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 lenders contacted all borrowers on each Federal Housing Administration (FHA) loan before proceeding to claim.  We initiated this nationwide audit because we noted instances in which the lender collected financial information from only one of the borrowers and showed no efforts to contact other borrowers.

We found that HUD paid claims on approximately 2,109 FHA loans when the lenders did not contact, attempt collection from, or otherwise include all borrowers during the loss mitigation process.  HUD’s monitoring procedures did not include detailed steps to check for proper contact, and its data systems did not include the necessary information to facilitate that check.  As a result, HUD could not ensure that the FHA insurance fund paid proper claims.

We recommend that HUD strengthen monitoring to check for proper contact with each borrower during loan servicing. We also recommend that HUD enhance data collection to begin collecting information on each coborrower.  Lastly, we recommend that HUD educate lenders and remind them of their responsibility to contact all borrowers during servicing.