Maryland Audit Reports
Issue Date: August 27, 2007
Title: The State of Maryland Did Not Always Administer Its Homeownership Assistance Program in Accordance with Federal Regulations and Written Agreements
We audited the State of Maryland�s (State) HOME Investment Partnerships program (HOME) as part of our annual audit plan. Our audit objective was to determine whether the State administered its HOME-assisted single-family homeownership assistance program in accordance with federal regulations.
The State did not always administer its HOME-assisted single-family homeownership assistance program in accordance with federal regulations and written agreements. We found no violations of conflict-of-interest and modest home provisions, and the State adequately enforced the recapture provisions by securing liens against the assisted properties through deeds of trusts. However, the State did not have adequate internal controls to effectively monitor its subrecipients� administration of the program. Specifically, the State did not adequately monitor its subrecipients� performance to ensure that (1) records to support property standard compliance were maintained, (2) hazard insurance requirements were enforced, and (3) income eligibility was properly determined. These noncompliance deficiencies occurred because the State did not have the staffing capabilities to adequately monitor its program. As a result, it awarded $73,000 in unsupported HOME funds.
We recommend that the director of HUD�s Office of Community Planning and Development, Baltimore Field Office, require the State to submit all supporting documentation to HUD to support the $73,000 in HOME funds awarded. Any amounts determined to be ineligible should be repaid from nonfederal funds. Also, we recommend that the State establish and implement written monitoring policies to ensure adequate monitoring of its subrecipients� compliance with all federal requirements and written agreements to include periodic in-house reviews and on-site monitoring of its subrecipients.
Issue Date: August 14, 2007
Title: The Housing Commission of Anne Arundel County, Glen Burnie, Maryland, Did Not Always Operate Its Housing Choice Voucher Program in Accordance with Federal Regulations
We audited the Housing Commission of Anne Arundel County�s (Commission) housing choice voucher program (program) as part of our fiscal year 2007 audit plan. Our objective was to determine whether the Commission operated its program in accordance with HUD requirements and regulations. The Commission did not always operate its program in accordance with HUD requirements and regulations. It did not always ensure that its housing choice voucher housing stock met housing quality standards. Of the 61 housing choice voucher units statistically selected for inspection, 35 did not meet HUD�s housing quality standards and 30 had 117 material violations that existed on or before the Commission�s previous inspections.
The Commission paid housing assistance of $116,522 for the 30 units with material violations. We estimated that over the next year, HUD will pay more than $2.1 million in housing assistance payments for units with material housing quality standards violations. The Commission also did not always properly perform rent reasonableness determinations for units it owned and, therefore, could not support housing assistance payments of $733,354. Lastly, the Commission did not properly administer its family self-sufficiency program and as a result, did not ensure that $215,293, which it paid to program participants, was proper.
We recommend that the director of HUD�s Baltimore Public Housing Program Hub require the Commission to reimburse its program from nonfederal funds for the improper use of $116,522 paid for 30 units with 117 material violations of housing quality standards, provide documentation or reimburse its program $733,354 from nonfederal funds for unsupported housing assistance payments, and $215,293 for improper escrow payments made to participants of the family self-sufficiency program. We also recommend that the director of HUD�s Baltimore Public Housing Program Hub require the Commission to ensure that program housing units inspected during the audit are repaired to meet HUD�s housing quality standards, and implement adequate procedures and controls to ensure that program units meet housing quality standards to prevent an estimated $2.1 million from being spent on units with material housing quality standards violations.
Date: December 20, 2006
Title: The City of Baltimore, Baltimore, Maryland, Generally Administered Uses of Block Grant Funds Reviewed in Accordance with Applicable Requirements
We audited the City of Baltimore�s (City) Community Development Block Grant (Block Grant) program as part of our annual audit plan. The purpose of the audit was to determine whether the City properly administered certain uses of its Block Grant funds. We wanted to determine whether the City implemented adequate procedures to oversee four of its subrecipients and whether the City�s internal Code Enforcement Division had a reasonable method for determining and recording staff costs related to its Block Grant program.
The City generally administered the particular uses of the Block Grant funds reviewed in accordance with applicable requirements. It generally implemented adequate procedures to oversee the four subrecipients reviewed. In addition, the City�s internal Code Enforcement Division ensured that staff costs related to the Block Grant program were reasonably determined and recorded. Further, the City as a whole had a reasonable method for determining and recording indirect costs associated with its Block Grant program. However, we identified minor deficiencies associated with the City�s tools for measuring subrecipients� accomplishments and with one subrecipient�s manual method of tracking some of its services provided, which we found susceptible to human error.
We do not recommend corrective action because the U.S. Department of Housing and Urban Development�s (HUD�s) Baltimore Office of Community Planning and Development, in a prior review of the City, noted the same deficiencies we identified and is currently working with the City to rectify them. Also, at the time of our review, the subrecipient for which we noted the deficiency was in the process of implementing an automated system to improve tracking of the services it provides.
Date: March 23, 2006
Title: The Housing Authority of the City of Annapolis, Annapolis, MD, Did Not Adequately Administer Its Section 8 Waiting List
We audited the Housing Authority of the City of Annapolis� (Authority) Section 8 Housing Choice Voucher program as part of our fiscal year 2006 annual plan. Our audit objective was to determine whether the Authority adequately administered its Section 8 program according to U.S. Department of Housing and Urban Development (HUD) requirements.
We found that the Authority generally administered its Section 8 program according to HUD requirements but did not adequately administer its waiting list. It generally followed HUD procedures and provided reasonable housing assistance payments to eligible recipients. It also inspected housing units annually to ensure its Section 8 tenants were provided decent, safe, and sanitary housing. However, the Authority did not follow controls in its Section 8 administrative plan requiring it to update and purge its waiting list annually or maintain its Section 8 applications in a permanent file in the order in which the applicants applied for assistance. These controls were needed to ensure that families received assistance as quickly and efficiently as possible and to provide assurance that the Authority provided fair and consistent treatment of families. This occurred because the Authority needed to improve its management oversight and control of its waiting list.
We recommend that HUD require the Authority to provide adequate management oversight to ensure its Section 8 waiting list is updated and purged on an annual basis and its Section 8 applications are maintained in a permanent file in order of date and time of the application.
Issue Date: March 23, 2006
Audit Report No: 2006-PH-1008
File Size: 622.64
Title: 1st Preference Mortgage Corporation, York, PA, and Greenbelt, MD, Did Not Originate All Federal Housing Administration Loans in Accordance with HUD Requirements
We audited the York, Pennsylvania, and Greenbelt, Maryland, branch offices of 1st Preference Mortgage Corporation (1st Preference), a nonsupervised mortgage company approved to originate Federal Housing Administration single-family mortgage loans. We selected these branch offices because their average default rates were above the states� average default rates. Our audit objective was to determine whether 1st Preference acted in a prudent manner and complied with the U.S. Department of Housing and Urban Development�s (HUD) regulations, procedures, and instructions in the origination of Federal Housing Administration loans.
1st Preference�s York, Pennsylvania, and Greenbelt, Maryland, branch offices did not originate 38 percent of the Federal Housing Administration loans selected for review in accordance with HUD�s loan origination requirements. Of the 16 loans we selected to review, the branch offices did not fully comply with Federal Housing Administration requirements for six loans valued at $561,506. 1st Preference did not exercise due diligence in the review of assets and gifts obtained during the loan closing process. These deficiencies were caused by a lack of due professional care at the branch offices and contributed to an increased risk to the Federal Housing Administration insurance fund. In addition, 1st Preference did not complete timely quality control reviews or site reviews of its branch offices or document the review of loans that went into early default. These deficiencies occurred because 1st Preference did not have adequate internal controls in place to ensure the reviews were completed in a timely manner or that the reviews of the branch offices and defaulted loans were documented. As a result, 1st Preference did not identify or correct problems with the accuracy, validity, and completeness of its loan origination in a timely manner.
We recommend that the assistant secretary for housing � federal housing commissioner request 1st Preference to develop internal procedures to more closely monitor its origination and underwriting procedures. In addition, we recommend that 1st Preference strengthen its internal control procedures to ensure reviews are completed in a timely manner and reviews of the branch offices and defaulted loans are documented.
Issue Date: September 30, 2005
Title: Suburban Mortgage Associates, Inc., Bethesda, MD, Cost HUD $14 Million an Additional $26.2 Million at Risk
We audited specific HUD insured mortgages originated and serviced by Suburban Mortgage Associates, Incorporated, of Bethesda, MD. Our audit objective was to assess the performance of Suburban Mortgage in carrying out its origination and servicing functions through a review of Suburban Mortgage�s HUD-insured loans. We found significant irregularities in how Suburban Mortgage originated and serviced six HUD-insured loans to affiliated entities by failing to perform its fiduciary responsibilities. We identified four HUD-insured loans that Suburban Mortgage originated to identity-of-interest entities. Suburban Mortgage also originated a HUD-insured loan to a property that its executive vice president formerly owned. Additionally, Suburban Mortgage originated a HUD-insured loan to a property whose owners had other business ventures with its executive vice president. Appendix C delineates the relationships between these entities. As of January 24, 2005, three affiliated entities had defaulted on their loans. Suburban Mortgage requested assignment of the three defaulted loans to HUD. HUD paid Suburban Mortgage�s claim for two of the defaults. These two defaults caused HUD a combined net loss of $14 million. The third defaulted loan has an unpaid principal balance of $12.6 million. As of April 29, 2005, HUD notified Suburban Mortgage the claim for insurance was denied for this loan. The risk of loss on this defaulted loan and two other identity-of-interest loans could cause HUD to lose an additional $26.2 million. We also found that Suburban Mortgage�s servicing failures contributed to unnecessary interest and penalties of $229,673 from the late payment of real estate taxes.
We recommend that HUD: (1) require reimbursement of $229,673 for the unnecessary charges allowed by Suburban Mortgage, and (2) terminate the $26.2 million in HUD-insured loans to the remaining three identity-of-interest properties. In addition, we recommend that HUD take appropriate administrative sanctions against Suburban Mortgage and its principals for its failure to perform its mortgage-related fiduciary duties.
Issue Date: February 16, 2005
Title: Mortgagee Review of the Peoples National Bank Branch Office, Towson, MD, Determined That Peoples National Bank �s Loan Origination Process and Quality Control Plan Did Not Comply With HUD Regulations and Requirements
We audited the Towson branch of Peoples Mortgage Corporation (Peoples), a nonsupervised branch approved to originate Federal Housing Administration single family mortgage loans, because it had a high default rate. Our objectives were to determine whether Peoples complied with the U.S. Department of Housing and Urban Development�s (HUD) regulations, procedures, and instructions in the origination of Federal Housing Administration loans and whether Peoples� quality control plan, as implemented, met HUD requirements.
Peoples� Towson branch office did not originate all Federal Housing Administration loans in accordance with HUD�s loan origination requirements. Of the 26 loans we selected for review, the branch office did not fully comply with Federal Housing Administration requirements for 14 of the loans valued at $2,425,471. Peoples did not exercise due diligence in the review of assets and gifts or resolve signature, Social Security number, and employment inconsistencies. These deficiencies were caused by a lack of management oversight and contributed to an increased risk to the Federal Housing Administration Insurance Fund.
Further, Peoples� quality control plan and the corresponding contract for quality control reviews did not contain requirements to identify patterns of early defaults or to perform onsite reviews at branch locations. If Peoples had included these elements in its plan and contract, it would have discovered the deficiencies in the Towson office sooner. After bringing these matters to its attention, Peoples corrected its loan origination process and its quality assurance plan.
We recommend that the Assistant Secretary for Housing � Federal Housing Commissioner require Peoples to take immediate action to correct the branch operational deficiencies not in compliance with HUD branch requirements. We also recommend that HUD request indemnification from Peoples on 14 Federal Housing Administration loans valued at $2,369,959, which it issued contrary to HUD�s loan origination procedures.
Date: December 4, 2004
Title: Corrective Action Verification Review of the Housing Authority of Baltimore City, Baltimore, MD, Section 8 Certificate and Voucher Programs
In accordance with HUD Handbook 2000-06, REV- 3, we performed a Corrective Action Verification review of the actions the Housing Authority of Baltimore City (Authority) had taken to implement key recommendations cited in OIG Audit Report 2001-PH-1003, issued March 28, 2001. The original audit report contained 11 recommendations, of which we determined 5 were significant for our review. As of September 22, 2003, HUD determined the Authority had fully implemented final actions on all of our prior recommendations. Our overall objective was to determine whether the Authority implemented our key audit recommendations and corrected the deficiencies we identified in our previous audit report.
The Authority had not yet fully implemented all key OIG recommendations. This in part resulted because the severity of the problems in the Section 8 Program required more time to correct than the Authority had originally anticipated. The Authority was not able to make significant progress until early 2003, after it implemented its Section 8 management information system. This was more than 2 years from the date we issued our report. However, once the Authority was able to get its management information system operational, it satisfactorily completed a number of key recommendations that included developing and implementing a new management information system; maintaining an accurate up-to-date Housing Assistance Program register; increasing the level of supervision to provide better quality control oversight; and maintaining Section 8 rosters, employee training records, and staff assignments. We no longer believe administrative sanctions need to be imposed on the Authority.
However, the delays the Authority experienced in implementing its management information system adversely affected its ability to fully implement the other recommendations. Specifically, we found the Authority had not yet fully developed and implemented all the financial system controls necessary to ensure its books and records were maintained in accordance with HUD requirements, adequate procedures to improve its administration of its Section 8 Program, and procedures to fully budget and use its available Section 8 resources. Although HUD had closed these recommendations, we found the Authority was still developing and implementing appropriate processes to address and resolve these remaining issues.
Because of the Authority�s delay in fully implementing our recommendations, it was not able to effectively and efficiently manage its Section 8 Program to ensure it fully used its available Section 8 funding from HUD from 2001 through 2004. For example, for the 3-year period beginning in fiscal year 2001 and ending in fiscal year 2003, the Authority�s average annual budget utilization rate was only at the 80 percent level. Further, in fiscal year 2002, HUD recaptured $42 million of unused Section 8 funds, and since then, another $38 million of unused Section 8 funds has accrued in the Authority�s program reserve account. At the same time, the Authority had more than 15,000 individuals on its Section 8 waiting list. HUD expects a housing authority to use at least 95 percent of its available funding. We also found the Authority incurred $70,430 of ineligible costs.
Based on our review, we re-opened recommendations that addressed the Authority's need to improve its financial system controls and key components over its administration of the Section 8 Program. We also recommended HUD immediately recapture $25.1 million of the $38 million in the Authority�s reserve account and require the Authority to repay or reimburse the program for the $70,430 of ineligible expenses. However, based on the progress the Authority has made since April 2003, we concurred with HUD that it is no longer necessary to consider imposing administrative sanctions on the Authority.
Issue Date: September 10, 2004
Title: Mortgage America Bankers, LLC, a Non-Supervised Loan Correspondent, Kensington, Maryland
We completed a review of Mortgage America Bankers, LLC (Mortgage America), an FHA-approved non-supervised loan correspondent whose main office is located in Kensington, Maryland. The objectives of our audit were to determine whether Mortgage America complied with HUD mortgagee approval requirements; complied with HUD regulations, procedures, and instructions in originating FHA-insured loans selected for review; and Mortgage America�s quality control plan was developed and implemented according to HUD regulations.
We found that Mortgage America�s office operations did not comply with HUD/FHA mortgagee approval requirements, failed to justify loan overages and premium rate mortgages, and did not adequately develop and implement a quality control plan that meets HUD requirements. These deficiencies are a result of either Mortgage America�s disregard for or lack of knowledge of HUD/FHA mortgagee approval requirements. As a result, Mortgage America received $61,138 in ineligible fees and $27,718 in unsupported fees. In addition, it originated $2,983,501 in questioned loans.
We recommend Mortgage America to take immediate action to implement a quality control plan that meets all HUD requirements and correct its ongoing operational and loan origination deficiencies that do not comply with HUD/FHA loan correspondent approval requirements. We also recommend that HUD consider taking appropriate administrative action against Mortgage America for its continual failure to comply with HUD requirements.
Issue Date: June 29, 2004
Title: First Funding, Incorporated, a Non-Supervised Loan Correspondent
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