The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited Federal Housing Administration (FHA)-insured loans from fiscal year 2018. Our audit objective was to determine whether FHA provided insurance on loans that were made to ineligible, delinquent Federal tax debtors.
We found that FHA insured at least 56,376 loans worth $13 billion, which were not eligible for insurance because they were made to borrowers with delinquent Federal tax debt. In addition, it insured another 57,918 loans worth $14.3 billion to borrowers who had delinquent taxes and payment plans with the Internal Revenue Service (IRS) but may not have met FHA’s requirement for 3 months of payments on the payment plans. We were not able to determine the eligibility of these loans because we did not have information showing whether these borrowers completed 3 months of payments on their payment plans.
We recommend that FHA require lenders to obtain the borrowers’ consent to verify the existence of delinquent Federal taxes with the IRS during loan origination and deny any applicant with delinquent Federal tax debt not meeting FHA requirements. We also recommend that FHA revise its handbooks to reflect that tax liens and judgments are no longer reported on credit reports and for uniform treatment of delinquent tax debt for forward and reverse mortgages.
Recommendations
Housing
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Status2019-KC-0003-001-AOpenClosed$6,130,757,970.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
PrioridadPriorityWe believe these open recommendations, if implemented, will have the greatest impact on helping HUD achieve its mission to create strong, sustainable, inclusive communities and quality affordable homes for all.
Require lenders to obtain the borrowers’ consent to verify the existence of delinquent Federal taxes with the IRS during loan origination and deny any applicant with delinquent Federal tax debt and no payment plan or a noncompliant payment plan or an applicant refusing to provide consent from receiving FHA insurance to put at least $6.1 billion to better use by avoiding potential future costs to the FHA insurance fund.
Status
As of October 2023, the Office of Single Family Housing reported it will need additional tax information from the Internal Revenue Service to complete the planned action, and that the Office of the Chief Financial Officer will assist the Office of Single Family Housing. As of June 2024, no new update has been reported.
The final action target date was May 23, 2024, but was updated in June 2024 to May 23, 2025.
Analysis
To fully address this recommendation, HUD will need to provide evidence that it established a method of borrower consent to verify the existence of delinquent federal taxes.
Implementation of this rule should result in HUD putting $6.1 billion to better use.
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Status2019-KC-0003-001-BOpenClosedClosed on Enero 15, 2020
Revise HUD handbooks for forward and reverse mortgages to reflect that tax liens and judgments are no longer reported on credit reports.
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Status2019-KC-0003-001-COpenClosedClosed on Enero 15, 2020
Revise HUD handbooks for forward and reverse mortgages for uniformity in the treatment of delinquent tax debt and the existence of payment plans as only the forward mortgage handbook requires 3 months of payments.