Mortgage Daily

Published On: February 20, 2003
FHA Insurance Still High Risk for HUD

GAO issues report on housing agency

February 20, 2003

By MortgageDaily.com staff

Single-family mortgage insurance from the U.S. Department of Housing and Urban Development (HUD) continues to be a high-risk area even though HUD has been working at improvements, the United States General Accounting Office (GAO) said in a recent report.

The report means to not only give HUD some constructive criticism, but to recognize the improvements it has made since the last report, said David M. Walker, U.S. comptroller general, in a statement.

HUD still needs to improve management and oversight of its Federal Housing Administration (FHA) single-family mortgage insurance programs, which would reduce risk of losses from defaults and fraud, the report said. It also needs to resolve issues concerning its programmatic and financial management information systems, human capital, and acquisitions management.

The good news is that the GAO has redefined and reduced the number of HUD programs deemed to be high-risk because of the improvements HUD has made to FHA programs.

The GAO also said that HUD’s strategies for addressing the remaining problems are still in the early stages of development. For instance, HUD implemented the Single Family Appraiser System to review the quality of real estate appraisals, at the request of the GAO. But HUD admitted that the system had been ineffective in identifying problems with appraisers, and it cost HUD about $20 million during fiscal 2001. HUD said it fixed the problems, and the system began producing successes and only cost HUD about $300,000 in fiscal 2002, the GAO said.

FHA’s single-family mortgage insurance programs still are considered risky because of fissures in the mortgage insurance process, evidence of fraud, and weak management, the report said. Acquisitions management is a new management challenge in part because of HUD’s increasing reliance on contractors and third parties — caused by a 50% downsizing of HUD’s workforce over the past decade — in high-risk areas.

“As HUD downsized its staff in the 1990s, the scope of its mission and the needs of the people it serves did not decrease,” the report said.

Contractors are responsible for managing HUD’s inventory of single-family and multifamily properties, which have a combined value of about $3 billion, but HUD expects this trend to continue, the GAO said.

The GAO reported in October 2001 that acquisitions management was one of HUD’s greatest challenges, and in November of last year, GAO reported that that tender spot limited HUD’s ability to prevent, identify, and hold its contractors accountable.

Since then, HUD has taken such measures as hiring a chief procurement officer, creating full-time technical positions to monitor contractors’ performance, and creating a Contract Management Review Board.

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