HUD Management

Greater Oversight Needed of FHA's Nursing Home Insurance Program Gao ID: RCED-95-214 August 25, 1995

The Department of Housing and Urban Development (HUD) has insured private lenders against financial losses arising from defaults on mortgages for nursing homes and retirement service centers. Although HUD officials believe that the program has enabled the agency to assist populations or areas that are not well served by the private sector, GAO found that the nursing home program has not been targeted to specific populations or communities and that HUD does not collect or analyze information on whom the program is servicing. The Federal Housing Administration (FHA) has not done any complete assessment of the financial performance of the nursing home and retirement service center programs. Available data indicate that the nursing home program has incurred losses of $187 million, adjusted for inflation, during its 35-year history. Additionally, FHA's fiscal year 1994 loan loss reserves anticipate future losses equivalent to about 19 percent of the $3.7 billion balance of nursing home loans in the portfolio as of September 1994. HUD data show that about 46 percent of the retirement service center's total portfolio of about $1.4 billion had defaulted and resulted in FHA insurance claims as of September 1994. GAO doubts whether HUD will be able to effectively manage the nursing home and retirement service center programs in the near future.

GAO found that: (1) the nursing home program has not been targeted to serve specific populations or communities, and HUD does not collect or analyze information on whom the program is serving; (2) FHA has not done any complete assessments of the financial performance of the nursing home and retirement service center programs and it is unlikely that HUD will be able to effectively manage the nursing home and retirement service center programs in the future; (3) it is unclear whether HUD consolidation of its multifamily underwriting and asset management responsibilities will be implemented; and (4) HUD has implemented legislative changes that authorize FHA mortgage insurance for assisted living facilities, which may result in the nursing home program's growth and in potentially riskier loans.

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