The Office of the Inspector General has set its sights on the Department of Housing and Urban Development’s processes in the selling of distressed single-family mortgages to private equity firms and hedge funds, according to a report recently released by the office.
HUD, in total, has sold around 108,000 distressed mortgages totaling nearly $18 billion dollars under the program. When the program began, it had 2,055 notes totally $387 million in unpaid principle balance.
But the Inspector General found that the HUD did not develop formal procedures for the program, and further did not conduct any rule making beyond its initial advance notice of proposed rule making in 2006. It also did not finalize the comment process in preparing the program for a final rule. This happened because the HUD did not have a formal plan of transitioning the program from a demonstration program to an official HUD program.
Other reasons for the audit include a large amount of Federal Housing Administration claims paid on note sales, voiced public concerns over the administration and creation of the note sale program, and even the sheer fact that the office has never conducted an audit of any single-family note sale program.
The Office of the Inspector General conducted its audit from October to December of 2016 at HUD office in Washington, D.C., and covered note sales program records from the year 2000 to 2006. As noted in the report, “Our review of the single-family note sales data was only to determine the total number of loans sold and the total amount of the unpaid principal balance. We did not select any samples or conduct any further testing on the loan data.”
As a result of the audit, the office recommends the following actions to be undertaken by the Acting Deputy Assistant Secretary of Finance and Budget: first, that HUD complete the rule making for the note sales program; and, second, that the HUD develop formal guidance and procedures.