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Highlights

Pursuant to a legislative mandate, GAO reviewed the risk-sharing demonstration programs established under section 542 of the Housing and Community Development Act of 1992, focusing on: (1) how well the programs' goals are being met; (2) the benefits for participating financial institutions and the Department of Housing and Urban Development (HUD); and (3) opportunities for improving the programs and HUD's administration of them.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development 1. The Secretary of Housing and Urban Development should direct the Commissioner, Federal Housing Administration, to explore the feasibility of amending HUD's current risk-sharing agreements, to: (1) allow the use of reinsurance with 18-year balloon mortgages as is currently permitted in an agreement with Fannie Mae; and (2) authorize the use of reinsurance with loan pools.
Closed - Implemented
HUD has explored the feasibility of amending its current risk-sharing agreement by offering to: (1) allow Freddie Mac to use reinsurance with 18-year balloon mortgages and (2) to modify both Fannie Mae's and Freddie Mac's risk-sharing agreements to authorize the use of reinsurance with loan pools. Freddie Mac has requested authorization of a 10-year balloon mortgage instead of an 18-year mortgage. HUD is reviewing this proposal but has reservations regarding decreasing balloon mortgages for substantially less than 18 years. Since neither GSE is interested in loan pool reinsurance, no risk-sharing agreements have been modified to accommodate this provision.
Department of Housing and Urban Development 2. To ensure that risk-sharing demonstration programs' managers have consistent and reliable data to meet their statutory and regulatory obligations, the Secretary of Housing and Urban Development should take steps to correct current flaws in the information systems supporting the programs.
Closed - Implemented
Since November 2002, HUD has been collecting data on its multifamily risk-sharing mortgages. For each risk-sharing mortgage, HUD field offices prepare a Closing Memorandum which includes information such as original mortgage amount, number of units, and percent of the risk assumed by FHA. This information is entered into one of HUD's databases (F-47) for tracking FHA insured multifamily loans.
Department of Housing and Urban Development 3. In correcting the flaws in the data system supporting the credit enhancement program, the Secretary of Housing and Urban Development should direct the system's designers and the program's managers to examine the near-term suitability of using spreadsheets and databases commonly contained in suite software within the context of the long-term data needs of a growing universe of projects, giving careful consideration to the requirements of all users of the system.
Closed - Implemented
HUD has created an interim spreadsheet to better ensure that consistent and reliable data is available for managing the risk-sharing program. This interim step is consistent with the recommendations made in the report. The successful implementation of the new Development Application Processing System should replace this interim measure.
Department of Housing and Urban Development 4. The Secretary of Housing and Urban Development should give priority to implementing a comprehensive monitoring system to ensure that HUD's risk-sharing partners are complying with the demonstration programs' procedures, regulations or risk-sharing agreements, including the requirements for timely reporting on the status of insured loans.
Closed - Implemented
According to the Deputy Director for Multifamily Development, HUD has created a new Quality Assurance and Lender Monitoring Division that is located in several Field Offices throughout the country. The division has begun making field visits to the largest state housing finance agencies participating in the Risk-Sharing program.

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