We audited the U.S. Department of Housing and Urban Development’s (HUD) servicing of multifamily projects with HUD-held mortgages because it was part of the Office of Inspector General’s (OIG) annual audit plan. We reviewed 33 multifamily projects with HUD-held mortgages that totaled $307.9 million. Our objective was to determine whether HUD (1) obtained, documented, and reviewed the monthly accounting reports and (2) collected monthly net cash payments from multifamily projects that required these submissions.

HUD did not always obtain, document, and review monthly accounting reports for projects with defaulted Federal Housing Administration (FHA)-insured mortgages that were assigned to HUD and projects with defaulted Section 202 direct loans made by HUD. For monthly accounting reports that were obtained, HUD staff lacked the knowledge and expertise needed to adequately review the reports. HUD also did not ensure that projects remitted net cash after the mortgage default and after HUD accepted a full or partial assignment of the FHA-insured mortgage. Inadequate monitoring of these projects increased the risk of loss to the FHA insurance fund.

We recommend that the Director of the Office of Asset Management (1) ensure his office has controls in place to follow the requirements regarding obtaining and documenting the receipt and review of monthly accounting reports, (2) provide HUD asset management staff with training on the monthly accounting report review process and analysis, (3) ensure that projects remit monthly net cash, and (4) follow the handbook requirements regarding net cash remittance.