Administrative Procedures and Controls Need Strengthening To Reduce Losses to HUD's Mortgage Insurance Fund

CED-81-29: Published: Dec 18, 1980. Publicly Released: Dec 18, 1980.

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A review was performed of payments made by the Department of Housing and Urban Development (HUD) and the Veterans Administration (VA) to mortgage investors to determine if opportunities exist to reduce losses to Federal mortgage insurance and guarantee programs.

No problems were found in guarantee payments made by VA. HUD pays mortgagees several million dollars annually in unearned interest by paying interest on reimbursable foreclosure expenses before the expenditures are made. HUD officials have not taken corrective action, citing legal problems and increased administrative costs as the reasons. GAO found a sufficient legal basis for taking corrective action and pointed out that the administrative costs involved would be minimal compared to the millions of dollars in recurring annual savings resulting from the change. HUD also pays mortgagee insurance claims for certain reimbursable costs without adequate justification that the payments are warranted. Due to inadequate supporting documentation and a limited review of mortgage claims, HUD has: (1) paid unreasonable costs to secure HUD-insured vacant properties; (2) erroneously paid mortgagees for fees to inspect properties; and (3) made duplicative property tax payments on HUD-acquired properties.

Recommendations for Executive Action

  1. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should reemphasize to all HUD area offices and mortgagees that HUD will not reimburse mortgagees for taxes paid after the date the mortgagee submits the notice of property transfer and application for insurance benefits. The staff responsible for reimbursing mortgagees should be instructed not to pay mortgagees' claims for taxes that do not appear on HUD Form 1025.

    Agency Affected: Department of Housing and Urban Development

  2. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should revise HUD regulations and procedures to require that interest paid on mortgagees' insurance claims be calculated from the date the expenditures are made rather than from the date of default.

    Agency Affected: Department of Housing and Urban Development

  3. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should establish a minimum dollar amount for preservation and security work that, if exceeded, would require the mortgagees to: (1) have the property inspected before and after the work is performed to ensure that the work is justified and satisfactorily completed; and (2) submit the inspection reports, along with paid invoices for the work, to the HUD area offices for review and approval before HUD reimburses the mortgagees for the work.

    Agency Affected: Department of Housing and Urban Development

  4. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should require mortgagees to submit documentation providing assurance that fees claimed are allowable expenses, and emphasize to the staff responsible for reimbursing mortgagees that claims for inspection fees on occupied properties are not allowable under HUD procedures.

    Agency Affected: Department of Housing and Urban Development

 

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