We audited the Section 184 Indian Home Loan Guarantee program based on the U.S. Department Housing and Urban Development (HUD), Office of Inspector General’s (OIG) research, analysis, and information provided by the Office of Investigation, detailing potential weaknesses in the program’s controls.  Our objective was to determine whether HUD had adequate controls in place to provide oversight of the Section 184 program.

The Office of Loan Guarantee (OLG) did not provide adequate oversight of the Section 184 program, resulting in an increased overall risk to the program, including guaranteeing 3,845 loans totaling more than $705 million that were not underwritten in accordance with program guidelines.  On an annualized basis looking forward, this is equivalent to $77 million in loans that have a higher risk of loss in the first year.  The projections are based on a statistical sample of loans guaranteed from January 1, 2010, to July 31, 2014, that determined 32 of 95 loans had material underwriting deficiencies that should not have been approved for Section 184 loan guarantees.  More specifically, the OLG did not adequately monitor, track, and evaluate participating lenders to ensure that loans were underwritten in accordance with the Section 184 processing guidelines.  This lack of oversight and high incidence of poorly underwritten loans has the potential to negatively impact the financial standing of Native American communities.

We recommend that the Deputy Assistant Secretary for Native American Programs develop and implement policies and procedures (1) for monitoring, tracking, underwriting, and evaluating the Section 184 program, resulting in $77 million in funds to be put to better use; (2) for standardized monthly delinquency reports; (3) to deny payments to lenders for claims on loans that have material underwriting deficiencies; and (4) to ensure that OLG uses enforcement actions available under 12 U.S.C. (United States Code) 1715z-13a(g).  HUD should also (5) request indemnification for the loans that had material underwriting deficiencies, resulting in $2.5 million in funds to be put to better use, (6) request statutory authority to indemnify poorly underwritten loans, (7) obtain support for one loan, which lacked documentation required for loan approval, and (8) ensure that only underwriters that are approved by OLG are underwriting Section 184 loans.