirements. Consequently, 16 of the 20 loans reviewed exhibited significant underwriting deficiencies such as minimum cash investment not met, inaccurate calculation of income, inadequate verification of debt, inadequate review of appraisals, and overinsured loans. In addition, 8 of the 16 loans contained origination deficiencies, such as inadequate gift fund verification, inadequate assets available to close, questionable clear title to the property, ineligible prior mortgage late payments, inadequate compensating factors, and various borrower credit issues. As a result, mortgage loans were approved for potentially ineligible borrowers, causing the FHA insurance fund to assume an unnecessary insurance risk. Wells Fargo also failed to ensure that its quality control plan was properly implemented in accordance with HUD's and its own quality control requirements. OIG recommended that HUD (1) require Wells Fargo to reimburse HUD for the loss incurred on one loan with significant underwriting deficiencies, (2) indemnify HUD against future losses on 15 active loans with significant underwriting deficiencies, (3) establish procedures to ensure that HUD underwriting requirements are properly implemented and documented, and (4) implement procedures to ensure compliance with HUD's and its own quality control requirements. (Audit Report: 2008-NY-1010) HUD OIG reviewed 23 FHA loans underwritten by Peoples Bank of Overland Park, KS, and found that Peoples Bank did not follow HUD's requirements when underwriting nine FHA loans. In addition, its quality control program did not comply with HUD's requirements. OIG recommended that HUD (1) require Peoples Bank to indemnify HUD for eight actively insured loans and reimburse HUD for one loan for which HUD incurred losses when it sold the property, (2) verify that Peoples Bank has implemented an adequate supervisory structure and adequately trained its underwriters regarding HUD requirements for FHA loans, and (3) ensure that Peoples Bank implements a quality control program that meets HUD requirements. (Audit Report: 2008-KC-1004) HUD OIG audited the Newark, DE, branch office of Wells Fargo Home Mortgage, which is mainly responsible for underwriting loans for 22 Wells Fargo sales branch offices in Pennsylvania. OIG found that the Wells Fargo branch office did not always comply with HUD requirements in the origination of FHA-insured single-family loans. Although it generally complied with HUD requirements in its quality control reviews of FHA loans, four of eight loans reviewed were not originated in accordance with HUD requirements. As a result, the FHA insurance fund was exposed to an unnecessarily increased risk. OIG recommended that HUD require Wells Fargo to indemnify more than $816,000 for four loans, which it issued contrary to HUD's loan origination requirements, and enforce its policies, procedures, and controls to ensure that its staff consistently follows HUD's requirements. (Audit Report: 2008-PH-1011) HUD OIG audited A Plus Mortgage, Inc., Tukwila, WA, and found that A Plus disregarded FHA requirements and provisions of RESPA and engaged in deceptive lending practices. Although it informed borrowers that they could receive a lower interest rate on their loans by paying up-front points and fees, A Plus charged loan discount fees to borrowers without reducing interest rates on the mortgages. This practice 12 Chapter 1: HUD’s Single-Family Housing Programs allowed A Plus to generate high-rate loans for which its sponsor lenders paid it a yield spread premium when the loans closed escrow. As a result, borrowers paid excessive interest and fees for which they received no associated benefit. In addition, all 28 FHA-insured A Plus loans reviewed were originated by independent contractors, unapproved branches, or other non-FHA-approved mortgage broker firms. OIG recommended that HUD require A Plus to (1) return unearned and excess yield spread premiums, loan discount fees, and other fees, totaling more than $153,000, to the borrowers; (2) review and analyze all other FHA-insured loans generated by A Plus with loan discount points when no interest rate reduction occurred, report the results to the Mortgagee Review Board, and issue refunds to the borrowers; (3) discontinue charging loan discount fees when it receives yield spread premiums on a loan; (4) cease changing the names of fees from the initial disclosure to the final HUD-1 settlement statement; (5) instruct its loan officers to ensure that the borrowers clearly understand the nature of all charges associated with their loans; (6) return all loan origination fees, totaling more than $32,000, to the borrowers on all loans that were originated by third-party independent contractors; (7) only submit loans for FHA insurance that were originated by A Plus employees; and (8) register all of its branch offices with FHA. (Audit Report: 2008-SE-1004) HUD OIG audited Meridian Lending, Inc., Monroe, GA, an FHA-approved direct endorsement lender, and found that Meridian did not follow HUD requirements in originating two of the eight FHA-insured loans reviewed. As a result, it placed HUD's insurance fund at risk for nearly $272,000. In addition, Meridian did not review its early defaulting loans. As a result, the lender adversely impacted the goals of HUD's quality control program, which is designed to protect the lender and HUD from unacceptable risk. OIG recommended that HUD require Meridian to (1) indemnify HUD for the potential loss on the loan with a significant deficiency and reimburse HUD for the claim loss on the other loan and (2) conduct its quality reviews in a timely manner and review all early defaulting loans as required by HUD regulations. (Audit Report: 2008-AT-1010) HUD OIG audited the Milford, CT, branch office of Countrywide Bank, FSB, a supervised national bank approved by HUD to originate, underwrite, and service FHA single-family insured loans. OIG expanded the audit to cover the Madison, CT, branch office, which used the same FHA identification number. OIG found that Countrywide's quality control plan and implementation were adequate. However, the lender did not fully comply with HUD regulations, procedures, and instructions in the origination of FHA-insured single-family mortgages. Specifically, Countrywide allowed some borrowers, using secondary financing from an agency acting as an instrumentality of government, to incorrectly receive cash back at closing in excess of their total cash deposit totaling nearly $6,000. It also did not properly notify HUD upon the sale and/or transfer of FHA-insured loans. OIG recommended that HUD require Countrywide to (1) pay down the principal for the five overinsured loans and implement controls to prevent cash back when secondary financing is used and (2) update its mortgages records in HUD's system to reflect the appropriate mortgage holder and implement procedures to ensure the timely submission of mortgage record changes for future loans assigned or sold. (Audit Report: 2008-BO-1007) Chapter 1: HUD’s Single-Family Housing Programs 13 HUD OIG audited the mortgage origination and business practices of First Magnus Financial Corporation's corporate office in Tucson, AZ, and found that First Magnus violated RESPA when it paid quality incentives, also known as volume-based incentives, to brokers for originating and processing FHA mortgages. As a result, it paid brokers nearly $59,000 in quality incentives to originate and process 169 FHA mortgages totaling more than $24 million. OIG recommended that HUD (1) require First Magnus to ensure that the practice of issuing incentive payments to brokers for originating and processing FHA mortgages is discontinued, (2) remove First Magnus' active status and approval to perform FHA business, and (3) pursue administrative actions against the principal owners and management of First Magnus for allowing the improper practice of issuing incentive payments to brokers for originating and processing FHA mortgages. (Audit Report: 2008-LA-1013) HUD OIG audited the mortgage origination and business practices of the First Magnus Financial Corporation corporate office in Tucson, AZ, and found that First Magnus violated RESPA when it paid for the referral of FHA mortgage business. As a result, it paid building and real estate companies more than $32,000 in marketing fees and noncompetition fees in exchange for the exclusive referral of 236 FHA-insured mortgages totaling more than $30 million. OIG recommended that HUD (1) require First Magnus, for any current or future FHA mortgage operations for which it may exercise management control, to ensure that the practice of paying marketing fees and noncompetition fees to real estate companies and builders for referrals of FHA mortgages is discontinued; (2) remove First Magnus' active status and approval to perform FHA business; and (3) pursue administrative actions against the principal owners and management of First Magnus for allowing the improper practice of paying marketing fees and noncompetition fees to real estate companies and builders in exchange for referrals of FHA mortgage business. (Audit Report: 2008-LA-1014) HUD OIG audited First National Bank of Gillette, WY, an FHA-approved direct endorsement lender, and found that First National Bank did not follow HUD regulations when originating and underwriting 18 FHA loans. In addition, it did not have a written quality control plan, and its third-party contractor, who performed the quality control reviews, did not perform all reviews in accordance with HUD requirements. OIG recommended that HUD require that First National Bank bring its procedures for the origination and underwriting of insured loans into full compliance with HUD regulations and to develop and implement a written quality control plan. (Audit Report: 2008-DE-1004) HUD OIG audited Wells Fargo Mortgage, Minneapolis, MN, and found that Wells Fargo generally complied with HUD's reverse mortgage requirements. However, 3 of the 47 loans reviewed did not meet HUD's requirements. Wells Fargo originated one ineligible loan totaling more than $86,000 for a home that was not the borrower's primary residence, one loan for nearly $149,000 for a home that the borrower no longer occupied, and one loan for which the list of required repairs was not detailed enough to determine requirements. In addition, for the loan to the borrower who no longer occupied the home, the borrower did not complete repairs in an acceptable manner. 14 Chapter 1: HUD’s Single-Family Housing Programs OIG recommended that HUD cancel the mortgage insurance on one loan, require Wells Fargo to complete foreclosure proceedings for one loan, and ensure that inspectors list repairs in sufficient detail to determine what repairs were required and ensure that the repairs are satisfactorily completed. (Audit Report: 2008-FW-1013) HUD OIG reviewed Senior Reverse Mortgage Services, Incorporated, Bedford, TX, a HECM originator. Generally, the originator complied with HUD regulations when it originated HECM loans. However, it could have improved its service by consistently following requirements to (1) adequately disclose the financial aspects of the loans to borrowers, (2) counsel the borrowers on other available financing options, and (3) complete documents. Because the originator did not consistently follow these procedures, borrowers may not have been fully aware of the financial implications of the loans. OIG recommended that HUD require the originator to implement procedures to ensure that it (1) provides at least two assumptions for at least two loan terms and two appreciation rates to borrowers, (2) provides a list of eligible counselors to the borrowers so that they can select their counselor, and (3) completes all loan documents. (Audit Report: 2008-FW-1010) HUD OIG reviewed the quality control program of James B. Nutter and Company, Kansas City, MO, and found that for 6 months in 2007 and 2008, J.B. Nutter did not meet HUD's or its own quality control requirements regarding the number of loans to review. OIG recommended that HUD ensure that J.B. Nutter follows HUD requirements regarding the minimum number of endorsed loans to be reviewed for quality control purposes. (Audit Report: 2008-KC-1005) Review of Government National Mortgage Association-Approved Issuer HUD OIG audited Doral Bank Puerto Rico, San Juan, PR, an approved issuer for the Government National Mortgage Association (Ginnie Mae), to determine whether Doral complied with Ginnie Mae requirements associated with its mortgage-backed securities activities. Doral did not fully comply with Ginnie Mae requirements because it maintained seven noninsured loans in Ginnie Mae pools. It also failed to ensure that data on its pooled loans were accurate. As a result, it retained defective loans with unpaid principal totaling more than $448,000 in its Ginnie Mae pools and reported inaccurate information to Ginnie Mae and HUD. OIG recommended that Ginnie Mae (1) require Doral to take corrective measures to ensure that the defective loans identified during the review are reinsured or removed from the Ginnie Mae pools and that the loans reflect complete and accurate mortgage information and (2) ensure that Doral establishes and implements adequate controls and procedures to periodically verify that all of its Ginnie Mae pooled loans are insured in accordance with Ginnie Mae requirements. (Audit Report: 2008-AT-1014) Chapter 1: HUD’s Single-Family Housing Programs 15 Investigations Some investigations discussed in this report were generated from leads provided by HUD single-family housing program staff or conducted jointly with Federal, State, and local law enforcement agencies. The results of various significant investigations are described below. Strategic Initiative 1: Contribute to the reduction of fraud in single-family insurance programs Key program results Cases closed $ recovered Convictions/pleas/ pretrials Admin/civil actions Investigations 99 $37,843,857 106 119 Page 17 Page 21 - Identity fraud and false Social Security numbers Page 22 - Civil and administrative actions Page 24 Our focus - Loan origination fraud - Other single-family fraud Chart 1.2: Percentage of OIG single-family housing closed investigation cases during this reporting period Region 1 2% Region 7-8 5% Region 5 17% Region 2 13% Region 3 26% Region 9-10 14% Region 4 9% Region 6 14% Region 11 (Disaster Relief Oversight) %(N/A)* * This does not include hurricane relief cases. See chapter 5 for these cases. 16 Chapter 1: HUD’s Single-Family Housing Programs Loan Origination Fraud Clifford Shaw, the owner of Shaw Properties, was sentenced in U.S. District Court, Jacksonville, FL, to 3 years incarceration (time served), 10 months home detention, and 3 years supervised release and ordered to pay restitution not yet determined and a $30,000 fine for his earlier guilty plea to making false statements to HUD and conspiracy to commit bank and wire fraud. Shaw purchased, rehabilitated, and resold HUD real estate-owned properties and provided fraudulent loan documents used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses in excess of $2.9 million after 87 mortgages defaulted. Gerald Carti, a former loan officer and an owner of US Mortgage Corporation; Amer Mir, a loan officer for United Home Mortgage Company; Frederick Ugwu, a controller for 253 East 33rd Street, LLC; and Renford Davis, a property manager for Renhops Management, LLC, were each arrested after their indictments in U.S. District Court, Newark, NJ, for allegedly committing wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering. In addition, Maurice Bethea, the owner of Blu Financial Group, Inc., Urban Upliftment, Born Asiatic, and Greenfield Assets Holdings, and real estate brokers Norma, Maristane, and Mara Silva each pled guilty to committing mail fraud or conspiracy to commit mail fraud. The above defendants and others allegedly inflated home values through bogus appraisals, fabricated borrower deposit amounts, and caused the falsification of loan documents used by unqualified borrowers to obtain FHA-insured and conventional mortgages. HUD realized losses of about $2.3 million after 30 mortgages defaulted. James Boyle, a former loan officer for RBC Mortgage; Marie Caltagerone, owner of Caltagerone Accounting; and Ray Talan, a former realtor for Remax Realty, were collectively sentenced in U.S. District Court, Rockford, IL, to 15 months incarceration, 8 months home confinement, and 11 years probation and ordered to pay HUD $145,289 and other lenders $84,905 in restitution for their earlier guilty pleas to committing conspiracy or mail fraud. Boyle, Caltagerone, Talan, and others created and provided fraudulent loan documents used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses in excess of $2 million after more than 50 mortgages defaulted. Trudy Peters, a former escrow officer for Ticor Title Company; John Soto and Larry Smith, former service representatives for Wells Fargo Home Mortgage; Maria Felix, a Sahara Investments employee; and Tony Vasquez, a HUD-certified housing counselor for Chicanos Por La Causa, were collectively sentenced in U.S. District Court, Phoenix, AZ, to 120 days home confinement and 15 years probation and fined $17,500 for their earlier guilty Copyright, 2008. Rockford Register Star - Rockford, IL. Reprinted with permission. Chapter 1: HUD’s Single-Family Housing Programs 17 pleas to submitting false statements to HUD. The above defendants and previously convicted Edward Carrillo, the owner of Sahara Investments, submitted fraudulent appraisals and housing counseling certifications and concealed mortgage loans encumbering properties sold through the HUD preforeclosure program. In addition, Wells Fargo Bank and Ticor Title Agency of Arizona each entered into civil settlements and agreed to collectively pay HUD and the U.S. Department of Justice more than $4.3 million. HUD realized losses in excess of $2.1 million after 70 fraudulent claims for FHA-insurance benefits were submitted and paid. LaDonna Mullins, the owner of LaDonna's Realty, and Linda Edwards, a real estate agent for Affable Realty, were each convicted in U.S. District Court, Denver, CO, of making false statements, providing false Social Security numbers (SSN), or committing wire fraud. In addition, Emmitt Cotton, a former loan officer for Mid-America Mortgage, Fast Trac Mortgage, and Mortgage Executives, was ordered to pay a $1,000 fine for his earlier guilty plea to making false statements to HUD and aiding and abetting. Mullins, Edwards, Cotton, and others submitted or caused the submission of fraudulent loan documents used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of about $1.25 million after 25 mortgages defaulted. Tracey Rangell, an assistant escrow officer for Benefit Escrow, was sentenced in U.S. District Court, Los Angeles, CA, to 6 months home detention and 36 months probation and ordered to pay HUD $972,162 in restitution for her earlier guilty plea to making false statements and conspiracy. Rangell and others provided fraudulent information and falcified downpayment funds used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses in excess of $972,162 after 21 mortgages defaulted. Wendy Barker, a Dallas County Community College computer instructor; Gloria Matlock and Latona Bates, former loan officers for Supreme Lending; and Marlena Plesa-Pfeffer, a former real estate agent for Compass Real Estate, were collectively sentenced in U.S. District Court, Dallas, TX, to 86 months incarceration and 9 years supervised release and ordered to pay HUD more than $1.3 million in restitution for their earlier guilty pleas to conspiracy to make false statements to a Federal agency. From March 2002 through September 2007, the above defendants and others electronically altered or created fraudulent income, employment, and other loan documents used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of $666,085 after 17 mortgages defaulted. 18 Copyright, 2008. The Denver Post - Denver, CO. Reprinted with permission. Chapter 1: HUD’s Single-Family Housing Programs Arvin Weiss, a real estate broker and president of Reserve Capital Funds (Reserve), was convicted in U.S. District Court, Denver, CO, of committing mail and wire fraud and witness tampering. In addition, Jesus Guevara, a real estate sales assistant for Reserve, pled guilty to committing mail and wire fraud and tampering with a witness. From June 1998 to February 2002, Weiss, Guevara, and others submitted fraudulent loan documents and provided downpayment funds used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of about $852,000 after 18 mortgages defaulted. David Paul, the president of DCP Investments Properties, LLC, and Diane Flannery, a former loan officer for Source Mortgage Company, each pled guilty in U.S. District Court, Reading, PA, to committing mail fraud and aiding and abetting. Paul provided fraudulent loan documents and downpayment funds used by unqualified borrowers to obtain FHA-insured mortgages, and Flannery originated FHA-insured mortgages for the unqualified borrowers knowing that Paul had provided the fraudulent loan documents and downpayment assistance. HUD realized losses of about $280,000 after six mortgages defaulted. Copyright, 2008. The Denver Post - Denver, CO. Reprinted with permission. Alberto Hernandez, the president of ASH Homes Investment Corporation, and his silent partner, John Fraga, were each indicted in U.S. District Court, Miami, FL, for allegedly making false statements and committing conspiracy and wire and mail fraud. Hernandez allegedly sold his properties and provided downpayment assistance or gift funds used by unqualified borrowers to obtain FHA-insured mortgages. Fraga and others allegedly converted the downpayment or gift funds provided by Hernandez into the financial instruments used by the unqualified borrowers. In addition, Fraga allegedly obtained an FHA-insured mortgage on a property that he purchased from Hernandez as an investment. HUD realized losses of $232,060 after four mortgages defaulted. FHA-insured mortgagor Heather Etuk pled guilty in Colorado District Court, Denver, CO, to committing forgery, and ABK Mortgage loan processor Jennifer Wolsey was sentenced to 8 years probation and ordered to perform 200 hours of community service for her earlier guilty plea to committing computer crimes involving mortgage fraud. In addition, Uto Essien, owner of Essien & Co. Realty, Ltd.; Scott Hinkley, a loan officer for ABK Mortgage; Etuk; Wolsey; and previously indicted FHA-insured mortgagor Idara Ekiko were each suspended from procurement and nonprocurement transactions with HUD and throughout the Executive Branch of the Federal Government pending the outcome of criminal proceedings or any related debarment actions. Essien, Hinkley, and Ekiko allegedly and Etuk and Wolsey admittedly provided fraudulent loan applications for themselves or other unqualified borrowers to obtain conventional and FHA-insured mortgages. HUD realized losses of $153,814 after three FHA-insured mortgages defaulted. Chapter 1: HUD’s Single-Family Housing Programs 19 Rene Ibarra, a real estate agent for Coldwell Banker, was sentenced in U.S. District Court, Los Angeles, CA, to 8 months home detention and 2 years probation and ordered to pay victims not yet identified $175,287 in restitution for his earlier guilty plea to making false statements and committing conspiracy. Ibarra and others provided fraudulent loan documents used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of $128,496 after three mortgages defaulted. Wander Colon was sentenced in U.S. District Court, Memphis, TN, to 1 year probation for his earlier guilty plea to making a false statement. Colon submitted fraudulent income and employment information to obtain an FHA-insured mortgage. HUD realized a loss of $100,000 after his mortgage defaulted. Felix Guzman, Sr., and Felix Guzman, Jr., former real estate agents for AVI Realty; Walter Guzman and Rodney Rhode, former loan officers for Dynasty Mortgage; Mary Vasquez, an escrow officer for Camelback Title; Andrew Benjamin and Christopher Pirwitz, the owner of and a loan officer for Family Home Lending; Carl Olson, the owner of Management Concepts; and home buyers Ana Valdez and Maria Guzman were each indicted in U.S. District Court, Phoenix, AZ, for allegedly committing wire fraud, conspiracy, money laundering, and aiding and abetting. The above defendants and others allegedly conspired and arranged 23 property sales at inflated values, obtained more than $2 million in kickbacks without lender knowledge, falsified HUD settlement statements, and violated RESPA. Copyright, 2008. The Arizona Republic - Phoenix, AZ. Reprinted with permission. Dan Cimino, Ursula Gallucci, and Lisa Planche, current or former notary publics, were each charged in Adams County District Court, Brighton, CO, with official misconduct by a notary public or false reporting to authorities. Cimino and Gallucci allegedly notarized FHA-insured loan documents without witnessing the borrower's signatures, and Planche allegedly provided authorities false information relating to documents she notarized. HUD realized a loss of $81,626 after one mortgage defaulted. 20 Chapter 1: HUD’s Single-Family Housing Programs Willie Brown was sentenced in U.S. District Court, Norfolk, VA, to 4 months home detention and 3 years probation and ordered to pay HUD $69,048 in restitution for his earlier guilty plea to committing mail fraud. Brown provided fraudulent information and loan documents used by an unqualified borrower to obtain an FHA-insured mortgage. HUD realized a loss of about $80,000 after the mortgage defaulted. FHA-insured mortgagor Leonel Miramontes Armendariz was sentenced in Adams County District Court, Brighton, CO, to 24 months probation for his earlier guilty plea to offering a false instrument for recording. Armendariz provided fraudulent loan documents to obtain and later defaulted on an FHA-insured mortgage. HUD realized a loss of $59,736 after his mortgage defaulted. Wayne Puff, the former owner of the now-defunct N.J. Affordable Homes (Affordable Homes), was arrested and charged in U.S. District Court, Newark, NJ, with an alleged conspiracy to commit mail fraud. In addition, Sydney Raposo, a former paralegal involved with real estate closings, pled guilty to making false statements to HUD. Puff and others allegedly and Raposo admittedly provided false information to lure investors or submitted fraudulent appraisals and other loan documents used by unqualified borrowers to obtain FHA-insured and conventional mortgages. HUD losses are not yet determined. Identity Fraud and False Social Security Numbers Sonia, Doris, and Sylvia Toledo, former loan officers for Building and Loan Mortgage Company, were collectively sentenced in Johnson County District Court, Olathe, KS, to 24 months incarceration (16 months suspended) and 60 months probation, fined $75,000, and ordered to surrender their mortgage broker or real estate licenses for their earlier guilty pleas to committing computer crimes or making false writings. From 2002 to 2005, the Toledos and others assisted undocumented immigrants who used false SSNs to obtain approximately $5 million in FHA-insured mortgages. HUD realized losses of $680,581 after 13 mortgages defaulted. Asifali Mahomed, a real estate broker formerly doing business as Luxor Real Estate Investment, was charged in U.S. District Court, Fort Worth, TX, with an alleged conspiracy to make false entries to HUD. Mahomed allegedly provided fraudulent SSNs, inflated financial information, and provided downpayment funds used by unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses of $412,083 after 12 mortgages defaulted. Straw buyers John Prados and Caridad Paz each pled guilty in U.S. District Court, Newark, NJ, to conspiracy to defraud HUD and using a false SSN to obtain an FHA-insured loan. Prados, Paz, and others used or supplied fraudulent employment, identity, and other loan documents for themselves or other unqualified borrowers to obtain FHA-insured mortgages. HUD realized losses in excess of $349,000 after 12 mortgages defaulted. Chapter 1: HUD’s Single-Family Housing Programs 21 Seven FHA-insured borrowers were each indicted in Dallas County District Court, Dallas, TX, for allegedly securing execution of documents by deception. In addition, Alfredo and Judith De La Garza, Pascual Melendez Perez, and Salvador Fuerte were each sentenced to 2 years probation and collectively fined $2,490 for their earlier guilty pleas to securing execution of documents by deception. The seven defendants allegedly and the remaining defendants admittedly used false SSNs and fraudulent loan documents to obtain and later defaulted on FHA-insured mortgages. HUD realized losses of $217,281 after eight mortgages defaulted. Derrick and Sheila Lewis were each indicted in Suffolk Circuit Court, Suffolk, VA, for allegedly committing identity fraud and obtaining money by false pretenses. Derrick and Sheila Lewis allegedly used false identifications and financial documents to obtain and later defaulted on an FHA-insured mortgage. HUD losses are not yet determined. Michael Banks, Jr., also known as Richard Jones, an investor doing business as RJ Construction, was indicted in U.S. District Court, Los Angeles, CA, for allegedly committing bank fraud and aiding and abetting. Banks allegedly used a false identification when he purchased and fraudulently resold HUD-owned properties. Civil and Administrative Actions National City Mortgage, Inc. (National), a HUD direct endorsement lender, entered into a civil settlement filed in U.S. District Court, Detroit, MI, and agreed to pay HUD $4.6 million. From May 2002 through April 2004, National violated FHA regulations when it allegedly endorsed and submitted FHA-insured mortgages for insurance benefits after the loans became delinquent. HUD realized losses in excess of $2.1 million after 58 mortgages defaulted. Dynamic Financial Consultants, Inc. (Dynamic Financial), located in Newark, NJ, entered into a PFCRA settlement and agreed to pay HUD $25,000. Dynamic Financial allegedly certified FHA-insured loan packages that contained false documents and submitted false claims for FHA-insurance benefits after the borrowers defaulted. HUD realized losses in excess of $1.8 million after 39 mortgages defaulted. Andy Pena, an owner of Crossmark Mortgage located in Los Angeles, CA, entered into a PFCRA settlement and agreed to pay HUD $32,500. Pena, previously sentenced for his ear