As FHA insured mortgages continue to increase its market share, additional focus should be placed on the policies FHA/HUD have in place to address properties whose loan becomes delinquent and the property is abandoned.

On June 20th the US Government Accountability Office (GAO) issued a report on HUD’s “Conveyance Process”

Several of the deficiencies identified include:

• FHA’s policies and procedures lack detail that could help servicers and contractors determine if a property is in compliance, and the agency has not examined alternative methods of communicating this information. Fifteen of the 20 servicers GAO interviewed said existing policies, procedures, and communications often were not clear or specific enough to address property conditions or repair decisions they encountered. FHA also relies on brief written policies to explain standards and makes limited or no use of other methods, such as photographs or industry-wide calls.
• FHA has not provided written direction on when to use alternatives to reconveyance—such as agreements under which servicers make repairs or repay FHA for any repair costs after conveyance—for properties not meeting condition standards. In the absence of such direction, FHA may not be addressing these properties in the most consistent or effective manner.
• FHA has not developed a plan to assess the outcome of its inspection pilot. Without rigorous assessment, FHA risks making decisions about the future of the pilot based on inaccurate or incomplete information.

To view the full report, including GAO recommendations, please click here.

For more information (from the Urban Institute) on the role of FHA/HUD in the mortgage process please click here.