HUD Management:

FHA's Multifamily Loan Loss Reserves and Default Prevention Efforts

RCED/AIMD-95-100: Published: Jun 5, 1995. Publicly Released: Jun 5, 1995.

Additional Materials:

Contact:

Judy A. England Joseph
(202) 512-7631
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a legislative requirement, GAO reviewed the adequacy of the loan loss reserves covering the Federal Housing Administration's (FHA) multifamily loan portfolio, focusing on the: (1) methodology FHA used to establish loan loss reserves for its fiscal year (FY) 1993 portfolio; (2) benefit of creating a new insurance fund for all new multifamily housing insurance commitments; and (3) Department of Housing and Urban Development's (HUD) initiatives for preventing future defaults on FHA multifamily housing loans.

GAO found that: (1) FHA used an improved methodology to estimate its FY 1993 loan loss reserves of $10.3 billion; (2) the reliability of the FHA estimate is limited by weaknesses in FHA data, FHA use of several default factors, and assumptions about the probability of default; (3) creating an actuarially sound insurance fund for all new multifamily housing commitments would eliminate the need for appropriations to cover anticipated losses on new FHA loans, but it might entail reducing the amount of mortgage insurance available for high-risk loans; (4) FHA could have difficulty complying with a requirement for actuarial soundness, since defaults on insured multifamily loans are hard to predict; (5) HUD is undertaking initiatives to strengthen its management abilities and prevent future defaults, such as using contractors to compile information about the physical and financial condition of insured multifamily properties; and (6) HUD has yet to make specific plans to develop data systems that can take full advantage of the new information it hopes to gain through its initiatives.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, each year HUD conducts an analysis of recent loan defaults to test the validity of its loan loss reserve assumptions about defaults.

    Recommendation: The Secretary of Housing and Urban Development should direct the Deputy Assistant Secretary for Multifamily Housing to establish a process for tracking the performance of its multifamily projects to obtain the data needed to test the accuracy of its assumptions about default.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: HUD has taken actions to incorporate capabilities in its data systems that allow it to gather data through electronic media on the condition of multifamily properties in its portfolio. More specifically, HUD's Real Estate Assessment Center (REAC) gathers data through electronic media on both the physical and financial condition of multifamily properties. REAC then assesses the data and makes the results available to HUD field offices and the HUD Enforcement Center. These results are used to identify and address problems at properties that do not provide decent, safe and sanitary housing. In addition, HUD's Office of Housing has established a Real Estate Management System that includes elements for tracking HUD field offices' efforts to address problems at multifamily properties.

    Recommendation: The Secretary of Housing and Urban Development should direct the Deputy Assistant Secretary for Multifamily Housing to develop specific plans for incorporating capabilities into its data systems that will allow it to gather data through electronic media on the financial and physical condition and on the management of the multifamily projects in its portfolio, and track the progress of projects in implementing actions to prevent default.

    Agency Affected: Department of Housing and Urban Development

 

Explore the full database of GAO's Open Recommendations »

Jul 13, 2016

Jun 8, 2016

May 31, 2016

May 2, 2016

Jan 8, 2016

Sep 15, 2015

Jul 23, 2015

Jul 10, 2015

Jul 6, 2015

May 19, 2015

Looking for more? Browse all our products here