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We performed an audit of loan servicers’ compliance with the Federal Housing Administration’s (FHA) requirements for providing loss mitigation assistance to borrowers after their COVID-19 forbearance ended.  We initiated the audit based on the large number of borrowers exiting forbearance, because the loss mitigation programs available to these borrowers were new and created a risk for both borrowers and the FHA insurance fund when servicers do not properly provide loss mitigation.  Our audit objective was to determine whether servicers provided borrowers of FHA-insured loans proper loss mitigation assistance after the COVID-19 forbearance ended.

Servicers did not provide proper loss mitigation assistance to approximately two-thirds of delinquent borrowers after their COVID-19 forbearance ended.  Based on a statistical sample drawn from 231,362 FHA-insured forward loans totaling $41 billion, servicers did not meet HUD requirements for providing loss mitigation assistance to borrowers of 155,297 FHA-insured loans.  Nearly half of the borrowers did not receive the correct loss mitigation assistance.  These borrowers did not receive the loss mitigation option for which they were eligible, had their loss mitigation option not calculated properly, or received a loss mitigation option that did not reinstate arrearages, which refers to any amount needed to bring the borrower current.  Approximately one-quarter of the borrowers received the correct loss mitigation option, but servicers did not follow COVID-19 loss mitigation guidance to help borrowers with payments that were missed during forbearance. 

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Recommendations

Key Details
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  Open
  Closed
Funds Put to Better Use
Funds 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.

Questioned Costs
Questioned Costs

Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.

Sensitive
Sensitive

Sensitive information refers to information that could have a damaging import if released to the public and, therefore, must be restricted from public disclosure.

Priority
Priority

We 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.

Housing

  •   2023-KC-0005-001-A

    Review the loans in our sample that did not receive appropriate loss mitigation options to ensure that the borrowers were remedied by the servicers, when possible, and take administrative actions if appropriate.

  •   2023-KC-0005-001-B

    Engage with the servicers in our sample to determine reasons for noncompliance and develop a plan to mitigate it going forward.

  •   2023-KC-0005-001-C

    Provide additional guidance and training to servicers to address common loss mitigation issues found during this audit.

  •   2023-KC-0005-001-D

    Update HUD’s FHA FAQs to clarify current loss mitigation requirements and ensure that outdated guidance is removed.

  •   2023-KC-0005-001-E

    Update the Save Your Home - Tips to Avoid Foreclosure brochure to include new loss mitigation options as they are introduced and require servicers to send this additional information to delinquent homeowners. This could be done as a redesign of the existing brochure or as addendums to the brochure for temporary programs.

  •   2023-KC-0005-001-F

    Closed on December 14, 2023

    Design and implement a data-driven methodology to determine the appropriate mix of origination and servicing monitoring and desk reviews.