Stronger Internal Controls Over HUD Single-Family Mortgage Insurance Programs Would Discourage Fraud

Gao ID: RCED-85-4 May 13, 1985

Pursuant to a congressional request, GAO reviewed the Department of Housing and Urban Development's (HUD) home loan insurance approval procedures under the single-family mortgage insurance program.

GAO found that: (1) since 1934, HUD single-family mortgage insurance programs have insured about 14 million loans, of which about 6 percent have failed; (2) HUD relies on lenders to obtain and verify information bearing on loan risks and does not independently verify credit information; (3) weak internal controls may have contributed to the success of a fraudulent housing scheme in Camden, New Jersey; and (4) unlike HUD, the Veterans Administration (VA) independently verifies credit information in its mortgage insurance programs and attempts to determine why borrowers default shortly after loan origination. In addition, GAO found that HUD: (1) is implementing the Direct Endorsement Program, which is assigned to simplify and expedite the loan origination process by granting lenders the authority to issue HUD insurance commitments without prior HUD approval; and (2) will monitor direct endorsement lending to rate lenders' performance, but will not collect information pertaining to loan defaults or independently verify credit information submitted by lenders.

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: Resources, Community, and Economic Development Division Phone: (202) 275-6111


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