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.
Publication Report
2019-KC-0003 | September 30, 2019
FHA Insured at Least $13 Billion in Loans to Ineligible Borrowers With Delinquent Federal Tax Debt
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… moreRelated Recommendations
Housing
- 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.
PriorityPriorityWe 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
The Office of Single Family Housing will need additional tax information from the Internal Revenue Service to complete the planned action. In July 2024, Single Family Housing proposed closing the recommendation with no action because the primary action discussed would require Congressional authorization, and another option discussed would place an undue burden on borrowers and lenders and was not practical. OIG disagreed with the request. Since delinquent tax debtors are ineligible for FHA loans under existing FHA and OMB guidelines, OIG will continue to work with Single Family Housing on a solution.
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.
Revise HUD handbooks for forward and reverse mortgages to reflect that tax liens and judgments are no longer reported on credit reports.