U.S. Bank (USB), the nation's eighth largest mortgage lender, agreed to pay the Department of Housing and Urban Development $1.2 million to settle questionable mortgage claims. A 2006 audit by HUD's Office of Inspector General found U.S. Bank allegedly failed to meet Federal Housing Administration underwriting standards with 27 mortgages written between 2003 and 2004. HUD said it lost $465,000 in relation to these loans, though U.S. Bank did not admit any liability in the settlement. The FHA prohibits the inclusion of overdue principal, interest and late charges on refinancings. But the audit found U.S. Bank refinanced loans that included these amounts. Other violations include U.S. Bank submitting defaulted loans for late FHA endorsement. Another report issued by the HUD Inspector General in March raised concern over systemic problems with FHA underwriting and questioned the department's ability to recover up to $11 million in losses to the insurance fund. "FHA’s underwriting and endorsement standards exist to protect its insurance fund and every family hoping to sustain homeownership,” said HUD General Counsel Helen Kanovsky. "We expect our lenders to uphold those standards and we will hold them accountable when they don't." U.S. Bank did not immediately reply to a request for comment. Write to Jon Prior. Follow him on Twitter @JonAPrior.