HUD's Loan Servicing Contracts for Multifamily Mortgages Need Better Management

RCED-83-78: Published: Mar 14, 1983. Publicly Released: Mar 21, 1983.

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In response to a congressional request, GAO evaluated the Department of Housing and Urban Development's (HUD) reply to formal congressional questions concerning the HUD Region III contract and proposed nationwide contract with the private sector for loan services. HUD plans to utilize the private sector contracts to improve the servicing of HUD-held mortgages resulting in increased revenues from the collection of outstanding debt.

GAO found that, since HUD has limited data on its own past performance and costs in collecting debts, it has had difficulty in establishing a basis for comparing the Region III contractor's work against its own. To help monitor performance, HUD plans to develop an automated system for comparing its performance with the contractor's performance. Regarding the monitoring of the Region III contractor's work, HUD has not made the required quarterly visits to the contractor's site to evaluate its performance. Further, GAO stated that the initial provisions of the Region III contract governing the contractor's basic payment fee were not clearly spelled out nor fully understood by HUD officials. GAO concluded that the HUD response to the questions was incomplete, its procurement practices for the Region III contract were deficient in several respects, and some of the problems identified with the Region III contract may apply to the nationwide contract.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The contractor selected for the nationwide loan servicing contract withdrew from negotiations and recommended that HUD cancel the proposed contract in favor of taking steps to allow the servicing to be handled in-house. HUD concluded that with certain accounting enhancements it could effectively perform the servicing functions in-house.

    Recommendation: The Secretary of HUD should direct that a detailed evaluation be performed of the many variables that impact on assigning a value to the escrow funds for negotiating a fee for the nationwide contract.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: Although HUD has adopted this recommendation for future procurements, HUD believes that the subject procurement, because of its technical nature, should be retained by the Office of Housing rather than by the Office of Administration.

    Recommendation: The Secretary of HUD should direct that the responsibility for the contract administration for loan servicing and accounting contracts for HUD-held multifamily mortgages be given to the Office of Procurement and Contracts under the Assistant Secretary for Administration.

    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 direct that contractor recommendations for workout agreements and foreclosure actions be closely monitored. To assist in strengthening HUD approval of contractor recommendations, HUD should implement the recommendations in the Office of Inspector General's report of October 20, 1982, and take the action outlined in the June 18, 1982, policy memorandum for designating staff in each office to become proficient in areas of workout and modification analysis.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Not Implemented

    Comments: HUD believes the payment provisions of its Region III loan servicing contract are clear and that a further contract modification is not needed. As a result, HUD does not intend to act on this recommendation.

    Recommendation: The Secretary of HUD should direct that the Region III contract be further modified to make clear the payment provisions regarding partial payments, bringing delinquencies current resulting from a series of no monthly payments, carrying credits resulting from overpayments to subsequent months, and how fees will be computed for lump-sum payments collected through workout agreements. Also, similar steps for the proposed nationwide contract should be taken if HUD decides to retain the Region III payment provisions.

    Agency Affected: Department of Housing and Urban Development

  5. 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 that the onsite monitoring visits by HUD be conducted as required and that the report on the results of the visits be provided to the contractor in a timely manner.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed - Not Implemented

    Comments: The HUD plan to award a nationwide loan servicing contract never materialized; thus, this recommendation is no longer relevant.

    Recommendation: The Secretary of HUD should direct that HUD develop a cost-effective system(s) for comparing HUD and contractor performance and for reporting on debt collection activities. To assist in ensuring the system(s) represent a sound and consistent basis for reporting and that the costs of the system(s) do not exceed the anticipated benefits, the Department should utilize the expertise of its Policy Development and Research staff.

    Agency Affected: Department of Housing and Urban Development

  7. 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 that the basis used in reevaluating the contractor's fee for the Region III contract and in evaluating the variables that will impact on assigning a value to the escrow funds for negotiating the fee for the nationwide contract be fully supported and documented in the contract files.

    Agency Affected: Department of Housing and Urban Development

  8. 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 that the Region III contractor's fee be reevaluated on its anniversary in accordance with the prospective price redetermination clause of the contract.

    Agency Affected: Department of Housing and Urban Development

 

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