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The Department of Housing and Urban Development (HUD) requested a decision concerning the Federal Housing Adminstration's (FHA) computation of debts owed HUD on defaulted home loans. GAO held that: (1) HUD had the authority to reduce the amount of debt due on FHA insured loans by deducting from the outstanding loan balance the greater of the sale price or the appraised value of the home; (2) FHA should account for the debt using its current practice or, as the HUD Inspector General suggested, by booking the loan amount and immediately adjusting that amount to an amount equal to the insurance paid; and (3) FHA must assess interest on manufactured housing and property improvement loans at the rate specified in the note, and only if none is specified, apply the treasury rate. Accordingly, FHA was properly computing interest assessments.


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