HUD is struggling to make the grade, regardless of potentially valid excuses. That's the short version. The longer version in today's testimony from David A. Montoya,
Inspector General of the U.S. Department of Housing
and Urban Development (HUD) was slightly more diplomatic.
While the IG was critical of HUD's handling of several key programs, he
said the agency is challenged in attempting to exercise an appropriate level of
oversight to prevent or mitigate fraud and waste because of its limited staff.
Over the years, Montoya said, HUD has seen a steady
decline in its
staffing level while at the same
time it has been called upon to
administer an increasing number of programs. At the end of fiscal year 2012,
HUD had just over 8,300
staff compared to about
9,700 a decade earlier and
even greater levels in the 1990s. Consequently HUD has been forced to utilize
subcontractors heavily while lacking the funds to effectively monitor them, and
to depend on state and local agencies receiving HUD funds to conduct their own
oversight and due diligence. These resource constraints are being exacerbated
by the effects of sequestration.
HUD is also negatively affected by the lack of an integrated
financial system. This
impedes its ability to generate and report the information needed to both prepare financial statements and, more importantly,
manage operations and to conduct
more robust oversight and mitigate fraud, waste and abuse.
The IG spoke specifically about problems his office had
observed with HUD's administration of programs directed towards victims of
disasters, its administration of the Public and Assisted Housing Program, Community
Block Grant Programs (CDBG) and the HOME programs, and especially of various
failings in the FHA program.
FHA's Mutual Mortgage Insurance (MMI)
Fund has been operating below the congressionally mandated 2 percent capital
ratio for the last four years and current projections are that it will not
reach the 2 percent level until 2017.
This means that FHA may have to use its mandatory appropriation
authority to supplement its reserves.
HUD has increased premiums and taken other steps to restore the fund, while
OIG has focused on civil fraud investigations with the Department of Justice in
an effort to further prevent fraud, waste and abuse and return losses to the
Working with DOJ, OIG has initiated a
number of mortgage lender reviews in order to determine the accuracy and due diligence
of underwriters of FHA loans for the largest nationwide lenders. Montoya said the reviews have found high
percentages of loans with multiple significant deficiencies that should not
have been underwritten. These reviews
have resulted in a total of $1.24 billion in civil settlements. Montoya said the OIG reviews should have been
undertaken by HUD itself as part of its inherent program of oversight and risk
Auditing of lenders continues and to date, he said, the underwriting of thousands of FHA insured
loans has been reviewed, as has the overall
loan origination and underwriting practices of the
selected lenders. Results
to date have been presented to
nearly all of the lenders and
settlement talks have begun; however,
the reviews are still underway.
Given the sheer volume of
loans involved and
the high error rates
identified in the
underwriting, settlements and favorable
court actions may result
in significant recoveries by the government from each
10 lenders. A second initiative focusing on large lender
compliance is currently underway.
In addition to the focus on civil fraud,
FHA single-family program
be a major focus of
HUD OIG, Montoya said. During the last two
semiannual reporting periods, OIG issued
25 audits in
this program area reporting $325 million in questioned costs and nearly $800 million in funds to
be put to better use. OIG also found that HUD continues to face challenges in ensuring its programs benefit eligible
participants and that they are not paying improper claims. OIG recently identified an estimated $1.06
billion in claims for 11,693 short sales that did not meet the criteria for
participation in the program. Another
audit found borrowers using the Home Equity Conversion Mortgage (HECM) Program
did not always meet the programs residence requirements.
Finally, OIG audited HUD's oversight of its REO management
and marketing program and found that HUD did not have adequate procedures in
place to ensure consistent and adequate enforcement of asset and field service
In comparing the FHA REO program with that of Fannie Mae and
Freddie Mac, the Government Accountability Office (GAO) found FHA lagged both
enterprises in several areas. It took 60
percent longer (200 versus 340 days) for FHA to dispose of a property after foreclosure,
delays that may have cost it as much as $400 million in additional proceeds and
increased holding costs by $600 million.
Montoya also noted that HUD has had
significant management challenges in monitoring disaster program funds. This grows out of the limited resources for oversight,
the breadth of some of the programs and the length of time needed to complete
them, the ability to waive certain of its own requirements, and the lack of
understanding of the disaster grants on the part of their recipients.
Montoya noted in particular OIG's
follow-up review of its recommendations pertaining to the State of
Louisiana's Road Home
Elevation Incentive program. The initial review found that most home
owners who received grants in 2006 and 2007 to elevate their homes had not done
so and most, when interviewed, revealed
a lack of understanding about their obligations. The follow-up found that as of August 31, 2012,
Louisiana did not have conclusive evidence
that the $698.5 million in Community Development Block Grant (CDBG) funds
provided it by HUD had been used to elevate homes. In response, HUD's Office of Community
Planning and Development (CPD) concurred with the State and allowed homeowners who
received the funds to demonstrate that they used them either to elevate or
rehabilitate their homes, a decision with which OIG last week
Montoya said correction of HUDs
problems in this area are critical given the money yet to be distributed to
victims of Hurricane Sandy. The greatest
improvement that could be made, he said, is to put a time limit on completion
of disaster related projects.