Recommendations

Update its QC plan and related processes and procedures to align with requirements for loan selection, including documenting how loan selections were determined.

Update its QC plan and related processes and procedures to align with requirements for (1) loan file reviews, including requirements to reverify borrower information, obtain appraisal field reviews, and complete reviews in a timely manner; (2) assessment of findings; (3) reporting findings internally and documenting response to findings; (4) mitigation of findings; and (5) reporting findings to HUD when required.

Provide annual training to its staff and management on HUD requirements for lender QC programs and provide proof of training to HUD.

Review the 101 EPD loans not previously selected for review and submit the results to HUD, including any findings of fraud, material misrepresentations, or other material findings that it is unable to mitigate. If required, Neighborhood Loans should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Review its QC files for up to the 432 loans with post-closing reviews in which it may not have performed complete reverifications of borrower information and reverify information where appropriate. Neighborhood Loans should then evaluate the risk of any new findings identified, and if required, it should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Evaluate its QC files for the 59 loans with EPD reviews in which it did not assess the risk of findings identified to confirm whether it self-reported to HUD all findings of fraud or material misrepresentation, along with any other material findings that its records did not show had been acceptably mitigated. If required, Neighborhood Loans should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Evaluate its QC files for the 96 loans in which it identified material findings to confirm whether it self-reported to HUD all findings of fraud or material misrepresentation, along with any other material findings that its records did not show have been acceptably mitigated. If required, Neighborhood Loans should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Provide indemnification agreements or documentation to support the one loan in which it missed material deficiencies and the three loans in which it identified material misrepresentations or other material findings that it did not acceptably mitigate or self-report to HUD. Implementation of this recommendation will protect the FHA insurance fund from an estimated loss of $339,186.