HUD’s Operation Watchdog Turns Up More Direct Endorser Deficiencies

Written by John Clapp
on September 14, 2010 No Comments
Categories : Residential Mortgage

All but one of the 20 loans underwrittern by Federal Housing Administration (FHA) direct endorser Alethes LLC and reviewed by the Department of Housing and Urban Development's Office of Inspector General (OIG) failed to meet FHA standards, according to the OIG.

The OIG audited Lakeway, Texas-based Alethes as part of Operation Watchdog, an initiative to review the underwriting of 15 direct-endorsement lenders with especially high claim rates against the FHA insurance fund for failed loans.

As a result of Alethes' underwriting, the FHA insurance fund suffered actual losses of more than $1 million, the OIG says.

Alethes failed to meet FHA requirements in several areas. For instance, the lender included unsupported income in calculating borrowers' income, did not properly address borrowers' financial obligations and underwrote loans with excessive debt-to-income ratios. Eighteen of the 20 loans were made to borrowers whose credit histories were not properly reviewed.

The more than $1 million in losses to HUD could result in affirmative civil enforcement action of roughly $2.26 million, the OIG says. The OIG is recommending that HUD take administrative action against Alethes and/or its principals for the material underwriting deficiencies cited in the report.

Last week, the OIG determined that Connecticut-based Webster Bank, another direct endorser named in Operation Watchdog, failed to properly underwrite six of 20 loans reviewed by the OIG.

SOURCE: HUD's Office of the Inspector General

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