Ensure that the $270.7 million identified as invalid obligations in fiscal year 2017 is deobligated as appropriate.

Correct the impact of all the modeling errors that we identified in this report.

Revisit the model’s ability to predict future performance of the single-family portfolio, based on our concerns expressed in this report regarding relationships of certain variables (such as loan-to-value ratio and FICO scores to prepayment) that are not consistent with our expectations. FHA should provide us an analysis to support its position if it believes that a model design change is not warranted.

Establish and implement policies and procedures for assessing and monitoring the reliability of the work performed by FHA’s modeling contractors.

Review FHA’s existing model coding for single-family, HECM, and multifamily models and make necessary changes to make them consistent with industry’s best practices in model coding. At a minimum, FHA should implement actions to address model coding deficiencies cited in our report.

Reevaluate FHA’s existing model documentation for single-family, HECM, and multifamily models to determine whether their current state is acceptable, so that it provides the intended users a thorough understanding of how the model works and also allows new users to assume responsibility for the model’s use (operational procedures). Based on this review, FHA should make adjustments as needed to the model documentation. At a minimum, these adjustments should include appropriate actions taken to address model documentation deficiencies cited in our report.

Establish and implement an effective quality control process to prevent or detect model processing errors cited in our report and prevent other similar model processing errors in the future.

Submit the operating lease for HUD review and complete the operating lease addendum in accordance with HUD requirements.

Require the operator to notify HUD of future management agents prior to participation and to complete the required management agent documents with the current management agent or seek reimbursement for the $2,666,082 in management fees paid in fiscal years 2015 and 2016.

Assess BLM’s performance under the area 4P contract at least quarterly to determine whether it has improved its performance. If its performance does not improve, HUD in coordination with the Office of the Chief Procurement Officer should determine whether BLM has defaulted on its contract and take the appropriate actions.