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The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD to determine whether it paid servicers’ claims for properties that did not foreclose or convey on time.  We initiated this audit due to concerns that HUD overpaid servicers’ claims for FHA insurance benefits.

HUD paid claims for an estimated 239,000 properties that servicers did not foreclose upon or convey on time.  HUD paid an estimated $141.9 million for servicers’ claims for unreasonable and unnecessary debenture interest that was incurred after the missed foreclosure or conveyance deadline and an estimated $2.09 billion for servicers’ claims for unreasonable and unnecessary holding costs that were incurred after the deadline to convey.

We recommend that HUD issue a change to 24 CFR (Code of Federal Regulations) Part 203, which corrects deficiencies that allowed an estimated $2.23 billion in unreasonable and unnecessary costs to the FHA insurance fund. These changes include a maximum period for filing insurance claims and disallowance of expenses incurred beyond established timeframes.  We recommend that HUD develop a strategic information technology plan to make significant operational changes to HUD’s monitoring of single-family conveyance claims to ensure that servicers comply with foreclosure and conveyance timeframes.  We also recommend that HUD develop and implement controls to identify noncompliance with current regulations at 24 CFR 203.402.

Recommendation Status Date Issued Summary
2017-KC-0001-001-A Open October 14, 2016

Issue a change to regulations at 24 CFR Part 203, which would avoid unnecessary costs to the FHA insurance fund, allowing an estimated $2.23 billion to be put to better use. These changes include (1) a maximum period for filing insurance claims and (2) disallowance of expenses incurred beyond established timeframes.


Status

FHA's recent status update shows that the status is unchanged.

Federal Housing Administration (FHA) reported that the recommendation cannot be closed out without the publication of the FHA Maximum Claim Rule. The proposed changes have been on HUD’s regulatory agenda (Spring 2024), but at this time the Office of Single Family Housing does not have an estimated publication date.


Analysis

The proposed rule has been published on HUD’s regulatory agenda since Spring 2020. As of the Fall 2023 publication (published 12/6/23), the status remains listed as proposed rule stage. To fully address this recommendation, HUD must publish the FHA Maximum Claim Rule.

Implementation of this rule should result in HUD putting $2.23 billion to better use.