Mixed Results in Avoiding Foreclosures Permanently

We forecast, on the basis of historical data on the disposition of program loans, that about 35,400 (52 percent) of the 68,695 borrowers accepted into the program since fiscal year 1989 will eventually lose their homes through foreclosure. For the remaining loans (48 percent), we forecast that borrowers will pay off the loans and avoid foreclosure by either selling their homes or refinancing their mortgages, often after remaining in the program for a lengthy period of time. 2). The program also allows 3 years of reduced or suspended mortgage payments. FHA borrowers’ premiums pay for these losses, not the U.S. Treasury. These options include directing HUD to shorten the 36-month relief period, set a time limit on eliminating delinquencies, and accept into the program only those borrowers who can afford half or more of their mortgage payments. The options, such as requiring borrowers to pay more in monthly mortgage payments, would reduce but not eliminate the program’s additional losses. The assignment program would have to require borrowers to begin full mortgage payments within a few months after entering the program in order to nearly eliminate the additional losses incurred by the program. Objectives, Scope, and Methodology

Concerned about the rising number of loans assigned to the Department of Housing and Urban Development (HUD) and their financial impact, the Chairman, Subcommittee on Housing and Community Opportunity, House Committee on Banking and Financial Services, asked us to determine whether the mortgage assignment program (1) helps borrowers avoid foreclosure, (2) reduces the Federal Housing Administration’s (FHA) losses, and (3) can be improved to reduce losses.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed whether the Housing and Urban Development's (HUD) mortgage assignment program: (1) helps borrowers avoid foreclosure; (2) reduces the Federal Housing Administration's (FHA) foreclosure losses; and (3) can be improved to reduce such losses.

What GAO Found

GAO found that: (1) HUD mortgage assignment program helps borrowers avoid immediate foreclosure, but is not successful in helping borrowers avoid foreclosure or retain their homes on a long-term basis; (2) about 52 percent of the 68,700 borrowers in the mortgage program will lose their homes through foreclosure, and the remaining borrowers will pay off their loans after the sale or refinancing of their homes; (3) the mortgage assignment program has not reduced FHA foreclosure losses, since FHA incurs additional costs under the program which more than offset the costs from saving some loans from foreclosure; (4) FHA will incur losses of more than $1.5 billion for those borrowers accepted into the mortgage program since fiscal year 1989; (5) although FHA borrowers' premiums pay for these additional losses, it is more difficult for the single-family insurance program to remain self-sufficient; (6) options that would reduce additional program losses include reducing the 3-year relief period provided to borrowers, setting a time limit on eliminating delinquencies, and accepting borrowers that can pay half or more of their mortgage payment; and (7) FHA would have to require borrowers to begin full mortgage payments within a few months after entering the program to eliminate additional program losses.