Management Challenges Facing FHA's Single-Family Housing Operations

T-RCED-98-121: Published: Apr 1, 1998. Publicly Released: Apr 1, 1998.

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Judy A. England Joseph
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Pursuant to a congressional request, GAO discussed the management problems facing the single-family mortgage insurance programs of the Federal Housing Administration (FHA), focusing on: (1) FHA's role in providing mortgage credit to home buyers; (2) management problems affecting the operations of the Department of Housing and Urban Development's (HUD) single-family program, including weaknesses in HUD's oversight of the contractors responsible for safeguarding and maintaining foreclosed FHA properties, indications that weaknesses may exist in HUD's oversight of FHA appraisers, and internal control problems identified in FHA's financial statements audits; and (3) GAO's observations on HUD's plans for addressing these and other single-family management problems as part of its agencywide HUD 2020 Management Reform Plan.

GAO noted that: (1) FHA is a major player in the single-family housing finance market; (2) during the first half of 1997, 3 out of 10 borrowers that received insured mortgages selected FHA mortgage insurance; (3) without FHA mortgage insurance, some of these borrowers might have had to delay or forgo purchasing a home; (4) over time, FHA's insurance premiums and other income have more than covered the costs that FHA has sustained as a result of defaults and foreclosures on the single-family loans it insures; (5) in fact, the present value of estimated cash inflows to FHA's single-family mortgage program exceeds the present value of cash outflows by $1.8 billion for fiscal year 1997; (6) notwithstanding this strong financial performance, both GAO and the HUD Inspector General have identified the following areas in which FHA's management of its single-family program could be improved: (a) GAO's work on HUD's oversight of real estate asset management contractors, who are responsible for safeguarding foreclosed FHA properties, indicates that HUD does not have an adequate system in place to assess its field offices' oversight of these contractors; (b) GAO's recent work on appraisals for FHA-insured single-family loans has identified concerns about HUD's oversight of the appraisal process; and (c) in addition, annual audits of FHA's financial statements by KPMG Peat Marwick LLP continue to identify material internal control weaknesses in FHA's operations; (7) under the HUD 2020 Management Reform Plan and related efforts, HUD is in the process of making significant changes in all of its single-family operations, from the initial step of making insurance endorsements to disposing of properties; (8) these changes are motivated in part by HUD's goals of downsizing the agency and addressing long-standing agencywide management weaknesses; (9) while the reforms being implemented appear to address long-standing problems, it is uncertain how effective they will be in eliminating the problems in the single-family programs because the changes are not yet complete and some of the approaches are untested; and (10) in addition, because FHA's planned staffing levels are not based upon systematic workload analysis to determine needs, it is uncertain whether HUD's single-family program operations will have the capacity to carry out its responsibilities once the changes are in place.

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