loanDepot Allegedly Used Ineligible DPA on FHA Loans

Oct. 01--A government watchdog has determined that loanDepot LLC improperly utilized downpayment assistance on residential loans that are insured by the government.

The Foothill Ranch, California-based company originated home loans insured by the Federal Housing Administration that utilized downpayment assistance.

But loanDepot is accused of not complying with the Department of Housing and Urban Development's downpayment assistance requirements for FHA-insured mortgages.

The findings were detailed in a pair of Sept. 30 reports from HUD's Office of Inspector General.

The OIG said it was prompted to conduct an audit of loanDepot by a referral from HUD's quality assurance division.

While the referral detailed a separate lender that originated FHA-insured mortgages using ineligible downpayment assistance gifts, the inspector general decided to audit loanDepot due to the high volume of FHA loans it originated that utilized such assistance.

"Our objective was to determine whether loanDepot originated FHA loans containing downpayment assistance gift funds and secondary financing in accordance with HUD FHA requirements," the OIG said.

The inspector general concluded that loanDepot's FHA originations with downpayment assistance gift funds and secondary financing did not always comply with HUD's requirements.

One of the reports indicated that 53 loans with ineligible assistance created potential losses to FHA of $4.7 million, and another 339 loans likely contained ineligible assistance with potential losses of $29.9 million.

"Looking forward one year, 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," the first report said.

The second report focused on loans with gifts from Golden State Finance Authority and found that these loans also didn't always comply with HUD requirements.

On the Golden State loans, the OIG identified 62 mortgages with ineligible gifts that could potentially cause $5.5 million in losses and another 178 loans that likely contained ineligible gifts with potentially $16.1 million in losses.

"Looking forward 1 year, this is equivalent to at least $16 million in potential losses for loans that would contain ineligible gifts and have a higher risk of loss in the first year," the second report stated.

loanDepot is accused in the first report of inappropriately charging 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 fees.

Another $13,726 in inappropriate fees were identified by the inspector general in the second report.

The OIG recommends that HUD determine legal sufficiency to pursue civil and administrative remedies against loanDepot for wrongly certifying loans were FHA-eligible.

It also recommends that HUD require that loanDepot stop originating loans with ineligible gifts or assistance, indemnify HUD on all the loans identified in the reports and reimburse borrowers for the fees listed in the reports.

In addition, the inspector general wants loanDepot to reduce the interest rate on loans where borrowers received ineligible gifts or assistance, reimburse borrowers for excess interest paid as a result of premium interest rates charged, and update its internal controls to ensure it is compliant with HUD's requirements.

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