Weaknesses in Servicing and Accounting for Home Mortgages Held by HUD
FGMSD-79-41: Published: Aug 16, 1979. Publicly Released: Aug 16, 1979.
- Full Report:
The number and value of mortgages held by the Department of Housing and Urban Development (HUD) increased from 8,103, valued at about $117 million in 1977, to 10,022 valued at over $151 million in 1979. HUD did not have adequate plans for such a sizable workload increase, and consequently, the program has been hampered by accounting and mortgage servicing problems.
As a result of the HUD accounting problems, over $17 million in delinquent mortgage payments have not been collected, interest free escrow advances amounting to almost $2.7 million are outstanding, and delinquent mortgagors have been over or under charged as much as $3 million for such items as interest and tax penalties. Part of the undercharge resulted from problems with the design of the HUD computerized mortgage notes accounting system. Homeowner's were overcharged because HUD did not promptly post payments, often charged tax penalties to the mortgagors, and did not reduce interest charges for prepayments. The HUD mortgage servicing efforts have been hampered by outdated procedures and ineffective collection practices, such as untimely foreclosure actions. These conditions contribute to the high volume of delinquent mortgage payments. Due to the accounting and servicing weaknesses, delinquent mortgagors have little incentive to pay off their mortgages. While HUD has made a number of changes to improve its activities, additional changes are needed to reduce the mortgage payment delinquency rate and to promptly collect funds due to the Government.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: The Secretary of HUD should direct the Assistant Secretary for Administration to incorporate the following procedures in the accounting system: (1) accrue interest on delinquent principal balances and assess penalties for late payments; (2) calculate realistic escrow requirements, charge interest on escrow advances, and collect escrow advances from payments before reducing the mortgage balance; (3) promptly and accurately post all collections and disbursements to the individual mortgagors' accounts; (4) provide adequate accounting data for field offices to properly monitor mortgages and thereby eliminate the need for duplicate collection records; and (5) promptly reconcile differences disclosed by the semi-annual inventories of Secretary-held mortgages. It is also recommended that the Secretary: (1) issue new guidelines and procedures for the servicing of Secretary-held mortgages which emphasize the need to take effective action to collect mortgage payments when due or, when appropriate, to promptly recommend foreclosure; (2) develop a monitoring system that will ensure that HUD field offices comply with the servicing guidelines to assure prompt payments; (3) assume the servicing and collection activity currently performed by the Office of General Counsel so that the General Counsel can promptly initiate foreclosure on cases recommended by the field offices; and (4) have the Inspector General review changes to improve the accounting and mortgage servicing systems to ensure that they are adequate, promptly completed, and closely followed.