Homeownership

In 1994, the Department of Housing and Urban Development (HUD) began a program to liquidate its inventory of single-family loans. From June 1994 through September 1997, HUD sold 98,640 single-family loans in a series of six sales. The loan purchasers agreed to offer borrowers the same forbearance that HUD was required to offer before the loans were sold. These sales allowed HUD to make critically needed staff reductions and saved more than $830 million. GAO provides information on the current status of single-family loans sold and the ways in which HUD has ensured that the purchasers of these loans abide by the forbearance requirements contained in the loan sales agreements.

GAO noted that: (1) as of the end of 1998, most homeowners whose loans were sold and for which GAO had data on the disposition of the loan, continued to own their homes; (2) according to the company responsible for servicing these loans, for 55 percent of the 58,012 loans that it serviced, homeowners were current under the original, or forbearance, agreement terms of the loans; (3) an additional 14 percent of the loans had been paid off or refinanced; (4) the remaining 31 percent of these loans were delinquent, pending foreclosure, foreclosed, in bankruptcy, or resolved in some other way; (5) to ensure that the servicers of single-family loans honor the borrower protections contained in the loan sales agreements--including reduced mortgage payments--HUD conducted compliance reviews of loan servicers and operated a toll-free telephone complaint and information line for borrowers whose loans had been sold; (6) through these methods, HUD found, among other things, that loan servicers sometimes did not appropriately consider borrowers' ability to pay higher payments and that some borrowers thought loan servicers required too high a mortgage payment; (7) according to HUD, servicers have taken action to address the findings and concerns raised by HUD's compliance reviews and its telephone complaint line; (8) however, in some cases, HUD's records either do not show whether servicers took corrective action or do not describe the corrective action taken; (9) while data on the staffing devoted specifically to servicing HUD-held loans were not available, total staffing and staffing devoted to managing both HUD-held loans and HUD-owned properties has declined dramatically, particularly in the last 2 years; (10) specifically, staff located in field offices who were responsible for managing single-family loans and properties declined by an estimated 56 percent--or 683 full-time equivalent staff--during fiscal years 1997 and 1998--over twice the rate of the total staffing decline during this period; (11) this decline in staffing levels occurred despite an increasing workload resulting from property disposition; (12) furthermore, much of the decline in staffing occurred after HUD had dramatically reduced its inventory of HUD-held loans; and (13) according to HUD officials, the reduction in the inventory of HUD-held loans allowed the Office of Housing to decrease its staffing levels.