[Update 1: Includes a statement from loanDepot]
The Office of Inspector General of the U.S. Department of Housing and Urban Development found after a recent audit that loanDepot’s FHA-insured loans with down payment assistance gift funds and secondary financing did not always comply with HUD requirements.
The HUD-OIG audited loanDepot based on a referral from HUD’s Quality Assurance Division detailing a separate lender that originated Federal Housing Administration-insured loans containing ineligible down payment assistance gifts.
It selected loanDepot due to its high volume of loans with down payment assistance funds.
The audit found that loanDepot’s FHA-insured loans with down payment assistance gift funds and secondary financing did not always comply with HUD requirements.
As a result, it put the FHA insurance fund at unnecessary risk, including potential losses of $4.7 million for 53 loans with ineligible assistance and $29.9 million for a projected 339 loans that likely contained ineligible assistance.
This is equivalent to at least $25.4 million in potential losses for loans that could contain ineligible assistance and have a higher risk of loss in the first year.
Additionally, the HUD-OIG said loanDepot inappropriately charged borrowers $25,700 in fees that were not customary or reasonable and $46,510 in discount fees that did not represent the purpose of the fee.
Due to the audit, the HUD-OID recommends HUD determine legal sufficiency to pursue civil and administrative remedies against loanDepot for incorrectly certifying that mortgages were eligible for FHA mortgage insurance.
The report also says HUD should require loanDepot to:
- Stop originating FHA loans with the ineligible assistance.
- Indemnify HUD for the 53 loans with ineligible assistance.
- Indemnify HUD for loans that likely contain ineligible assistance.
- Reimburse borrowers for $25,700 in fees that were not customary or reasonable and $ 46,510 in discount fees that did not represent the purpose of the fee.
- Reduce the interest rate for borrowers who received ineligible assistance.
- Reimburse borrowers for overpaid interest as a result of the premium interest rate.
- Update all internal control checklists to include specific HUD requirements on gifts, secondary financing, premium rates, and allowable fees.
"We disagree with the report’s conclusions and believe the loans referenced in the reports complied with HUD regulations and guidance regarding DPA programs. We believe that HUD-OIG’s position is at odds with the opinion and guidance of HUD itself on this matter. We look forward to the resolution of their disagreement and expect it will be resolved favorably with regards to the loans referenced in the report. Down payment assistance programs make homeownership available for responsible borrowers every year, and we are proud of our participation in DPA programs," loanDepot said in a statement.