Update its QC plan and related processes and procedures to align with requirements for loan selection, including maintaining data and documenting how sample sizes and loan selections were determined.

Update its QC plan and related processes and procedures to align with requirements for (1) loan file reviews, including requirements to obtain new credit reports, reverify borrower information, and obtain appraisal field reviews; (2) documenting review results, including maintaining data on findings; (3) assessment of findings; (4) mitigation of findings; (5) reporting findings internally to lender management; and (6) reporting findings to HUD when required.

Provide annual training to its staff and management on HUD requirements for lender QC programs and provide proof of training to HUD.

Review the six EPD loans not previously selected for review and submit the results to HUD, including all findings of fraud or material misrepresentation, along with any other material findings that it is unable to mitigate. If required, Flat Branch should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Obtain credit reports and reverify borrower information for up to 279 EPD reviews performed and evaluate the risk of both new findings identified and existing findings contained in its QC files to confirm whether it self-reported to HUD all findings of fraud or material misrepresentation, along with any other material findings that its records did not show have been acceptably mitigated. If required, Flat Branch should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Evaluate its QC files for the 29 post-closing QC reviews in which it identified material findings to confirm whether it self-reported to HUD all findings of fraud or material misrepresentation, along with any other material findings that its records did not show have been acceptably mitigated. If required, Flat Branch should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.

Provide indemnification agreements or documentation to support the two loans in which it missed material deficiencies and the three loans in which it identified material findings that it did not acceptably mitigate or self-report to HUD. Implementation of this recommendation will protect the FHA insurance fund from an estimated loss of $228,793.

Develop and implement a policy that clearly defines roles and responsibilities for Office of Multifamily Housing Programs’ staff for EBLL-related requirements, including the oversight of property owners’ compliance with these requirements.

Establish processes to track reported EBLLs for the Office of Multifamily Housing Programs to easily identify the status of owners’ remediation efforts for units that were the source of the confirmed EBLL.

Develop and implement uniform procedures for the FSM desk monitoring review, including a second level review for the FSM monitoring reviews and process for each inspection type.

Update the FSM monitoring plan and FSM qualitative monitoring database to: (a) clearly define the monitoring questions, (b) include a section for Q7 New Not Ready to Show (NRTS) properties, (c) define which routine inspection reports will be reviewed to conduct the routine inspection monitoring reviews and (d) develop a monitoring question to evaluate photo date stamps.

Ensure that program officials periodically provide all FSM CORs and staff involved in the monitoring process uniform property inspection training.

Update HUD Handbook 1900.40, Do Not Pay policy, to clearly define the responsibilities for all parties and align it with current laws, processes, and procedures. This should include defining responsibilities for preaward and prepayment verification, and developing a process and governance structure to ensure that preaward and prepayment verification are consistently performed across HUD’s programs.

Status

HUD has until August 25, 2025 to provide its corrective action plan to OIG for review.

Analysis

Updating the HUD Handbook 1900.40 will define responsible parties for ensuring compliance with the Do Not Pay Initiative (DNP).    

The implementation of this recommendation will result in consistent use of DNP, allowing for instant verification of eligibility across the billions in payments that HUD processes.

Develop a standard operating procedure to ensure that the OCFO is 1) monitoring the DNP Computer Matching agreement to ensure continuity, 2) reporting accurately on its DNP matching, and 3) working with program offices to adjudicate any payments that are identified as potentially improper during the computer matching process.

Work with Multifamily Housing to investigate the 11 of 24 entities with expired SAM.gov registrations to determine if those entities should have received payments totaling $212,208,450 and perform the required follow-up actions once a determination is made.

Deobligate the 101 program obligations totaling $1,967,991.45 identified for deobligation during the fiscal year 2024 OOR that had not been deobligated as of February 28, 2025.

More clearly define successful prepurchase and postpurchase homeownership counseling outcomes and use these definitions to help establish performance metrics and benchmarks for HUD’s Office of Housing Counseling and HUD-approved housing counseling agencies. This should include the types of successful outcomes under the Homeownership Initiative Grant, as well as other positive outcomes for clients that do not involve immediate homeownership.

Implement routine client outcome data analysis to identify trends, quantify performance metrics and benchmarks, and measure the impact of prepurchase and postpurchase counseling on advancing homeownership. This should include routine analysis that HUD’s Office of Housing Counseling can implement based on data collected as well as continuing to pursue an updated housing counseling data system to help overcome client outcome data limitations.

Enhance monitoring of HUD-approved housing counseling agencies’ performance, to include progress toward the established performance metrics and benchmarks.

Develop and execute a written agreement with ONDCP on the reporting methodology for the CoC annual numeric targets and actuals that would meet future reporting requirements and comply with the Strategy and timeframe for implementation.