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.