HUD Should Strengthen Mortgagee Monitoring To Reduce Losses

Gao ID: CED-81-108 June 9, 1981

Mortgagees approved by the Department of Housing and Urban Development (HUD) are responsible for originating and servicing HUD-insured, single-family loans. If a mortgagee fails to adequately assess a prospective home buyer's ability to repay a loan or fails to provide proper servicing of that loan, then defaults, foreclosures, and substantial losses to the Federal Government can occur. HUD primarily monitors this program through its Office of Mortgagee Activities. If mortgagees violate HUD requirements in connection with their HUD-insured lending activities, HUD can impose sanctions against them through its Mortgage Review Board.

The HUD system for reviewing mortgage lenders participating in HUD-insured loan programs needs revised review goal-setting techniques, strict compliance with existing procedures, more effective review coverage, and a stronger commitment to quality control of mortgagee reviews. Improved loan origination and servicing would reduce foreclosures and the Federal Government's losses. HUD is, at times, selecting for review mortgagees which have originated small numbers of HUD-insured loans while more active mortgagees are not reviewed as often. Mortgagees experiencing high foreclosure rates are often not selected for review. This practice is an ineffective use of limited resources, contributes to inadequate review coverage, and limits opportunities to correct loan origination problems. Mortgagee review coverage is hindered, in part, by limited resources. Although HUD criteria for selecting mortgagees for servicing reviews are sound, they are often not followed. Seven of 11 area offices visited could not accurately account for all mortgagee servicing loans in their jurisdictions. The quality of the reviews is hindered by the loan specialists' not spending sufficient time on reviews, inexperienced staff, and low priority given reviews by some area offices.

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 H. Luke Team: General Accounting Office: Community and Economic Development Division Phone: (202) 275-6111


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