The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD to determine whether it paid servicers’ claims for properties that did not foreclose or convey on time. We initiated this audit due to concerns that HUD overpaid servicers’ claims for FHA insurance benefits.
HUD paid claims for an estimated 239,000 properties that servicers did not foreclose upon or convey on time. HUD paid an estimated $141.9 million for servicers’ claims for unreasonable and unnecessary debenture interest that was incurred after the missed foreclosure or conveyance deadline and an estimated $2.09 billion for servicers’ claims for unreasonable and unnecessary holding costs that were incurred after the deadline to convey.
We recommend that HUD issue a change to 24 CFR (Code of Federal Regulations) Part 203, which corrects deficiencies that allowed an estimated $2.23 billion in unreasonable and unnecessary costs to the FHA insurance fund. These changes include a maximum period for filing insurance claims and disallowance of expenses incurred beyond established timeframes. We recommend that HUD develop a strategic information technology plan to make significant operational changes to HUD’s monitoring of single-family conveyance claims to ensure that servicers comply with foreclosure and conveyance timeframes. We also recommend that HUD develop and implement controls to identify noncompliance with current regulations at 24 CFR 203.402.
Recommendations
Housing
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Status2017-KC-0001-001-AOpenClosed$2,238,721,464.00Funds 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.
Issue a change to regulations at 24 CFR Part 203, which would avoid unnecessary costs to the FHA insurance fund, allowing an estimated $2.23 billion to be put to better use. These changes include (1) a maximum period for filing insurance claims and (2) disallowance of expenses incurred beyond established timeframes.
Status
The Federal Housing Administration (FHA) reported that the recommendation cannot be closed out without the publication of the FHA Maximum Claim Rule. The proposed changes have been on HUD’s regulatory agenda since Spring 2020 but, as of November 2024, the Office of Single Family Housing does not have an estimated publication date.
Analysis
To fully address this recommendation, HUD must publish the FHA Maximum Claim Rule.
Implementation of this rule should result in HUD putting $2.23 billion to better use.