HUD Inspector General: Department has serious management challenges

Report says problems plaguing the agency are costing taxpayers millions

The Department of Housing and Urban Development is facing serious management challenges that are causing longstanding performance and accountability issues.

An annual report released by the HUD Office of Inspector General outlines the top six management challenges facing the agency in 2019, and the details aren’t pretty.

In 1994, the Government Accountability Office placed HUD on its high-risk list because of management deficiencies, an issue the OIG said persists more than 20 years later.

At the heart of the problem: repeated staff turnover. In the past 10 years, HUD lost 18.5% of its full-time staff, more than any other cabinet-level department.

“Constant turnover and extended vacancies in many of HUD’s most important political and career executive positions have created leadership gaps, which have led to poor management decisions and questionable execution of internal business functions,” the report states. “HUD could not fill essential positions with officials who stayed long enough to implement a vision and effect sustained positive changes.”

The OIG said its report highlights the agency’s greatest vulnerabilities, exposing it to waste, fraud, mismanagement and abuse.

Here are the details on its list of the six greatest management challenges facing HUD in 2019:

Challenge: Ensuring the availability of affordable housing that is decent, safe, sanitary and in good repair

HUD is challenged by the need to provide affordable and safe housing, according the OIG, and it has not established an effective inspections process to monitor properties.

The supply of affordable rentals for low-income renters is inadequate, according to the report, and as the renter population grows, increased competition is exacerbating the problem.

HUD is also struggling to provide sufficient oversight to ensure that properties have a safe water supply, creating an ongoing concern the agency has said it intends to address in 2019.

Aggravating matters is the fact that HUD does not have effective property inspection controls in place.

“We have found instances in which inspection scores rated the physical condition of a property better than it was and as a result, qualified it for less frequent inspections, decreasing oversight,” the report states.

Challenge: Protecting the Federal Housing Administration’s mortgage insurance funds

Although HUD insures approximately 25% of all mortgages originated in the U.S. through the Federal Housing Administration, the OIG found four risks threatening the agency’s ability to properly protect the insurance fund.

For one, the OIG says HUD lacks sufficient safeguards to prevent loan servicers that fail to meet foreclosure and conveyance deadlines from incurring holding costs, which are then transferred to HUD. This practice cost HUD approximately $2.23 billion in “unreasonable and unnecessary” holding costs over a five-year period, according to the OIG.

Secondly, the reverse mortgage program is causing large losses to FHA’s Mutual Mortgage Insurance Fund.

“The reverse mortgage program is complicated and ripe for a host of fraud schemes due to the program intricacies and implementation,” the report states. “Updating its rules and policies would help reduce some of the inherent issues.”

The report calls out over-the-phone counseling as potentially problematic, and says inflated appraisals have spurred losses.

It also says lenders and servicers have delayed reporting claims, which contributes to the drain on the fund.

“We have seen that delayed claim reporting by the servicers or financial institutions adds many additional costs to the HECM claim, which the MMI Fund ultimately must pay,” the report states. “These costs could be mitigated by closer oversight of claims and lenders’ compliance with self-curtailment rules.”

Third, the report lists an increase in Ginnie Mae nonbank issuers as problematic, claiming Ginnie Mae is unprepared to deal with risks specific to these entities.

Finally, it notes that a shift toward the digital mortgage presents a risk to the agency as it has long suffered technology troubles, creating problems related to information security, data transfers and system integration.

Challenge: Providing adequate monitoring and oversight of its operations and program participants

HUD’s inability to institute effective oversight prevents the essential monitoring of its operations and program participants, according the report, which notes that $1.3 billion in “questioned costs” might have been avoided were the proper controls in place.

“HUD’s lack of sufficient monitoring limits its ability to prevent and detect fraud, waste, and mismanagement,” it states.

Challenge: Administering disaster recovery assistance

HUD is tasked with providing disaster recovery assistance, and often receives more funding than any other federal entity to assist in this effort. Through its Community Development Block Grant Disaster Recovery program, HUD disperses grants to state and local government agencies for disaster relief.

But the report says the agency’s inefficiencies prevent it from effectively administering these funds.

Specifically, the OIG says HUD has failed to codify its CDBG-DR Program; ensure that the disaster relief expenses it pays are eligible through the program; certify that grantees are compliant with regulations; address concerns from citizens seeking assistance post disaster; and prevent fraud.

Challenge: Modernizing technology and the management and oversight of information technology

HUD faces significant challenges when it comes to advancing its technology infrastructure.

In the last five years, the agency spent between 70% and 95% of its $280 million annual IT budget on operations and maintenance, according to the report. And, every year since 2012, the agency has spent less money on modernizing and enhancing its tech, instead channeling more funds toward the maintenance of its dated systems.

The out-of-date IT infrastructure leaves the agency vulnerable to data breaches, the report says.

“We are specifically concerned about the current state of FHA’s IT systems and the lack of systems capabilities and automation to respond to changes in business processes and the IT operating environment,” it notes.

Challenge: Instituting sound financial management governance, internal controls and systems

HUD’s financial management is “inadequate and “basic” thanks in part to the fact that it hasn’t had a confirmed CFO for a number of years and because its dated systems and manual processes prevent reliable and timely financial reporting.

“The lack of strong, consistent leadership over an extended period has allowed HUD’s internal control environment and framework to weaken, which let deficiencies occur without being detected or prevented and precluded HUD from resolving financial integrity issues in a timely manner,” the report states.

For its part, HUD's management acknowledged the report and the challenges outlined.

“We are focused on improving HUD’s infrastructure related to human capital practices, critical internal processes, and our information technologies to further enhance the Secretary’s strategic priorities of protecting taxpayer funds and streamlining operations,” HUD said.

“We will continue to identify and implement solutions, consistent with our available resources, that will remediate weaknesses, which prevent HUD from obtaining a clean audit opinion,” it concluded.

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