Homeownership:

Mixed Results and High Costs Raise Concerns About HUD's Mortgage Assignment Program

RCED-96-2: Published: Oct 18, 1995. Publicly Released: Oct 31, 1995.

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Pursuant to a congressional request, GAO reviewed whether the Housing and Urban Development's (HUD) mortgage assignment program: (1) helps borrowers avoid foreclosure; (2) reduces the Federal Housing Administration's (FHA) foreclosure losses; and (3) can be improved to reduce such losses.

GAO found that: (1) HUD mortgage assignment program helps borrowers avoid immediate foreclosure, but is not successful in helping borrowers avoid foreclosure or retain their homes on a long-term basis; (2) about 52 percent of the 68,700 borrowers in the mortgage program will lose their homes through foreclosure, and the remaining borrowers will pay off their loans after the sale or refinancing of their homes; (3) the mortgage assignment program has not reduced FHA foreclosure losses, since FHA incurs additional costs under the program which more than offset the costs from saving some loans from foreclosure; (4) FHA will incur losses of more than $1.5 billion for those borrowers accepted into the mortgage program since fiscal year 1989; (5) although FHA borrowers' premiums pay for these additional losses, it is more difficult for the single-family insurance program to remain self-sufficient; (6) options that would reduce additional program losses include reducing the 3-year relief period provided to borrowers, setting a time limit on eliminating delinquencies, and accepting borrowers that can pay half or more of their mortgage payment; and (7) FHA would have to require borrowers to begin full mortgage payments within a few months after entering the program to eliminate additional program losses.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: As a direct result of the recommendation, the Balanced Budget and Downpayment Act (P.L. 104-99) was enacted on January 26, 1996. It eliminated HUD's Mortgage Assignment Program and provided the Secretary of HUD authority to assist borrowers in default by other means, such as loan modification and deed in lieu of foreclosure.

    Matter: Congress may wish to consider eliminating the mortgage assignment program if it believes that the additional losses incurred by the assignment program are excessive in relation to the number of borrowers that avoid foreclosure.

  2. Status: Closed - Implemented

    Comments: As a direct result of the recommendation, the Balanced Budget and Downpayment Act (P.L. 104-99) was enacted on January 26, 1996. It eliminated HUD's Mortgage Assignment Program and provided the Secretary of HUD authority to assist borrowers in default by other means such as loan modification and deed in lieu of foreclosure.

    Matter: Congress may wish to consider establishing a short-term, temporary relief program to replace the mortgage assignment program for those borrowers who default on their FHA mortgages.

  3. Status: Closed - Not Implemented

    Comments: In line with recommendation number 1 above, legislation was enacted to eliminate the program and replace it with an alternative program. This recommendation, aimed at reforming the eliminated program is now moot.

    Matter: If Congress believes that the borrowers served by the FHA single-family program are at high risk and therefore in need of additional assistance in the form of forebearance, it should consider program changes that would reduce but not eliminate additional future losses such as: (1) requiring borrowers to resume full mortgage payments within a shorter time period than the 36 months currently allowed or eliminating outstanding delinquency amounts within a specified period; and (2) requiring that only borrowers who can pay half their original amount or more be assigned to the program.

 

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