Department of Veterans Affairs:

Actions Needed to Strengthen VA's Foreclosed Property Management Contractor Oversight

GAO-08-60: Published: Nov 15, 2007. Publicly Released: Dec 17, 2007.

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In 2003, the Department of Veterans Affairs (VA) significantly revised its in-house approach to managing and selling properties that become subject to foreclosure proceedings due to defaults by veterans on mortgages guaranteed by the department. VA contracted this function out to a private firm--Ocwen Financial Corporation (Ocwen)--after determining that doing so would increase the program's efficiency. VA oversees the Ocwen contract, which terminates in 2008, through onsite property inspections and other means. GAO was asked to (1) describe VA's inspection and other oversight findings and (2) evaluate VA's overall contract oversight program to determine whether any lessons can be learned prior to the implementation of the next contract in 2008. Among other steps, GAO reviewed VA inspection reports, accompanied VA staff on visits to three states, interviewed VA and Ocwen officials, and compared VA's procedures to those of other organizations that manage foreclosed properties.

VA inspections of foreclosed properties managed by Ocwen have identified a substantial number of deficiencies, such as failure to secure doors and windows, remove trash and debris, maintain lawns, and make needed repairs. GAO observed generally similar conditions in visits with VA realty specialists in Oklahoma, Michigan, and North Carolina, which may have reduced the marketability of the affected properties. VA also has not been satisfied with Ocwen's performance in selling properties in the shortest time possible and at price levels established in the contract. In response, Ocwen officials have raised concerns about the fairness of certain VA contractual requirements and oversight procedures. While VA has made a committed effort to oversee the contractor's performance, its overall capacity to do so is significantly limited compared to two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, which manage large inventories of foreclosed properties. Unlike the GSEs' information systems, for example, VA's system does not include real-time property maintenance and repair information, including expense data. Without this data, VA is not able to fully assess the quality of property maintenance and repairs, the reasonableness of related expenses, and take corrective action on a timely basis to correct deficiencies. VA's contract with Ocwen also does not include sufficient authority for the department to impose penalties for unsatisfactory performance in key areas, such as property maintenance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: VA has established processes to review contractor performance throughout the property management process rather than in the latter stages as was the case previously.

    Recommendation: To improve VA's capacity to oversee the foreclosed management property and sales processes, the department should take several steps in designing, negotiating, and awarding a new contract for the function. VA should use real-time data provided by the contractor to monitor the management of its foreclosed property inventory (or a sample thereof) on an ongoing basis and act on a timely basis, including the use of penalties as appropriate, to address identified deficiencies.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: Prior to the award of the contract, VA reviewed information on the contractor's capacity to provide real-time property management data.

    Recommendation: To improve VA's capacity to oversee the foreclosed management property and sales processes, the department should take several steps in designing, negotiating, and awarding a new contract for the function. Prior to awarding the contract, VA should thoroughly review and verify the capacity of the contractor's information systems and the ability to provide required property management data.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: VA's new property management contract provides for penalties for unsatisfactory performance.

    Recommendation: To improve VA's capacity to oversee the foreclosed management property and sales processes, the department should take several steps in designing, negotiating, and awarding a new contract for the function. Specifically, VA should include in the contract the authority to impose defined penalties for key property management activities, including penalties for unsatisfactory performance in maintaining properties and selling them within established time frames.

    Agency Affected: Department of Veterans Affairs

  4. Status: Closed - Implemented

    Comments: VA entered into a new foreclosed property management contract in 2008 that required the contractor to provide real time property management data.

    Recommendation: To improve VA's capacity to oversee the foreclosed management property and sales processes, the department should take several steps in designing, negotiating, and awarding a new contract for the function. Specifically, VA should include in the contract the requirement that the contractor provide real-time property management data deemed necessary by the department.

    Agency Affected: Department of Veterans Affairs

 

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