Homeownership

During the 19-year period that ended in September 1993, the Department of Housing and Urban Development (HUD) incurred losses totalling $12.8 billion as a result of foreclosures on homes that the Federal Housing Administration (FHA) had insured. As an alternative to foreclosure on such properties, HUD operates a mortgage assignment program. For borrowers accepted into the program, FHA pays the mortgage debt, takes assignment of the mortgage from the lenders, and develops a new repayment plan for the borrower under which monthly mortgage payments can be reduced or suspended for up to 36 months. HUD collects mortgage payments from the borrowers while allowing them to live in their homes. The number of FHA borrowers participating in the program has tripled during the past six years, reaching 71,500 at the end of fiscal year (FY) 1994. Their unpaid principal balances total $3.7 billion. GAO found that the program has helped borrowers avoid immediate foreclosure, but it has not been fully successful in helping borrowers avoid foreclosure and retain their homes on a long-term basis. GAO estimates that 52 percent of the nearly 68,000 borrowers who have entered the program since FY 1989 will eventually lose their homes through foreclosure. Moreover, program losses have exceeded those that would have been incurred had loans gone immediately to foreclosure without assignment. Options to reduce program losses include reducing the three-year relief period provided to borrowers, setting a time limit on eliminating delinquencies, and accepting only those borrowers into the program who can afford to pay at least half of their mortgage payments.

GAO found that: (1) HUD mortgage assignment program helps borrowers avoid immediate foreclosure, but is not successful in helping borrowers avoid foreclosure or retain their homes on a long-term basis; (2) about 52 percent of the 68,700 borrowers in the mortgage program will lose their homes through foreclosure, and the remaining borrowers will pay off their loans after the sale or refinancing of their homes; (3) the mortgage assignment program has not reduced FHA foreclosure losses, since FHA incurs additional costs under the program which more than offset the costs from saving some loans from foreclosure; (4) FHA will incur losses of more than $1.5 billion for those borrowers accepted into the mortgage program since fiscal year 1989; (5) although FHA borrowers' premiums pay for these additional losses, it is more difficult for the single-family insurance program to remain self-sufficient; (6) options that would reduce additional program losses include reducing the 3-year relief period provided to borrowers, setting a time limit on eliminating delinquencies, and accepting borrowers that can pay half or more of their mortgage payment; and (7) FHA would have to require borrowers to begin full mortgage payments within a few months after entering the program to eliminate additional program losses.

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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