The Federal Housing Administration insured roughly $1.44 billion in mortgages for tax debtors who owed the federal government money, the Government Accountability Office said in a new report.
The 6,327 borrowers, who were not supposed to qualify for FHA mortgage insurance, held $77.6 million in federal tax debt. Federal regulations make parties who owe back taxes ineligible for FHA mortgage insurance unless they repay their debts or enter a valid Internal Revenue Service repayment plan.
The parties essentially obtained benefits from the 2009 American Recovery and Reinvestment Act even though they were not qualified, GAO said.
The organization, which focuses on government transparency, said "Recovery Act borrowers with unpaid taxes had foreclosure rates two to three times greater than borrowers without unpaid taxes, which potentially represents an increased risk to FHA."
In addition, 3,815 borrowers received $27.4 million in Recovery Act First-Time Homebuyer Tax Credits. Unlike FHA mortgage insurance, homebuyer tax credits are available to tax debtors as long as they qualify.