Summary
Federal programs in the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) promote mortgage financing for low-income, first-time, minority, veteran, and rural home buyers. Congress has also chartered private corporations--Fannie Mae and Freddie Mac--to provide mortgage lending and to promote homeownership opportunities. Many homeowners fall behind in their mortgage payments each year due to unemployment, health problems, or the death of a provider. To avoid high cost foreclosure proceedings when home buyers fall behind on their obligations, FHA, VA, and RHS instruct mortgage servicers, typically large financial institutions, to assist the home buyers in bringing their mortgage payments current. Despite these efforts, in 118,000 cases in 2000 the mortgage servicers engaged in various foreclosure proceedings under the direction of the organizations. FHA procedures delay the initiation of critical steps necessary to preserve the value of foreclosed properties and to sell them quickly. Although Fannie Mae, Freddie Mac, VA, and RHS designate one entity as responsible for the custody, maintenance, and sale of foreclosed properties, FHA divides these responsibilities between its mortgage servicers and management and marketing contractors, which operate largely independently of one another. Determining the organizations' comparative performance in selling foreclosed properties is difficult because FHA and RHS do not collect all of the data necessary for comparison. However, on the basis of available data, it takes nearly 90 days longer to acquire and sell FHA foreclosed properties than VA properties, and about 130 to 145 days longer to acquire and sell FHA properties than RHS, Fannie Mae, and Freddie Mac properties.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
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Recommendations for Executive Action
Recommendation: To provide for the most effective acquisition and sale of the Federal Housing Administration's (FHA) foreclosed properties, the Secretary of the Department of Housing and Urban Development (HUD) should establish unified property custody as a priority for FHA. The HUD Secretary should determine the optimal method of unified property custody. That is, the HUD Secretary should determine the method of unified custody that best ensures FHA borrowers continuing benefits from loss mitigation and homeowner protections under state and federal laws, provides appropriate incentives for limiting the time and expense of acquiring and selling properties, and ensures that properties are maintained to the benefit of the FHA insurance fund and communities. The HUD Secretary should then implement the optimal method for establishing unified custody. If this optimal method requires additional statutory authority, the HUD Secretary should seek it.
Agency Affected: Department of Housing and Urban Development
Status: In process
Comments: FHA believes that unified custody is the best means to manage the sale of foreclosed properties that it takes into inventory. However, the analysis associated with determining the best means of implementing unified custody is challenging, such as resolving legal questions. In the interim FHA has implemented procedures to make the current dual custody approach to foreclosed property management more efficient. For example, in 2002, FHA implemented a "cash for keys" program where residents of foreclosed properties are given cash to leave. This is designed to allow servicers to take control of foreclosed properties faster, maintain them, and prevent deterioration.
Recommendation: The HUD Secretary and the Secretary of the Department of Veterans Affairs (VA) should immediately assess the cost-effectiveness of their expenditures on title insurance purchases. The HUD Secretary and the VA Secretary should revise these policies if the costs of purchasing these title insurance policies are not clearly justified by their benefits and less expensive alternative means of establishing title are available.
Agency Affected: Department of Housing and Urban Development
Status: In process
Comments: FHA continues to review the cost-effectiveness of purchasing title insurance policies during the foreclosed property sale process. FHA officials said that the analytical process is complicated and involves consulting with agency closing agents and title insurance companies.
Agency Affected: Department of Veterans Affairs
Status: In process
Comments: VA staff have reviewed the costs and benefits of title insurance during the foreclosure process. VA has proposed a rule to OMB regarding its insured loan program and the proposed rule addresses the title insurance concerns raised in the GAO report. VA staff would not disclose the details of the proposal until OMB has completed its review, which is due by June 2004.
Recommendation: To improve the quality of information available to FHA and the Department of Agriculture's Rural Housing Service (RHS) on the time necessary to sell foreclosed properties, the HUD Secretary and the Secretary of the Department of Agriculture should collect additional data from their servicers. Specifically, the HUD Secretary should collect data on foreclosure sales dates, and the Secretary of Agriculture should collect data on foreclosure sales dates and the dates that foreclosed properties are sold to home buyers or investors, and maintain this data in a format that is easily accessible by RHS managers.
Agency Affected: Department of Agriculture
Status: Implemented
Comments: RHS has implemented a system that tracks property sales from the data of the foreclosure sale until properties are sold.
Agency Affected: Department of Housing and Urban Development
Status: In process
Comments: FHA staff have proposed a rule to HUD that would involve collecting foreclosure sales date information from servicers. Both HUD and OMB must review and approve the rule before it is submitted for public comment.
