The Need for HUD to More Fairly Treat Homeowner Claims for Defects in Existing Insured Homes

The Department of Housing and Urban Development (HUD) needs to treat more fairly homeowner claims for defects in existing insured homes. GAO review of the HUD Chicago area office Section 518(b) program revealed many claims processing problems. From April 1975 through January 1977, the Chicago office received 17 percent of the 77,000 claims received nationwide under the Section 518(b) program. About 19 percent of those claims passed eligibility and validity tests and were accepted for reimbursement. Because HUD uses vague criteria to identify eligible defects and determine that the defect existed at the time of insurance commitment, Chicago area personnel have had to use considerable discretion in evaluating claims. As a result, homeowners filing claims have not been treated consistently in a fair and equitable manner. The Chicago office has not followed prescribed procedures in reimbursing homeowners for the costs incurred in correcting section 518(b) defects. An examination of 54 claims that had been paid showed that the amounts paid in 39 percent of the cases were incorrect. Most errors were underpayments.