Single-Family Housing:

Opportunities to Improve Federal Foreclosure and Property Sale Processes

GAO-02-305: Published: Apr 17, 2002. Publicly Released: May 17, 2002.

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Federal programs in the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) promote mortgage financing for low-income, first-time, minority, veteran, and rural home buyers. Congress has also chartered private corporations--Fannie Mae and Freddie Mac--to provide mortgage lending and to promote homeownership opportunities. Many homeowners fall behind in their mortgage payments each year due to unemployment, health problems, or the death of a provider. To avoid high cost foreclosure proceedings when home buyers fall behind on their obligations, FHA, VA, and RHS instruct mortgage servicers, typically large financial institutions, to assist the home buyers in bringing their mortgage payments current. Despite these efforts, in 118,000 cases in 2000 the mortgage servicers engaged in various foreclosure proceedings under the direction of the organizations. FHA procedures delay the initiation of critical steps necessary to preserve the value of foreclosed properties and to sell them quickly. Although Fannie Mae, Freddie Mac, VA, and RHS designate one entity as responsible for the custody, maintenance, and sale of foreclosed properties, FHA divides these responsibilities between its mortgage servicers and management and marketing contractors, which operate largely independently of one another. Determining the organizations' comparative performance in selling foreclosed properties is difficult because FHA and RHS do not collect all of the data necessary for comparison. However, on the basis of available data, it takes nearly 90 days longer to acquire and sell FHA foreclosed properties than VA properties, and about 130 to 145 days longer to acquire and sell FHA properties than RHS, Fannie Mae, and Freddie Mac properties.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: FHA has determined that it would not be advisable for the agency to establish unified custody as an objective for the agency.

    Recommendation: To provide for the most effective acquisition and sale of the Federal Housing Administration's (FHA) foreclosed properties, the Secretary of the Department of Housing and Urban Development (HUD) should establish unified property custody as a priority for FHA. The HUD Secretary should determine the optimal method of unified property custody. That is, the HUD Secretary should determine the method of unified custody that best ensures FHA borrowers continuing benefits from loss mitigation and homeowner protections under state and federal laws, provides appropriate incentives for limiting the time and expense of acquiring and selling properties, and ensures that properties are maintained to the benefit of the FHA insurance fund and communities. The HUD Secretary should then implement the optimal method for establishing unified custody. If this optimal method requires additional statutory authority, the HUD Secretary should seek it.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: FHA conducted an analysis and concluded that no change should be made regarding title insurance and foreclose property.

    Recommendation: The HUD Secretary and the Secretary of the Department of Veterans Affairs (VA) should immediately assess the cost-effectiveness of their expenditures on title insurance purchases. The HUD Secretary and the VA Secretary should revise these policies if the costs of purchasing these title insurance policies are not clearly justified by their benefits and less expensive alternative means of establishing title are available.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: VA has reviewed the costs and benefits of title insurance during the foreclosure process and has decided to maintain the policy.

    Recommendation: The HUD Secretary and the Secretary of the Department of Veterans Affairs (VA) should immediately assess the cost-effectiveness of their expenditures on title insurance purchases. The HUD Secretary and the VA Secretary should revise these policies if the costs of purchasing these title insurance policies are not clearly justified by their benefits and less expensive alternative means of establishing title are available.

    Agency Affected: Department of Veterans Affairs

  4. Status: Closed - Implemented

    Comments: RHS has implemented a system that tracks property sales from the data of the foreclosure sale until properties are sold.

    Recommendation: To improve the quality of information available to FHA and the Department of Agriculture's Rural Housing Service (RHS) on the time necessary to sell foreclosed properties, the HUD Secretary and the Secretary of the Department of Agriculture should collect additional data from their servicers. Specifically, the HUD Secretary should collect data on foreclosure sales dates, and the Secretary of Agriculture should collect data on foreclosure sales dates and the dates that foreclosed properties are sold to home buyers or investors, and maintain this data in a format that is easily accessible by RHS managers.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Implemented

    Comments: On March 31, 2006 FHA finalized a rule that will require servicers, among other things, to record and report foreclosure sales dates.

    Recommendation: To improve the quality of information available to FHA and the Department of Agriculture's Rural Housing Service (RHS) on the time necessary to sell foreclosed properties, the HUD Secretary and the Secretary of the Department of Agriculture should collect additional data from their servicers. Specifically, the HUD Secretary should collect data on foreclosure sales dates, and the Secretary of Agriculture should collect data on foreclosure sales dates and the dates that foreclosed properties are sold to home buyers or investors, and maintain this data in a format that is easily accessible by RHS managers.

    Agency Affected: Department of Housing and Urban Development

 

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