Summary

A review was performed of payments made by the Department of Housing and Urban Development (HUD) and the Veterans Administration (VA) to mortgage investors to determine if opportunities exist to reduce losses to Federal mortgage insurance and guarantee programs.

No problems were found in guarantee payments made by VA. HUD pays mortgagees several million dollars annually in unearned interest by paying interest on reimbursable foreclosure expenses before the expenditures are made. HUD officials have not taken corrective action, citing legal problems and increased administrative costs as the reasons. GAO found a sufficient legal basis for taking corrective action and pointed out that the administrative costs involved would be minimal compared to the millions of dollars in recurring annual savings resulting from the change. HUD also pays mortgagee insurance claims for certain reimbursable costs without adequate justification that the payments are warranted. Due to inadequate supporting documentation and a limited review of mortgage claims, HUD has: (1) paid unreasonable costs to secure HUD-insured vacant properties; (2) erroneously paid mortgagees for fees to inspect properties; and (3) made duplicative property tax payments on HUD-acquired properties.