Action Being Taken To Correct Weaknesses in the Rehabilitation Loan Program

FGMSD-79-14: Published: Mar 14, 1979. Publicly Released: Mar 14, 1979.

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John F. Simonette
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The Department of Housing and Urban Development (HUD) has outstanding loans of almost $334 million under its Rehabilitation Loan Program. Of the $334 million, over $53 million has already been returned to HUD as defaulted delinquent accounts and approximately $49 million may ultimately be returned as defaulted delinquent. The Rehabilitation Loan Program provides direct low-cost loans to property owners for the rehabilitation of basically sound structures. Loans are initially serviced by the Federal National Mortgage Association (FNMA). When a borrower becomes 6 months delinquent or is at least 3 months delinquent and misses 3 consecutive payments, the loan is returned to HUD for servicing.

HUD did not maintain proper control over defaulted loans returned by FNMA. Some loans were delinquent for years, yet loan servicers had not recommended foreclosure or contacted the defaulted borrowers to arrange for loan payment. The manual recordkeeping system used by HUD cannot adequately handle the volume of defaulted loans on hand. The loan servicing activity has been hampered by a general lack of management attention. HUD has established a special task force under the supervision of the Under Secretary of HUD to study all aspects of the program and recommend needed changes. HUD has never developed and submitted the design of the accounting system for rehabilitation loans to the Comptroller General for approval.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GAO performed a follow-up review that considered the action taken by the agency in regards to the area. The follow-up review showed that the recommended action had not been completed, and a similar recommendation was made in a GAO report issued March 19, 1980.

    Recommendation: The Secretary, HUD, should direct the HUD Office of Financing and Accounting to develop and submit the design of the revised accounting system for collecting and servicing rehabilitation loans to the Comptroller General for approval.

    Agency Affected: Department of Housing and Urban Development

  2. 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, HUD, should direct the Inspector General, HUD, to review the actions taken pursuant to the recommendations and to those of the task force to ensure that adequate system changes are implemented.

    Agency Affected: Department of Housing and Urban Development


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