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The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited the Utah Housing Corporation to determine whether the Corporation properly determined that borrowers were eligible to participate in FHA’s Preforeclosure Sale Program. We selected the Corporation because it had more preforeclosure sales than regular foreclosures, placing it at the top of our risk assessment for Region VIII.

The Corporation did not always properly determine that borrowers were eligible to participate in the Preforeclosure Sale Program. Of the 39 preforeclosure sales reviewed, it inappropriately approved three borrowers who had more than one FHA-insured loan and two borrowers who did not meet the definition of facing imminent default at the time of approval. Additionally, the Corporation did not independently verify expenses used in the financial analysis of these five borrowers plus an additional 32 borrowers. This condition occurred because the Corporation incorrectly believed that it was within Program guidelines when it approved borrowers and did not have all necessary controls in place. As a result, the FHA insurance fund paid out $213,370 for ineligible claims, $1.5 million for unsupported claims, and $37,000 for inappropriate lender incentive fees.