Credit Management:

Widespread Loan Origination Problems Reported

AFMD-91-7: Published: Nov 9, 1990. Publicly Released: Dec 12, 1990.

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Pursuant to a congressional request, GAO reviewed loan origination procedures and practices in the Departments of Agriculture (USDA), Education, Health and Human Services (HHS), Housing and Urban Development (HUD), and Veterans Affairs (VA) and the Small Business Administration (SBA), focusing on: (1) the adequacy of the government's loan origination practices; and (2) loan origination problems prevalent in the government's credit programs.

GAO found that: (1) each agency had problems ensuring that loans were made to eligible applicants; (2) USDA, HHS, HUD, VA, and SBA did not adequately assess applicants' credit worthiness; (3) USDA, HUD, and VA had problems assessing applicants' repayment ability; (4) USDA, HUD, SBA, and VA had deficiencies in properly assessing loan security; (5) legislation precluded the Farmers Home Administration (FmHA) and Education from implementing certain recommended loan origination procedures; (6) although each agency had problems monitoring lenders, FmHA, HUD, and VA were particularly vulnerable to this deficiency; (7) although each agency reported problems with fraud and misrepresentation, the housing programs at HUD and VA were particularly vulnerable to several types of fraud and misrepresentation schemes; (8) most of the reviewed agencies took or plan to take actions, such as issuing policies or regulations to correct various loan origination deficiencies; and (9) the Department of the Treasury and the Office of Management and Budget have taken several steps to improve government loan origination procedures and practices.

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