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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 that were made to ineligible, delinquent Federal tax debtors.

We found that FHA insured at least 56,376 loans worth $13 billion, which were not eligible for insurance because they were made to borrowers with delinquent Federal tax debt.  In addition, it insured another 57,918 loans worth $14.3 billion to borrowers who had delinquent taxes and payment plans with the Internal Revenue Service (IRS) but may not have met FHA’s requirement for 3 months of payments on the payment plans. We were not able to determine the eligibility of these loans because we did not have information showing whether these borrowers completed 3 months of payments on their payment plans.

We recommend that FHA 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 not meeting FHA requirements.  We also recommend that FHA revise its handbooks to reflect that tax liens and judgments are no longer reported on credit reports and for uniform treatment of delinquent tax debt for forward and reverse mortgages.

Recommendation Status Date Issued Summary
2019-KC-0003-001-A Open September 30, 2019

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

As of October 2023, the Office of Single Family Housing will need additional tax information from the Internal Revenue Service to complete the planned action. The Office of the Chief Financial Officer will assist the Office of Single Family Housing. The final action target date is May 23, 2024.


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.

2019-KC-0003-001-B Closed September 30, 2019 Revise HUD handbooks for forward and reverse mortgages to reflect that tax liens and judgments are no longer reported on credit reports.
2019-KC-0003-001-C Closed September 30, 2019 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.