Mortgage Financing: HUD Could Realize Additional Benefits from Its Mortgage Scorecard

GAO-06-435 Published: Apr 13, 2006. Publicly Released: May 15, 2006.
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Along with private mortgage providers, the Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) has been impacted by technological advances that began in the mid-1990s and that have significantly affected the way the mortgage industry works. As a result, in 2004, FHA implemented Technology Open to Approved Lenders (TOTAL) Scorecard--an automated tool that evaluates the majority of new loans insured by FHA. However, questions have emerged about the effectiveness of TOTAL. Given these concerns, you asked GAO to evaluate the way the agency developed and uses this new tool. This report looks at (1) the reasonableness of FHA's approach to developing TOTAL and (2) the potential benefits to HUD of expanding its use of TOTAL.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development To improve how HUD uses and benefits from TOTAL, the Secretary of HUD should develop policies and procedures for updating TOTAL on a regular basis, including using updated data, testing additional variables, exploring hazard model benefits, and testing other cut points.
Closed – Implemented
In August 2006, HUD developed a policy and procedures manual that calls for annual (1) monitoring of the Technology Open to Approved Lenders (TOTAL) scorecard's ability to predict loan default, (2) testing of additional predictive variables to include in the scorecard, and (3) updating the scorecard with recent loan performance data.
Department of Housing and Urban Development To improve how HUD uses and benefits from TOTAL, the Secretary of HUD should explore additional uses of TOTAL and the credit data it utilizes, including to help adjust cut points, implement risk-based pricing, develop new products, and enable Ginnie Mae to disclose more information about securities backed by FHA-insured loans.
Closed – Implemented
HUD explored an additional use for the Technology Open to Approved Lenders (TOTAL) scorecard as part of a 2006 proposal to price FHA insurance premiums based on borrower risk. As we reported in June 2007 (GAO-07-708), FHA planned to use TOTAL scorecard to place borrowers in six different risk categories. FHA implemented a limited version of risk-based pricing in July 2008 but discontinued the practice in response to a Congressional moratorium that went into effect in October 2008.

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