HUD Should Strengthen Mortgagee Monitoring To Reduce Losses

CED-81-108: Published: Jun 9, 1981. Publicly Released: Jul 9, 1981.

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Mortgagees approved by the Department of Housing and Urban Development (HUD) are responsible for originating and servicing HUD-insured, single-family loans. If a mortgagee fails to adequately assess a prospective home buyer's ability to repay a loan or fails to provide proper servicing of that loan, then defaults, foreclosures, and substantial losses to the Federal Government can occur. HUD primarily monitors this program through its Office of Mortgagee Activities. If mortgagees violate HUD requirements in connection with their HUD-insured lending activities, HUD can impose sanctions against them through its Mortgage Review Board.

The HUD system for reviewing mortgage lenders participating in HUD-insured loan programs needs revised review goal-setting techniques, strict compliance with existing procedures, more effective review coverage, and a stronger commitment to quality control of mortgagee reviews. Improved loan origination and servicing would reduce foreclosures and the Federal Government's losses. HUD is, at times, selecting for review mortgagees which have originated small numbers of HUD-insured loans while more active mortgagees are not reviewed as often. Mortgagees experiencing high foreclosure rates are often not selected for review. This practice is an ineffective use of limited resources, contributes to inadequate review coverage, and limits opportunities to correct loan origination problems. Mortgagee review coverage is hindered, in part, by limited resources. Although HUD criteria for selecting mortgagees for servicing reviews are sound, they are often not followed. Seven of 11 area offices visited could not accurately account for all mortgagee servicing loans in their jurisdictions. The quality of the reviews is hindered by the loan specialists' not spending sufficient time on reviews, inexperienced staff, and low priority given reviews by some area offices.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HUD should require the Office of Mortgagee Activities to play a stronger role in the quality control of mortgagee reviews by requiring more timely reporting of review findings to mortgagees, more followup reviews on prior mortgagee deficiencies, and the use of coordinated reviews to monitor the largest mortgagees or those active in HUD-insured programs nationwide.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HUD should direct the Office of Mortgagee Activities (OMA) and all HUD area offices to follow existing HUD procedures on selecting mortgagees for origination and servicing reviews and require that area offices submit to OMA, in advance, the required quarterly mortgagee review itineraries and document reasons why mortgagees were selected for servicing reviews.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HUD should revise the methods the Office of Mortgagee Activities and HUD regional offices use to set area office mortgagee-servicing review goals to ensure that factors such as the number of mortgagees and their total HUD-insured loan portfolio, other area office workload priorities, and review staff availability and experience levels are considered.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HUD should reassess how mortgagee reviews can be conducted most effectively to cover active mortgagees and evaluate alternative ways to provide necessary review coverage.

    Agency Affected: Department of Housing and Urban Development

 

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