The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) audited HUD’s oversight of its real estate-owned (REO) Management and Marketing (M&M) III program in response to a HUD OIG auditability survey on REO contract administration. Our audit objective was to determine whether HUD’s policies and procedures provided for efficient and effective oversight of asset managers and field service managers under its M&M III program.

HUD did not have adequate procedures in place to ensure consistent and adequate enforcement of asset and field service manager contracts. Specifically, (1) list prices were not always reduced according to the marketing plans, (2) bids were approved that did not meet HUD’s flexible threshold, (3) bids were rejected that met the marketing plan thresholds, (4) bids that met applicable thresholds were not always counter offered or forwarded to the government technical representative for approval, and (5) properties were not assigned to field service managers based on performance even when HUD identified performance issues. In addition, HUD did not always pay field service managers in accordance with their contracts, resulting in an estimated net underpayment of $553,784 to field service managers.

We recommend that the Deputy Assistant Secretary for Single Family Housing (1) develop and implement policies and procedures for oversight of the M&M III program, to ensure that field service managers are paid only for routine inspections that are conducted, and procedures for the P260 system to ensure that bids meeting applicable thresholds based on the listed and appraised values are accepted; (2) review the P260 system and its related controls; (3) finalize and implement the field service manager scorecard; (4) reimburse or request repayment for the field service managers that were underpaid or overpaid; and (5) ensure that HUD receives repayment for routine inspections that were not conducted by field service managers.