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We audited the U.S. Department of Housing and Urban Development’s (HUD) tracking of partial claim notes.  The audit was initiated in response to an Office of Inspector General preaudit analysis of HUD’s Single Family Data Warehouse (SFDW) data, which determined that partial claim notes may not have been properly tracked in HUD’s Single Family Mortgage Asset Recovery Technology (SMART) system (see Scope & Methodology section for description of HUD systems).  Our audit objective was to determine whether HUD had adequate controls to ensure that partial claim notes were properly tracked for future collection.

HUD’s National Servicing Center (NSC) did not have adequate controls to ensure that partial claim notes were properly tracked for future collection, putting the collectability of $6 million in partial claim notes at risk.  More specifically, NSC did not always enter partial claim notes and lender payments into its tracking system and ensure that note and mortgage documents adequately supported the partial claim notes.  From January 1, 2013, to August 31, 2017, HUD’s SFDW showed that there were 407,984 partial claims.  A review of 695 nonstatistically sampled Federal Housing Administration loans with partial claims paid during the period January 1, 2013, to August 31, 2017, found 421 deficiencies in boarding (entering partial claims) and 394 deficiencies in tracking partial claim notes.  This condition occurred because of NSC’s reliance on manual processes, which were inadequate to ensure that all partial claims paid and lender payments received were accurately captured in its SMART tracking system.  In addition to the risk of partial claim collectability, HUD could be misreporting partial claim note balances. 

We recommend that HUD (1) enter more than $3 million in partial claims that were not in SMART; (2) remove $697,354 in duplicate partial claim note entries in SMART; (3) obtain missing documents for partial claims totaling $644,767; (4) enter more than $1.0 million in lender payments received that were not in SMART; (5) request that lenders rerecord mortgage documents for 18 inappropriately released loans totaling $451,000; (6) review 4 loans, totaling $93,409 in partial claim notes and remove those in which HUD has not paid a partial claim; (7) develop procedures and controls to enter all partial claims paid and lender payments received; (8) develop controls to ensure that note and mortgage documents accepted are accurate and entered into SMART; and (9) develop and implement controls to ensure that mortgages are released only when they have been satisfied.

Recommendation Status Date Issued Summary
2018-LA-0005-001-A Cerrado Septiembre 21, 2018 Board 47 partial claim notes that were not boarded into SMART, resulting in funds to be put to better use in the amount of $716,061.
2018-LA-0005-001-B Abierta Septiembre 21, 2018 Coordinate with the Deputy Assistant Secretary for Finance and Budget to board 350 manually paid partial claims that were not boarded into SMART, resulting in funds to be put to better use in the amount of $2,297,706.
2018-LA-0005-001-C Cerrado Septiembre 21, 2018 Remove 24 duplicate partial claim note entries from SMART, resulting in funds to be put to better use in the amount of $697,354.
2018-LA-0005-001-D Abierta Septiembre 21, 2018 Obtain the missing mortgage documents for 33 loans and the missing note documents for 40 loans, totaling $644,767 in partial claim notes, and require any unrecorded mortgage documents to be recorded at the appropriate county’s office to ensure that HUD’s interests are protected. For any missing documents that cannot be obtained, the Deputy Assistant Secretary should require the lender to reimburse HUD for the partial claim note.
2018-LA-0005-001-E Cerrado Septiembre 21, 2018 Review 249 loans labeled with “DNV” in appendix D to identify any missing note or mortgage documents for the partial claims. For loans identified with missing documents, the Deputy Assistant Secretary should obtain the documents or require the lender to reimburse HUD for the partial claim note. For loans identified with unrecorded mortgage documents, the Deputy Assistant Secretary should require them to be recorded at the county’s office to ensure that HUD’s interests are protected.
2018-LA-0005-001-F Abierta Septiembre 21, 2018 Coordinate with the Deputy Assistant Secretary for Finance and Budget to record lender payments to update the balances for 139 loans in SMART, resulting in funds to be put to better use in the amount of $1,055,113.
2018-LA-0005-001-G Cerrado Septiembre 21, 2018 Rerecord the mortgage documents at the respective counties’ offices for 18 loans for which the partial claim mortgages were inappropriately released, resulting in funds to be put to better use in the amount of $451,000.
2018-LA-0005-001-H Cerrado Septiembre 21, 2018 Review four loans with partial claim notes already recorded in SMART and remove those loans in which HUD has not paid a partial claim, resulting in funds to be put to better use in the amount of $93,409.
2018-LA-0005-001-I Cerrado Septiembre 21, 2018 Reverse the transaction for one loan for which the transaction removing a partial claim note was made in error, resulting in funds to be put to better use in the amount of $63,591.
2018-LA-0005-001-J Cerrado Septiembre 21, 2018 Collect on one partial claim note for which the loan had matured, resulting in funds to be put to better use in the amount of $1,905.
2018-LA-0005-001-K Cerrado Septiembre 21, 2018 Review two loans in which the partial claim note amount entered was different from the note or mortgage amount to ensure that the appropriate partial claim note amount is entered into SMART, resulting in funds to be put to better use in the amount of $622.
2018-LA-0005-001-L Cerrado Septiembre 21, 2018 Update its procedures to allow automatic boarding for all partial claims paid to eliminate errors caused by manual boarding, including partial claim notes not boarded, and partial claim notes boarded but not yet paid by HUD.
2018-LA-0005-001-M Cerrado Septiembre 21, 2018 Develop and implement procedures and controls to board all manually paid partial claims and record all lender payments received via claim remittances.
2018-LA-0005-001-N Cerrado Septiembre 21, 2018 Develop and implement additional controls to ensure that it accepts only note and mortgage documents with correct amounts that could be matched to the amount recorded in SMART and that the note and mortgage documents marked as received are entered into SMART.
2018-LA-0005-001-O Cerrado Septiembre 21, 2018 Develop and implement additional controls to ensure that it releases mortgages only when they have been satisfied.