Develop a control to detect loans that did not maintain the required flood insurance to put $1.5 billion to better use by avoiding potential future costs to the FHA insurance fund from inadequately insured properties.
Corrective Action Taken
In November 2022, FHA published the Acceptance of Private Flood Insurance for FHA-Insured Mortgages final rule (Docket No. FR-6084-F-02) in the Federal Register and issued Mortgagee Letter 2022-18, Acceptance of Private Flood Insurance for FHA-Insured Mortgages (ML 2022-18). These policy changes not only strengthened Single Family’s Mortgagee requirements regarding flood insurance, but they also introduced the ability for borrowers and Mortgagees to purchase private flood insurance.
In January 2023, the sections in ML 2022-18 that pertain to HUD’s forward mortgage programs were superseded by the FHA Single Family Housing Policy Handbook (Handbook 4000.1), adding a requirement that the Mortgagee review all FHA-insured properties annually to determine if the property is located within a Special Flood Hazard Area (SFHA). For properties located within a SFHA, the Mortgagee must ensure flood insurance is in force for the life of the mortgage and that the property has sufficient flood insurance coverage. To ensure compliance with the policy requirements, the Mortgagee must include updated flood insurance information for properties where flood insurance is required in the Servicing and Claims File. In addition, Handbook 4000.1 includes flood insurance servicing policy updates. HUD submitted a revised management decision reflecting this action on June 22, 2023.
Recommendations
Housing
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Status2022-KC-0002-001-AOpenClosed$1,090,636.00Funds 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.
Closed on August 21, 2023Require lenders to provide evidence of sufficient flood insurance or execute indemnification agreements for the 21 loans in our statistical sample that did not have sufficient flood insurance at the time of our audit to put nearly $1.1 million to better use. (See appendix A.)
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Status2022-KC-0002-001-BOpenClosed$1,506,887,996.00Funds 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.
PriorityPriorityWe 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.
Closed on June 29, 2023Develop a control to detect loans that did not maintain the required flood insurance to put $1.5 billion to better use by avoiding potential future costs to the FHA insurance fund from inadequately insured properties.
Corrective Action Taken
In November 2022, FHA published the Acceptance of Private Flood Insurance for FHA-Insured Mortgages final rule (Docket No. FR-6084-F-02) in the Federal Register and issued Mortgagee Letter 2022-18, Acceptance of Private Flood Insurance for FHA-Insured Mortgages (ML 2022-18). These policy changes not only strengthened Single Family’s Mortgagee requirements regarding flood insurance, but they also introduced the ability for borrowers and Mortgagees to purchase private flood insurance. In January 2023, the sections in ML 2022-18 that pertain to HUD’s forward mortgage programs were superseded by the FHA Single Family Housing Policy Handbook (Handbook 4000.1), adding a requirement that the Mortgagee review all FHA-insured properties annually to determine if the property is located within a Special Flood Hazard Area (SFHA). For properties located within a SFHA, the Mortgagee must ensure flood insurance is in force for the life of the mortgage and that the property has sufficient flood insurance coverage. To ensure compliance with the policy requirements, the Mortgagee must include updated flood insurance information for properties where flood insurance is required in the Servicing and Claims File. In addition, Handbook 4000.1 includes flood insurance servicing policy updates. HUD submitted a revised management decision reflecting this action on June 22, 2023.
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Status2022-KC-0002-001-COpenClosedClosed on June 21, 2023
Consult with the Office of General Counsel to review the language in the statutes, regulations, and handbooks and if warranted, make adjustments to the forward mortgage handbook to ensure consistency with the statute.
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Status2022-KC-0002-001-DOpenClosedClosed on June 21, 2023
Consult with the Office of General Counsel to review the language in the statutes, regulations, and handbooks and if warranted, make adjustments to the HECM handbook to ensure consistency with the statute and regulation.