The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited Federal Housing Administration (FHA)-insured loans from fiscal year 2018. Our audit objective was to determine whether FHA provided insurance on loans that were made to ineligible, delinquent Federal tax debtors. We found that FHA insured at least 56,376 loans worth $13 billion, which were not eligible for insurance because they were made to borrowers with delinquent Federal tax debt. In addition, it insured another 57,918 loans worth $14.3 billion to borrowers who had delinquent taxes and payment plans with the Internal Revenue Service (IRS) but may not have met FHA’s requirement for 3 months of payments on the payment plans. We were not able to determine the eligibility of these loans because we did not have information showing whether these borrowers completed 3 months of payments on their payment plans. We recommend that FHA require lenders to obtain the borrowers’ consent to verify the existence of delinquent Federal taxes with the IRS during loan origination and deny any applicant with delinquent Federal tax debt not meeting FHA requirements. We also recommend that FHA revise its handbooks to reflect that tax liens and judgments are no longer reported on credit reports and for uniform treatment of delinquent tax debt for forward and reverse mortgages.
Recommendations
Housing
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Status2019-KC-0003-001-AOpenClosed$6,130,757,970.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
PrioridadPriorityWe believe these open recommendations, if implemented, will have the greatest impact on helping HUD achieve its mission to create strong, sustainable, inclusive communities and quality affordable homes for all.
Require lenders to obtain the borrowers’ consent to verify the existence of delinquent Federal taxes with the IRS during loan origination and deny any applicant with delinquent Federal tax debt and no payment plan or a noncompliant payment plan or an applicant refusing to provide consent from receiving FHA insurance to put at least $6.1 billion to better use by avoiding potential future costs to the FHA insurance fund.
Status
HUD's Office of Single Family Housing will need additional tax information to complete the planned action. As of July 2025, HUD was seeking closure of the recommendation, stating that the delinquent Federal tax debt information is not systematically available since the Internal Revenue Service (IRS) cannot disclose it for this non-tax administration need and use under current regulations. HUD also maintains that without an automated solution from the IRS, it is not practical for individual borrowers and/or lenders to manually check tax status with the IRS. OIG disagreed with HUD's request for closure and its position is that action is required since delinquent tax debtors are ineligible for FHA loans under existing FHA and Office of Management and Budget (OMB) guidelines. HUD has other opportunities to address the recommendation, which would help put at least $6.1 billion to better use by ensuring that Federal tax delinquencies are appropriately reviewed during loan origination.
Analysis
To fully address this recommendation, HUD will need to provide evidence that it established a method of borrower consent to verify the existence of delinquent federal taxes including, but not limited to one of the options OIG provided, which were (1) lenders obtaining the borrowers' consent to obtain their tax records directly from the IRS or (2) borrowers accessing their own tax information and submitting it to the lenders.
Implementation of this rule should result in HUD putting $6.1 billion to better use.
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Status2019-KC-0003-001-BOpenClosedClosed on Enero 15, 2020
Revise HUD handbooks for forward and reverse mortgages to reflect that tax liens and judgments are no longer reported on credit reports.
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Status2019-KC-0003-001-COpenClosedClosed on Enero 15, 2020
Revise HUD handbooks for forward and reverse mortgages for uniformity in the treatment of delinquent tax debt and the existence of payment plans as only the forward mortgage handbook requires 3 months of payments.