The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD’s Office of Single Family Housing to determine whether it had effective controls in place to ensure that lenders reported default information on Federal Housing Administration (FHA)-insured loans accurately and in a timely manner.  We initiated this audit after observing delayed reporting of default information on loan histories.

We found that HUD did not have effective controls to ensure that lenders reported default information accurately and in a timely manner.  HUD’s controls included only minimal system error codes; basic monitoring of error code rates, nonreporting, and underreporting; and lender servicing reviews examining a sample of default information at selected lenders.  HUD also did not have an adequate penalty process in place to deter future issues.  As a result, the default data were not always accurate and timely.  HUD relied on default data to stay up to date on the status and trends of insured mortgages and to identify potential risk to the insurance funds.

We recommend that HUD develop and implement a data management policy, outlining detailed procedures for review of the default data.  We also recommend that HUD resume reviews of the default data, implement additional system error checks, and implement a progressive penalty process for pursuing administrative action against lenders that fail to report, underreport, and submit inaccurate or unsupported data.