Home Improvement:

Weaknesses in HUD's Management and Oversight of the Title I Program

RCED-98-216: Published: Jul 16, 1998. Publicly Released: Jul 16, 1998.

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Stanley J. Czerwinski
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Pursuant to a congressional request, GAO reviewed the Department of Housing and Urban Development's (HUD) administration of the National Housing Act Title I program, focusing on: (1) the extent to which the information needed to manage the program was available to HUD; (2) the extent to which HUD was overseeing the program's lenders; (3) whether options and information presented by Price Waterhouse in its HUD-commissioned study of the Title I program could provide lenders with greater incentives to improve loan underwriting and servicing; and (4) whether HUD has any efforts planned or under way to strengthen its management and oversight.

GAO noted that: (1) HUD is not collecting the information needed for managing the Title I property improvement loan program; (2) specifically, GAO found that when loans are made, HUD collects little information on the borrowers, the properties, or the loan terms, such as the borrowers' income and the addresses of the properties being improved; (3) moreover, HUD does not maintain information on why it denies loan claims or why it subsequently approves some of those claims for payment; (4) HUD provides limited oversight of lenders' compliance with the program's regulations; (5) it conducted four on-site quality assurance reviews of lenders in fiscal year 1997 of the approximately 3,700 lenders participating in the program; (6) regarding the need for oversight of lenders' compliance, GAO found that loan claim files submitted by lenders to HUD following loan defaults often do not contain required loan documents; (7) in addition, some claims are paid by HUD even though there are indications that the lenders did not comply with the required underwriting standards when insuring the loans; (8) in August 1997, Price Waterhouse in its HUD-commissioned review of the Title I program reported, among other things, on options and provided information on how to restructure the program; (9) these options could provide greater incentives for lenders to improve the making and servicing of the program's loans; (10) under HUD's 2020 Management Reform Plan and related efforts, the agency is making significant changes in all of its single-family housing programs, including the Title I program; (11) these changes are motivated in part by HUD's goals to downsize the agency and to address long-standing agencywide management weaknesses; (12) the changes being made that affect the Title I home improvement insurance program include: (a) streamlining and automating the program's claims examination process; and (b) consolidating the agency's efforts to monitor lenders into four locations; and (13) however, it is uncertain whether these changes will affect the weaknesses GAO identified in the oversight of the Title I program.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to a Federal Housing Administration official, the Department has completed cleaning up its Title I database including types of loans--direct and dealer loans.

    Recommendation: To promote effective management and accountability in the Title I program, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to improve the information available to manage the program by ensuring that information on the types of loans made is accurate and recorded correctly in HUD's data systems.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: In 1998, HUD required that information on loan denials and the official's name who authorized payment be placed in loan files; issued a new claims examination manual describing the documents that are needed in a claims file before a claim can be paid; and expanded the number of claims that are reviewed for underwriting problems by requiring those claims whose loans defaulted in 24 or fewer months be reviewed. However, HUD reports that information collected during the claims examination process is already available to the lender monitors.

    Recommendation: To prompt effective management and accountability in the Title I program, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to improve the Title I claims examination process by ensuring that: (1) the documents included in the claim files clearly explain why a claim that was originally denied was subsequently paid and which program official authorized payment; (2) all documents required by the program's guidelines and regulations, including the original loan application, inspection report, and completion certificate, are contained in the claim application package before a claim is paid; (3) the number of claims subject to an underwriting review is increased by extending the length of time after origination during which loan defaults are subjected to review, with notification of this change sent to lenders in writing; and (4) procedures are developed to routinely provide the Quality Assurance Division with the information collected during the claims examination process that is needed to monitor and target lenders for review.

    Agency Affected: Department of Housing and Urban Development


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