Multifamily Housing:

Improvements Needed in HUD's Oversight of Lenders That Underwrite FHA-Insured Loans

GAO-02-680: Published: Jul 19, 2002. Publicly Released: Aug 1, 2002.

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Each year, the Federal Housing Administration (FHA) insures billions of dollars in multifamily housing mortgage loans to help construct, rehabilitate, purchase, and refinance apartments and health care facilities. However, the Department of Housing and Urban Development (HUD) lacks assurances that the lenders approved for the Multifamily Accelerated Processing (MAP) program always meet all of HUD's qualifications. HUD's guidance requires prospective lenders to submit documents showing that they are financially sound, have a satisfactory lending record, and have qualified underwriters. GAO found that HUD did not always comply with, or effectively implement, controls and procedures for reviewing and monitoring MAP lenders' underwriting of loans. Before issuing a loan, field staff are required to conduct and document reviews of lenders' mortgage insurance applications and associated loan exhibits to ensure compliance with HUD underwriting requirements. However, staff did not always properly document their reviews. HUD has held some lenders accountable for specific violations of program requirements but is unable to systematically identify lenders that exhibit patterns of noncompliance. To hold lenders accountable for specific violations or for patterns of noncompliance, HUD's Office of Multifamily Housing can suspend or terminate their ability to participate in the MAP program.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve HUD's oversight on MAP lenders and to reduce the financial risks assumed by the Federal Housing Administration (FHA), the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to strengthen the process for approving MAP lenders by (1) issuing guidance the clarifies HUD's experience requirements for MAP underwriters and requires HUD staff to evaluate prospective MAP Underwriters against these standards; and (2) issuing guidelines that establish standards for quality control plans and require MAP lenders to develop and maintain these plans as a condition of continued participation in the MAP program.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: On June 16, 2006, HUD posted to the MAP Guide's online FAQ site detailed education and experience requirements that HUD staff must use to evaluate prospective MAP underwriters. HUD also plans to add these requirements to the MAP Guide itself. Among other things, the requirements state that "the underwriter trainee must have successfully completed at least three underwriting, finance, appraisal, or environmental courses that demonstrate basic understanding of multifamily underwriting concepts." The requirements also set forth procedures that MAP lenders must follow to obtain approval of the MAP underwriter trainee from HUD headquarters. Accordingly, this part of the recommendation is closed. HUD has developed guidelines for MAP lender quality control plans and made them effective on August 25, 2004. HUD subsequently made two revisions, the most recent of which is dated March 29, 2005. The guidelines state that "as a condition of receiving or continuing to receive MAP privileges, lenders must have and maintain a quality control plan." The 41-page guidelines set forth detailed instructions and requirements for quality control plans and procedures. Accordingly, this part of the recommendation is also closed.

    Recommendation: To improve HUD's oversight on MAP lenders and to reduce the financial risks assumed by FHA, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to improve field offices' implementation of procedures for reviewing mortgage insurance applications submitted by MAP lenders, by (1) holding MAP team leaders accountable for preparing required review memos, and for ensuring that HUD field office staff consistently use review checklists in accordance with MAP guidance; (2) utilizing data in HUD's Financial Assessment Subsystem to corroborate expense data for HUD-insured or -assisted properties used as comparable properties in appraisal reports; and (3) clarifying and enforcing HUD's requirement for updating the operating expense estimate for a subject property to the date of the appraisal.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: In June 2003, HUD issued a memorandum to its Multifamily Housing program staff emphasizing the need to consistently follow the Multifamily Accelerated Processing (MAP) guide requirements for reviewing and documenting HUD's review of mortgage insurance applications submitted by MAP lenders. HUD also held videoconferences with the managers of its multifamily housing field offices to emphasize the importance of these requirements. This action responds to the first part of GAO's recommendation. In January 2003, HUD issued a memo to its Multifamily Housing program staff directing them to use data in HUD's Financial Assessment Subsystem to verify information on HUD-insured properties used as expense comparables in MAP lenders' appraisal reports. HUD plans to incorporate this policy in a future Housing Notice and in its upcoming revision to the MAP Guide. This policy responds to the second part of GAO's recommendation. HUD addressed the third part of GAO's recommendation by developing a PowerPoint presentation to clarify its requirement for updating operating expense estimates. This presentation was provided to Hub and Program Center Directors and was used to train field office staff via a Pic-Tel training program.

    Recommendation: To improve HUD's oversight on MAP lenders and to reduce the financial risks assumed by FHA, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to strengthen the Lender Qualifications and Monitoring Division's monitoring of lenders and HUD field offices, by (1) establishing a time frame for finalizing and issuing written operating procedures that include criteria for selecting loans and lenders for review that pose a high insurance risk to the Department; (2) issuing written reports on all quality assurance reviews conducted in fiscal year 2001 to the cognizant MAP lenders and HUD field offices; and (3) developing a process for aggregating and analyzing results of quality assurance reviews to identify patterns of underwriting deficiencies and program violations by MAP lenders.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: HUD developed a draft lender monitoring guide in May 2004 and finalized it in June 2006. Accordingly, this part of the recommendation is now closed. In June 2005, HUD also finalized the reports for lender monitoring reviews conducted in fiscal year 2001 and issued them to the cognizant lenders and field offices, thereby closing that part of the recommendation. Finally, HUD developed and is using an Excel spreadsheet to aggregate and analyze the findings from completed lender monitoring reviews. Accordingly, this part of the recommendation is also closed.

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