Title: US Bank NA, Supervised Lender; Minneapolis, Minnesota; Did Not Always Comply with HUD's Requirements Regarding Late Requests for Endorsement and Underwriting of Loan

The U.S. Department of Housing and Urban Development's Office of Inspector General audited US Bank NA (US Bank), a supervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single family direct endorsement program. The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected US Bank for audit because of its high late endorsement rate. Our objectives were to determine whether US Bank complied with HUD's regulations, procedures, and instructions in the submission of insurance endorsement requests and underwriting of Federal Housing Administration loans.

US Bank did not always comply with HUD's requirements regarding late requests for insurance endorsement. It improperly submitted 67 (1.52 percent) late requests for endorsement out of 4,406 loans tested. The loans were either delinquent or otherwise did not meet HUD's requirements of six monthly consecutive timely payments after delinquency but before submission to HUD. US Bank also incorrectly certified that both the mortgage and escrow accounts for six loans and the escrow accounts for taxes, hazard insurance, and mortgage insurance premiums for 14 loans were current when they were not.

Further, US Bank inappropriately underwrote 13 Federal Housing Administration loans out of 28 loans reviewed and which went to claim. It included unallowable amounts (overdue principal, interest, and late charges) when determining the debt for six streamline refinanced loans and therefore these loans exceeded HUD's maximum insurable limits by $6,910; approved seven purchase loans when required documentation was missing, out of date, or not adequate to support the income of the borrowers; and understated the borrowers' expenses for three loans. For the 13 loans' certifications reviewed, US Bank incorrectly certified the integrity of the data supplied by other lenders used to determine the quality and insurance eligibility of one loan, and that due diligence was used in underwriting the remaining 12 loans even though it was not.

These improperly submitted and inappropriately underwritten loans increased the risk to HUD's Federal Housing Administration insurance fund.

We recommend that HUD's assistant secretary for housing-federal housing commissioner require US Bank to indemnify HUD for any future losses on 14 loans (12 active loans with certifications which violated the Program Fraud Civil Remedies Act and 2 active loans which violated HUD's Mortgagee Letter 2005-23) with a total mortgage value of more than $1.5 million, reimburse HUD nearly $455,000 for the actual losses it incurred on 14 loans (three improperly submitted and 11 inappropriately underwritten) and for any future losses from more than $129,000 in claims paid on three loans (two improperly submitted and one inappropriately underwritten) once the properties are sold, and implement adequate procedures and controls to address the deficiencies cited in this report. We also recommend that HUD's assistant secretary for housing-federal housing commissioner take appropriate action against US Bank for violating the requirements in effect at the time when it submitted 18 loans with a mortgage value of more than $2 million without the proper six month payment histories.

In addition, we recommend that HUD's associate general counsel for program enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against US Bank and/or its principals for the incorrect certifications cited in this audit report.

Date Issued: September 16, 2004
Memorandum Report No. 2004-CH-1804
File Size: 153.6KB

Title: Legacy Management and Development Corporation, Multifamily Equity Skimming, Edina, Minnesota

HUD's Office of Inspector General reviewed the books and records of Legacy Management and Development Corporation. We performed the review to determine whether Legacy Management used Projects' funds in compliance with the Regulatory Agreements and HUD's requirements. Legacy Management inappropriately used $305,038 from or six Projects under its management. The inappropriate payments included $70,239 in double-billings, $34,412 in over-charges, $2,778 for work claimed while employees were absent, and $197,609 in charges for maintenance tasks that were not itemized. The inappropriate payments occurred while most Projects were in a non-surplus cash position, and consequently, was no longer available for the operation and repair of the Projects.

We recommend that HUD's Director of Multifamily Housing Hub, Minneapolis Field Office, ensure Legacy Management and Development Corporation reimburses HUD $305,038 for the inappropriate payments cited in this audit memorandum. We recommend that HUD's Director of Multifamily Housing Hub in conjunction with HUD's Office of Inspector General pursue a double damages remedy if Legacy Management does not reimburse HUD for the inappropriate payments cited in this audit memorandum.

We also recommend that HUD's Director of Departmental Enforcement Center: pursues administrative sanctions against Legacy Management for the inappropriate payments cited in this audit memorandum; and imposes civil money penalties against Legacy Management for the inappropriate payments cited in this memorandum while the Projects were in a non-surplus cash position.

Date Issued: April 14, 2004
Audit Report No.: 2004-CH-1003
File Size: 1.77MB

Title: Minneapolis Public Housing Authority Supplemental Police Services
Minneapolis, Minnesota

HUD's Office of Inspector General completed an audit of the Minneapolis Public Housing Authority's supplemental police services. We initiated the audit based on a citizen complaint to our Office. The complainant alleged that the Authority did not conduct its procurement of supplemental police services through full and open competition. Our audit objectives were to determine whether the complainant's allegation was substantiated and HUD's rules and regulations were followed. Our specific objectives were to evaluate the effectiveness of the Authority's procedures and controls over contract awards, contractor performance, and contract payments-with the focus on supplemental police services contracts. Throughout the report we use the term supplemental police services to describe private security guard services, police services contracted directly between the Authority and the Minneapolis Police Department, and services provided by off-duty police officers, procured by the Authority for the safety and security of tenants residing in their housing units.

Supplemental police services contracts were generally awarded through full and open competition, but contracts were not always executed or renewed on time. Improvements were also needed in the administration of supplemental police services and controls over contractor payments. During our audit, we determined that the Authority failed to: (1) adequately support $1,119,274 paid to off-duty police officers; (2) consistently follow Federal requirements and its procurement policies in the administration of supplemental police services contracts; and (3) consistently implement effective controls to prevent overpayments of $268,349 that included overpaid sales taxes ($260,923) and duplicate invoices ($7,426).

Date Issued: January 3, 2003
Audit Memorandum No.: 2003-CH-1007
File Size: 6720KB

Title: City of Minneapolis Empowerment Zone Program Minneapolis, Minnesota

The United States House of Representatives' Conference Report 107-272 directed HUD's Office of Inspector General to review the use of Empowerment Zone funds and to report our findings to the Senate Appropriations Committee. The United States Senate's Report 107-43 also requested us to review the use of Zone funds and report our audit results to Congress.

We concluded that the City did not accurately report the accomplishments of its Empowerment Zone Program to HUD and needs to improve its oversight of Empowerment Zone funds. Specifically, the accomplishments of the City's Empowerment Zone projects were inaccurately reported to HUD and the City inappropriately used $9,705 of Empowerment Zone funds to pay expenses not related to its Near North Planning and Development project. We also found that the City used Empowerment Zone monies to fund seven projects that have not provided benefits to Empowerment Zone residents or benefited only 3 to 38 percent of Zone residents as of June 2002. Five of the seven projects are scheduled for completion between December 2003 and December 2011, and the remaining two projects were completed between December 2001 and July 2002.

We recommend that HUD's Director of Renewal Communities/Empowerment Zones/Enterprise Communities Initiative assure that the City of Minneapolis reimburses its Near North Planning and Development project from Empowerment Zone Administration funds for the inappropriate use of Zone funds and implements controls to correct the weaknesses cited in this report.

Date Issued: September 24, 2002
Audit Memorandum No.: 2002-CH1803
File Size: 142KB

Title: Congressionally Requested Audit of Section 514 Outreach and Training Assistance Grant Awarded to HOME Line; Minneapolis, Minnesota Grant Number FFOT00044MN

We completed an audit of HOME Line's Section 514 Outreach and Training Assistance Grant awarded under the Multifamily Assisted Housing Reform and Affordability Act of 1997. The objectives of the audit were to determine whether HOME Line had: management controls in place to ensure that Section 514 Grant funds were used for eligible activities; and expended the Grant funds for any lobbying activities. We found no material reportable conditions based upon our audit objectives. HOME Line properly managed the Outreach and Training Assistance Grant and assured that Grant funds were generally used for eligible purposes. HOME Line had adequate controls in place to preclude paying lobbying expenses with Grant monies. An in-house system was developed by HOME Line to track employees' time spent on each activity, including lobbying. Home Line set up its accounting system to identify each grant with an account number, thus enabling reports detailing how funds were spent.

Date Issued: September 15, 1998
Audit Related Memorandum 98-CH-211-1811
File Size: 18KB

Title: SB Multifamily Fund 10 Limited Partnership Multifamily Equity Skimming Chaska, Minnesota

We concluded that Project funds were improperly used to make loans to related entities and to repay owner advances. With the concurrence of the Acting Director, Multi-Family Housing program, on August 3, 1998, the Assistant U.S. Attorney completed a settlement with SB Multifamily Fund 10 Limited Partnership. To achieve a fair and equitable settlement amount, the Assistant U.S. Attorney gave consideration to amounts that the Project Owner had previously paid to the co-insuring mortgage company pursuant to a lawsuit filed for violations of the Regulatory Agreement. Under the August 3, 1998 settlement agreement, the Project Owner paid $42,000 to HUD.