Record in FHA Connection the remaining indemnified loans, avoiding $47,433,895 in estimated losses. The estimated loss is based on the loss severity rate of 46 percent of the total unpaid principal balance of $103,117,164.

Develop and implement controls to ensure that indemnification agreements that result from U.S. Department of Justice settlements have been properly recorded in FHA Connection.

Take appropriate administrative action against FTB for violations of the settlement agreement.

Support the reasonableness of or reimburse the project $2,232,004 ($1,719,736 $484,615 $27,653) from nonproject funds for the project funds disbursed without sufficient procurement or contract documentation.

Support or reimburse the project from nonproject funds $7,091, as appropriate, for the project funds disbursed without sufficient supporting documentation.

Reimburse the project from nonproject funds $46,024 for the project funds that were not used for reasonable operating expenses or necessary repairs of the project.

Support or reimburse the project from nonproject funds $39,690, as appropriate, for the project funds disbursed without sufficient documentation supporting that the invoices were not for duplicate work.

Implement adequate procedures and controls to ensure that project funds are used for only reasonable operating expenses or necessary repairs when the project is in a non-surplus-cash position.

Reimburse the project $95,174 from nonproject funds for management fees in excess of the maximum yield.

Support or reimburse the project $70,632 from nonproject funds, as appropriate, for the project funds disbursed to Vesta Corporation for bookkeeping fees without documentation showing that the bookkeeping fees charged were reasonable.

Implement adequate procedures and controls, including but not limited to ensuring that the project receives HUD’s communications to ensure that its management and bookkeeping fees comply with HUD’s requirements.

Implement adequate procedures and controls to ensure that its bookkeeping fees are based on actual costs.

Use the project’s security deposits bank account to deposit and disburse security deposits.

Require that the current or future lender ensure that the project uses a contractor that is proven to be qualified and capable of completing the project.

Implement a change to regulations at 24 CFR Part 203 to require curtailment of preforeclosure interest and other costs that are caused by lender servicing delays, resulting in $413,513,975 in funds to be put to better use. This should include updating or seeking statutory authority to update HUD’s regulations as necessary and coordinating with HUD’s Office of Finance and Budget, well before any changes go through departmental clearance, to ensure that planned curtailment requirements can be consistently enforced through the claims process.

Status

This audit recommendations cannot be closed out without the publication of the Federal Housing Administration (FHA): Maximum Claim Rule. The proposed changes have been on HUD’s regulatory agenda since Spring 2020 but, as of June 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 $413 million to better use.

We recommend that HUD’s Deputy Assistant Secretary for Housing Counseling identify additional housing counseling agencies that were classified as reapproved when it had not completed a performance review upon expiration of the approved period and determine whether they are properly qualified to provide counseling services to consumers.

We recommend that HUD’s Deputy Assistant Secretary for Housing Counseling obtain and provide documentation for the four housing counseling agency reapprovals and the three housing counseling agency voucher approvals to show that the $1,310,719 in Housing Counseling Grant funds5 disbursed was for eligible and supported costs or repay from non-Federal funds any amount that cannot be supported.

We recommend that HUD’s Deputy Assistant Secretary for Housing Counseling update its policies and procedures to ensure consistency and adequacy of the agency approval, performance review, voucher approval, and termination and posttermination processes. Specifically, the updates should ensure that the deficiencies identified in this report are acknowledged and corrected going forward, including (1) updating the Housing Counseling Program handbook and developing or updating standard operating procedures for each of the key processes and (2) implementing controls to ensure that staff perform work properly and consistently, and maintain significant documentation provided by agencies, along with any analysis performed during reviews.

We recommend that HUD’s Deputy Assistant Secretary for Housing Counseling ensure that the new Housing Counseling Agency Management System provides HUD with the ability to adequately oversee the work of its staff and track important housing counseling agency milestones, including HUD approval expirations and required terminations.

Board 47 partial claim notes that were not boarded into SMART, resulting in funds to be put to better use in the amount of $716,061.