Miami-based Nationwide Home Loans Inc. should be prepared to repay some $5 million to the Federal Housing Administration because the lender’s sloppy underwriting led to a high default rate for FHA-insured loans, including some that were not eligible for insurance, an inspector general’s audit found.
Nationwide improperly used 16 loan officers – who had a conflict of interest because of other mortgage lending and processing work – to approve 41 loans, the watchdog report said. The lender also failed to follow HUD requirements when underwriting loans for FHA insurance.
“It used inaccurate and unsupported information to qualify borrowers for 5 out of 6 FHA loans reviewed,” the report said, which put the FHA insurance fund at risk for about $1 million.
The Housing and Urban Development Department should require Nationwide to indemnify HUD for about $5.2 million for 46 loans that were ineligible for FHA insurance, the inspector general said. That amount reflects HUD’s estimated loss of 60 percent of the unpaid principal balance of $8.6 million from the loans as of August 31.
Nationwide should also be referred to HUD’s Mortgagee Review Board for possible civil penalties, the watchdog said. The board has broad powers, including the ability to kick a lender out of the FHA program.
The report also included a letter from the president of Nationwide, who said he acquired the company one year ago and had no knowledge of the loan practices which occurred between January and July 2009.
FAST FACT: Nationwide’s loan default rates were 23 percent, more than twice the average in Miami for HUD loans. The high rate meant over $10.8 million in Nationwide’s mortgage loans defaulted.
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