We audited certain portions of the U.S. Department of Housing and Urban Development’s (HUD) multifamily housing and healthcare insured mortgage programs as part of our fiscal year 2012 annual audit plan.  The objective of the review was to determine the adequacy of the Office of Housing’s procedures and controls for selecting, conducting, and following up on postendorsement underwriting reviews of insured multifamily and healthcare loans and use of the reviews to identify and correct adverse underwriting conditions detected by them.  We did not review any other aspects of their risk-based programs beyond postendorsement underwriting reviews.

For the audit period ending December 2011, the Office of Housing had not fully developed formal risk-based procedures and controls for postendorsement underwriting reviews of insured loans for multifamily and healthcare (Section 232) projects.  These conditions occurred because senior management had not fully implemented departmental guidance for management controls.  The audit identified the need for improvement in several areas, including but not limited to instances in which required postendorsement underwriting reviews were not conducted, no postendorsement review requirements for some project types, and more complete procedures for follow-up on review results. The failure to conduct the reviews in all cases where they were required or needed represented missed opportunities to identify adverse underwriting patterns and correct them in a timely manner in an effort to help reduce losses to the insurance fund.
We recommend that the Assistant Secretary for Housing-FHA [Federal Housing Administration] Commissioner develop and implement more complete  written procedures and controls for conducting and following up on postendorsement underwriting reviews of HUD’s insured multifamily and healthcare loans processed by the Office of Multifamily Housing Programs and the Office of Healthcare Programs.