Single-Family Housing

The Department of Housing and Urban Development (HUD) introduced its management and marketing contracts nationwide last year as a way to dispose of the inventory of single-family properties that HUD acquires through foreclosures. The contractors are responsible for all management and marketing activities, ranging from inspecting the properties to ensure that they are presentable to listing and selling the properties. HUD has experienced widespread problems with the management and marketing contracts since they started in April 1999. Property maintenance and security, which was a problem under HUD's previous property disposition approach, remains a significant problem. Also, older properties in HUD's inventory have accumulated as the contractors have focused their sales efforts on the newly acquired, more saleable properties. In addition, while HUD encourages contractors to sell properties quickly, it does not provide incentives for the contractors to focus on properties that have been in inventory for a long period of time. GAO summarized this report in testimony before Congress; see: Single-Family Housing: Stronger Measures Needed to Encourage Better Performance by Management and Marketing Contractors, by Stanley J. Czerwinski, Associate Director for Housing and Community Development Issues, before the Subcommittee on Housing and Transportation, Senate Committee on Banking, Housing, and Urban Affairs. GAO/T-RCED-00-180, May 16 (12 pages).

GAO noted that: (1) the central focus of HUD's management and marketing contracts is on getting properties sold; (2) in response, contractors have been increasingly aggressive at selling properties by using the Internet and other mechanisms to publicize the properties; (3) however, HUD has experienced problems with these contractors on a number of fronts; (4) since the contracts became effective in April 1999, 6 of the 7 contractors have had significant problems with carrying out their responsibilities particularly in regard to securing and properly maintaining the properties assigned to them; (5) for example, Intown Management Group, which had 7 of the 16 contracts involving about 40 percent of the properties, had problems with meeting almost all of HUD's performance requirements; (6) after trying unsuccessfully to secure better performance from Intown, HUD terminated all seven of the firm's contracts; (7) HUD selected three replacement contractors from among the remaining firms to absorb most of Intown's workload; (8) however, two of the three contractors that HUD selected were already having performance problems under their existing contracts; (9) HUD staff have limited contractor incentives or tools available--short of terminating contracts--to enforce contractors' compliance and improve performance; (10) HUD's inventory of acquired single-family properties at the end of fiscal year (FY) 1999 was 32 percent higher than it was a year earlier and over 100 percent higher than it was at the end of FY 1996; (11) HUD's new management and marketing contractors increased the total number of properties sold from the inventory during FY 1999, and the total number of properties in the inventory has now begun to decline; (12) however, the contractors have made relatively little progress disposing of older properties--properties in the inventory 6 months or longer; (13) in fact, as of February 2000, about 20,000 of HUD's properties were in the inventory 6 months or longer--up from 13,000 properties in April 1999, the first month of the contracts; and (14) while HUD encourages contractors to sell properties quickly, it does not provide incentives for the contractors to focus on properties that have been in the inventory for a long period of time.

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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