Home Improvement

Title I home improvement loans, which are insured by the Department of Housing and Urban Development (HUD), are available to homeowners with little equity in their homes. These loans are made by banks and other private lenders from their own funds and are insured by the Federal Housing Administration. GAO found program management and oversight to be weak. When loans are made, HUD collects little information on the borrowers' income and the addresses of the properties being improved. Moreover, HUD does not maintain information on why it denies loan claims or why it later approves some of those claims for payment. HUD provides limited oversight of lenders' compliance with the program's regulations. The upshot is that HUD does not know who the program is serving, if lenders are complying with program regulations, and whether potential program abuses are occurring.

GAO noted that: (1) HUD is not collecting the information needed for managing the Title I property improvement loan program; (2) specifically, GAO found that when loans are made, HUD collects little information on the borrowers, the properties, or the loan terms, such as the borrowers' income and the addresses of the properties being improved; (3) moreover, HUD does not maintain information on why it denies loan claims or why it subsequently approves some of those claims for payment; (4) HUD provides limited oversight of lenders' compliance with the program's regulations; (5) it conducted four on-site quality assurance reviews of lenders in fiscal year 1997 of the approximately 3,700 lenders participating in the program; (6) regarding the need for oversight of lenders' compliance, GAO found that loan claim files submitted by lenders to HUD following loan defaults often do not contain required loan documents; (7) in addition, some claims are paid by HUD even though there are indications that the lenders did not comply with the required underwriting standards when insuring the loans; (8) in August 1997, Price Waterhouse in its HUD-commissioned review of the Title I program reported, among other things, on options and provided information on how to restructure the program; (9) these options could provide greater incentives for lenders to improve the making and servicing of the program's loans; (10) under HUD's 2020 Management Reform Plan and related efforts, the agency is making significant changes in all of its single-family housing programs, including the Title I program; (11) these changes are motivated in part by HUD's goals to downsize the agency and to address long-standing agencywide management weaknesses; (12) the changes being made that affect the Title I home improvement insurance program include: (a) streamlining and automating the program's claims examination process; and (b) consolidating the agency's efforts to monitor lenders into four locations; and (13) however, it is uncertain whether these changes will affect the weaknesses GAO identified in the oversight of the Title I program.

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.

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