Evergreen Home Loans has been tagged by the Department of Housing and Urban Development Office of Inspector General for allowing restrictive covenants in down-payment assistance loans.
The Bellevue, Wash.-based lender has allowed the City of Las Vegas to include covenants in second mortgages requiring the repayment of the down-payment assistance provided by the city.
The 14 borrowers received down-payment assistance ranging from $7,500 to $25,000, according to the audit released this month.
However, the borrowers are required to repay the down-payment assistance if they sell, transfer or lease the property within a certain time frame.
This repayment practice "violated HUD regulations," the HUD IG says in the audit report. "This condition occurred because Evergreen did not have procedures to identify unallowable restrictive covenants and underwriters did not always exercise sound judgment and due diligence when underwriting FHA loans," according to the Sept. 13 audit report.
The OIG recommends that Evergreen work with the Federal Housing Administration to nullify the conveyance restrictions or indemnify FHA against possible future loan losses of $867,134.
Evergreen Home Loans did not respond to requests for comment.
HUD IG David Montoya has been highly critical of DPA programs. And his agency has stepped up audits of FHA lenders that offer down-payment assistance.
