Economic Development:

New-Home Buyers and Federal Agencies Benefit From Improved Warranty Protection

CED-81-40: Published: May 26, 1981. Publicly Released: May 26, 1981.

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GAO reviewed the private and State warranty programs that were developed to protect home buyers from construction defects in new houses. The review was made to assess the growth of these warranty programs and the protection that they provided through federally assisted housing programs.

Until recently, new-home buyer's protection from construction defects was limited to that described in the purchase contract. This has generally been replaced with warranties that define the builder's responsibility to correct construction defects. However, enforcing these warranties is difficult when builders refuse to or cannot make repairs. To help alleviate this problem, the insured warranty concept was developed. These new warranties: (1) protect the home buyer during the builder warranty period if the builder cannot or will not stand behind the warranty; (2) provide 10-year insurance against certain major stuctural defects; and (3) include an inexpensive and independent process to settle claims. Federal agencies have taken initial steps to use insured warranties in their housing programs. Several benefits are derived from using insured warranties on federally assisted houses, including: (1) furthering the desire to encourage improved home warranty protection; (2) providing home buyers with improved warranty protection; (3) reducing Federal expenses for correcting structural defects; and (4) reducing Federal construction inspections.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretaries of the Departments of Housing and Urban Development and Agriculture and the Administrator of Veterans Affairs should revise the builder's warranty and structural defect compensation programs to meet the disclosure requirements of the Magnuson-Moss Warranty Act by clearly describing the defects covered and the procedures used to settle claims. The availability to home buyers of Federal structural defect compensation programs should also be clearly disclosed.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretaries of the Departments of Housing and Urban Development and Agriculture and the Administrator of Veterans Affairs should revise the builder's warranty and structural defect compensation programs to meet the disclosure requirements of the Magnuson-Moss Warranty Act by clearly describing the defects covered and the procedures used to settle claims. The availability to home buyers of Federal structural defect compensation programs should also be clearly disclosed.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretaries of the Departments of Housing and Urban Development and Agriculture and the Administrator of Veterans Affairs should revise the builder's warranty and structural defect compensation programs to meet the disclosure requirements of the Magnuson-Moss Warranty Act by clearly describing the defects covered and the procedures used to settle claims. The availability to home buyers of Federal structural defect compensation programs should also be clearly disclosed.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretaries of the Departments of Housing and Urban Development and Agriculture and the Administrator of Veterans Affairs should revise the builder's warranty and structural defect compensation programs to meet the disclosure requirements of the Magnuson-Moss Warranty Act by clearly describing the defects covered and the procedures used to settle claims. The availability to home buyers of Federal structural defect compensation programs should also be clearly disclosed.

    Agency Affected: Department of Agriculture

 

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