We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of servicers’ use of loss mitigation programs. The audit was initiated in response to an Office of Inspector General preaudit analysis of HUD data, which determined that servicers may not always evaluate borrowers with delinquent mortgages for loss mitigation. Our audit objective was to determine whether HUD had adequate controls to ensure that servicers of single-family Federal Housing Administration (FHA)-insured loans engaged in loss mitigation as required.
HUD did not have adequate controls to ensure that servicers of single-family FHA-insured loans properly engaged in loss mitigation. More specifically, HUD did not adequately review claim loans that did not have loss mitigation default status codes reported to HUD by servicers. From January 1, 2014, to December 31, 2016, there were 14,763 claim loans that indicated servicers did not engage in loss mitigation, and HUD reviewed only 194 (1.3 percent) of these loans. Also, a review of 90 statistically sampled claims that closed from January 1, 2012, to December 31, 2015, determined that 26 had significant servicing deficiencies. This condition occurred because HUD did not emphasize identifying or targeting these types of loans for review. This lack of oversight may have put borrowers in default at risk of not being able to avoid foreclosure by using HUD’s loss mitigation program and resulted in an increased overall risk to the program of a projected $120.9 million for losses in which servicers did not properly engage in loss mitigation.
We recommend that HUD (1) revise its policies and procedures to emphasize increased controls toward claim loans for which no loss mitigation evaluation occurred, resulting in a projected $120.9 million in funds to be put to better use; (2) develop and implement policies and procedures to ensure that the Office of Lender Activities and Program Compliance and the Office of Single Family Asset Management communicate the results of servicing reviews to each other; (3) implement policies and procedures to reinforce guidance to ensure that servicers accurately report the status of loans to HUD; (4) require indemnification for the 26 loans that had significant servicing deficiencies, resulting in $1.7 million in questioned costs; (5) reinforce guidance to servicers to ensure that they engage in loss mitigation as required; and (6) require the servicers with deficiencies to revise their procedures to ensure that they comply with the requirements.
Recommendations
Housing
- Status2017-LA-0004-001-AOpenClosed$120,902,564.00Funds 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.
Closed on Septiembre 30, 2020Revise servicing review and monitoring policies and procedures to emphasize increased controls on reviewing claim loans showing that no loss mitigation evaluation occurred. Revising the policies and procedures would reduce the risk to HUD and result in a projected $120,902,564 in funds to be put to better use (appendix A).
- Status2017-LA-0004-001-BOpenClosedClosed on Marzo 04, 2020
Develop and implement policies and procedures to ensure that the Office of Single Family Asset Management and Office of Lender Activities and Program Compliance communicate the results of their servicing reviews to each other.
- Status2017-LA-0004-001-COpenClosedClosed on Febrero 25, 2020
Update and revise policies and procedures, including reinforcement of guidance (for example, mortgagee letters, notifications to servicers, or training) to ensure that servicers accurately report the status of delinquent loans to HUD.
- Status2017-LA-0004-001-DOpenClosed$1,673,117.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Require indemnification for the 26 loans that had significant servicing deficiencies. In these cases, the loss to HUD was $1,673,117 (appendixes A and D).
- Status2017-LA-0004-001-EOpenClosedClosed on Febrero 25, 2020
Reinforce existing guidance (such as mortgagee letters, notifications to servicers, and training) to servicers to ensure that they engage in required loss mitigation.
- Status2017-LA-0004-001-FOpenClosed
Require that the servicers with significant and other deficiencies revise and update their policies and procedures, as necessary, to ensure that they comply with HUD requirements and guidance on loss mitigation evaluation.