Action Being Taken To Correct Weaknesses in the Rehabilitation Loan Program

The Department of Housing and Urban Development (HUD) has outstanding loans of almost $334 million under its Rehabilitation Loan Program. Of the $334 million, over $53 million has already been returned to HUD as defaulted delinquent accounts and approximately $49 million may ultimately be returned as defaulted delinquent. The Rehabilitation Loan Program provides direct low-cost loans to property owners for the rehabilitation of basically sound structures. Loans are initially serviced by the Federal National Mortgage Association (FNMA). When a borrower becomes 6 months delinquent or is at least 3 months delinquent and misses 3 consecutive payments, the loan is returned to HUD for servicing.

HUD did not maintain proper control over defaulted loans returned by FNMA. Some loans were delinquent for years, yet loan servicers had not recommended foreclosure or contacted the defaulted borrowers to arrange for loan payment. The manual recordkeeping system used by HUD cannot adequately handle the volume of defaulted loans on hand. The loan servicing activity has been hampered by a general lack of management attention. HUD has established a special task force under the supervision of the Under Secretary of HUD to study all aspects of the program and recommend needed changes. HUD has never developed and submitted the design of the accounting system for rehabilitation loans to the Comptroller General for approval.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John F. Simonette Team: General Accounting Office: Financial and General Management Studies Division Phone: (202) 275-1581