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Key Considerations From Prior Audits of the Single Family Default Monitoring System and the Partial Claim Loss Mitigation Option

We prepared this memorandum to provide the Office of Housing at the U.S. Department of Housing and Urban Development (HUD) with key considerations from prior audits of the HUD Single Family Default Monitoring System (SFDMS) and the partial claim loss mitigation option.  These audits identified HUD’s lack of effective controls to ensure that lenders reported default information accurately and in a timely manner, lenders promptly filed and reported partial claims, and partial claims fully reinstated delinquent loans.  Prior audits also identified that the current design of partial claims results in an inferior lien position on the securing property during a foreclosure sale.  HUD should address these situations now to ensure program integrity and minimize the risk of financial loss during the novel coronavirus (COVID-19) national emergency.