	Background

The Title I property improvement program was established by the National Housing Act (12 U.S.C. In conducting these activities, lenders are responsible for complying with FHA’s underwriting standards and regulations and ensuring that home improvement work is inspected and completed. Information Needed to Manage the Program Not Collected by HUD

When FHA-approved Title I lenders make program loans, they collect information on borrowers, such as age, income, and gender; the property, such as its address; and loan terms, such as interest rate. HUD does collect all of the information available on borrowers, property, and loans when Title I loans default and lenders submit claims. In addition, while information available to HUD allows identification of potential abuses of the $25,000 indebtedness limit after loans have defaulted, control over the indebtedness limitation is not possible for 90 percent of the program’s loans made that do not default because borrowers’ Social Security numbers and property addresses are not collected when the loans are made. During fiscal years 1996 and 1997, HUD performed five and two on-site lender reviews, respectively. The original loan application is important because it is used by the claims examiner to review the adequacy of the lender’s underwriting and to ensure that the borrower’s signature and Social Security number matches those on other documents, including the credit report. Furthermore, for 23 of the 53 claim files, we found that required completion certificates, certifying that the property improvement work had been completed, were missing or were signed but not dated by the borrowers. We found that for 4 of the 13 loans, on which HUD eventually paid claims, lenders made questionable underwriting decisions. Recent and Proposed Changes to the Title I Program

Under its HUD 2020 Management Reform Plan and related efforts, HUD has been making changes to the Title I program operations. In closing, Mr. Chairman, our preliminary analysis shows weaknesses in HUD’s management of its Title I property improvement loan insurance program and oversight of program lenders. These weaknesses center on the absence of information needed to manage the program and HUD’s oversight of lenders’ compliance with program regulations. HUD officials attributed these weaknesses to the program’s being lender-operated, limited staff resources, and HUD’s assignment of monitoring priorities. The challenge faced by HUD in managing and overseeing this program centers on how to obtain the information needed to manage the program and to strengthen the oversight of lenders for this program, which is relatively small compared with other FHA housing insurance programs. Additional copies are $2 each.
Why GAO Did This Study

GAO discussed certain aspects of the Department of Housing and Urban Development's (HUD) management and oversight of its loan insurance program for home improvements under Title I of the National Housing Act, focusing on: (1) the extent to which the information needed to manage the program was available to HUD; (2) the extent to which HUD was overseeing program lenders; and (3) whether HUD has any ongoing or planned efforts under way to strengthen its management and oversight.

What GAO Found

GAO noted that: (1) its preliminary analysis shows that HUD is not collecting information needed for managing the program; (2) specifically, GAO found that HUD collects little information when loans are made on program borrowers, properties, and loan terms, such as the borrower's income and the address of the property being improved; (3) moreover, HUD does not maintain information on why it denies loan claims or why it subsequently approves some for payment; (4) HUD also provides limited oversight of lenders' compliance with program regulations, conducting only 2 on-site lender reviews in fiscal year 1997 of the approximately 3,700 program lenders; (5) regarding the need for oversight of lenders' compliance, GAO found that loan claim files submitted by lenders to HUD following loan defaults often do not contain required loan documents, including the original loan applications and certifications signed by the borrower that the property improvement work has been completed; (6) in addition, some claims were paid by HUD even though there were indications that lenders did not comply with required underwriting standards when insuring the loan; (7) as a result of the management and oversight weaknesses GAO has observed, its preliminary work indicates that HUD does not know who the program is serving, if lenders are complying with program regulations, and whether certain potential program abuses are occurring, such as violations of the $25,000 limitation on the amount of Title I loan indebtedness for each property; (8) HUD officials attributed these weaknesses to the program's being lender-operated, limited staff resources, and HUD's assignment of monitoring priorities; (9) under the HUD 2020 Management Reform Plan and related efforts, HUD is making significant changes in all of its single-family housing programs, including the Title I property improvement program; (10) these changes are motivated in part by HUD's goals to downsize the agency and address long-standing agencywide management weaknesses; and (11) GAO is assessing the extent to which these changes may affect the management and oversight weaknesses it identified.