Single-Family Housing

Every year, the Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), insures billions of dollars in home mortgage loans made by private lenders. During fiscal year 1999, FHA insured 1.3 million mortgages valued at about $124 billion. Recent cases of mortgage fraud across the country have raised concerns about HUD's oversight of these lenders. This report provides information on HUD's oversight of lenders participating in FHA's mortgage insurance programs for single-family homes. Among other things, GAO found that 12 of 36 lenders had received 4 or more "poor" ratings from HUD's homeownership centers for their last 15 preclosing reviews. In addition, the homeownership centers' monitoring of lenders does not adequately focus on the lenders and loans that pose the greatest insurance risks to HUD. This testimony summarizes the April 2000 report, GAO/RCED-00-112.

GAO noted that: (1) GAO's work revealed a number of weaknesses in the lender approval, monitoring, and enforcement efforts performed by HUD's headquarters and its four homeownership centers; (2) HUD's process for granting FHA-approved lenders direct endorsement authority--that is, the ability to underwrite loans and determine their eligibility for FHA mortgage insurance without HUD's prior review--provides only limited assurance that lenders receiving this authority are qualified; (3) in addition, while HUD's homeownership centers have monitored lenders' compliance with FHA's lending requirements, these monitoring efforts have not adequately focused on the lenders and loans that pose the greatest insurance risks to the Department; and (4) although HUD has taken enforcement actions against lenders with excessively high default rates, it needs to take further steps to hold lenders accountable for poor performance and program violations.