oversight

First Preston Foreclosure Specialists, Marketing and Management Contract, Blue Bell, Pennsylvania

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-09-21.

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                        AUDIT REPORT




         FIRST PRESTON FORECLOSURE SPECIALISTS
         MARKETING AND MANAGEMENT CONTRACT

                    BLUE BELL, PENNSYLVANIA

                               00-NY-229-1006

                           SEPTEMBER 21, 2000
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                            NEW YORK/NEW JERSEY
                                                                        Issue Date
                                                                       September 21, 2000
                                                                        Audit Case Number
                                                                       00-NY-229-1006




  TO:    Engram A. Lloyd, Director, Homeownership Center
                             Philadelphia, Pennsylvania, 3AHH


  FROM: Alexander C. Malloy, District Inspector General for Audit, 2AGA

  SUBJECT:       First Preston Foreclosure Specialists
                 Marketing and Management Contract
                 Blue Bell, Pennsylvania

  We completed an audit of First Preston Foreclosure Specialists (First Preston) a Management and
  Marketing (M&M) contractor. This report presents the results of our audit of First Preston’s
  ability to manage and market the U.S. Department of Housing and Urban Development (HUD)
  single family properties. The report includes three findings with recommendations for corrective
  action.

  Within 60 days, please provide us, for each recommendation in this report, a status report on: (1)
  the corrective action taken; (2) the proposed corrective action and the date to be completed; or
  (3) why action is not considered necessary. Also, please furnish us copies of any correspondence
  or directives issued related to this audit. Please be advised that Handbook 2000.06 REV-3
  requires management decisions to be reached on all recommendations within 6 months of report
  issuance. It also provides guidance regarding interim actions and the format and content of your
  reply.

  We appreciate your cooperation during the audit, and would like to thank First Preston for its
  cooperation during the audit. Should you or your staff have any questions, please contact
  William H. Rooney, Assistant District Inspector General for Audit, on (212) 264-8000, extension
  3976.


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  Management Memorandum




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  Executive Summary
  We performed an audit of First Preston to assess its performance under its Marketing and
  Management (M&M) Contract Number C-OP-21522. Specifically, our audit objectives were to
  assess First Preston’s ability to manage and market properties in a manner that enables HUD to
  accomplish its mission. This audit is one of a series of audits the Office of Inspector General
  (OIG) is performing regarding the operations of M&M contractors. Each audit is part of OIG’s
  nationwide assessment of HUD’s ability to meet its program mission while outsourcing
  management and marketing activities.




                                      Under Secretary Andrew Cuomo, the U.S. Department of
  HUD outsourced                      Housing and Urban Development (HUD) has undergone
  management and marketing            significant changes in response to the Secretary’s “HUD
  activities                          2020 Reorganization Plan.” One major change is the
                                      outsourcing of HUD’s management and marketing of its
                                      single family properties. Although HUD outsourced these
                                      activities, its program mission did not change. The
                                      program mission is to reduce the single family inventory in
                                      a manner that: (1) expands homeownership, (2) strengthens
                                      neighborhoods and communities, and (3) ensures a
                                      maximum return to the mortgage insurance fund.
                                      .
                                      In March 1999, HUD awarded 7 contractors a total of 16
  Contract awarded to First           M&M contracts to manage its single family property
  Preston on September 23,            inventory. One of the original contractors failed to
  1999                                effectively manage and market properties; as a result, HUD
                                      terminated the contractor. On September 23, 1999, HUD
                                      awarded a M&M contract to First Preston for the
                                      Philadelphia Homeownership Center (HOC) Area 3, which
                                      includes New York, New Jersey, Pennsylvania, Delaware,
                                      Washington, DC, and Virginia.

                                      First Preston has demonstrated success in several key areas.
                                      It has instituted an electronic bidding system; reduced the
                                      number of properties in inventory; and increased the sales
                                      of     properties.    Despite     these   accomplishments,
                                      improvements are still needed.

                                      Physical inspections performed by the OIG, and by
   Properties not adequately          subcontractors of First Preston showed numerous
   maintained or safeguarded          deficiencies, evidencing inadequate maintenance and
                                      safeguarding of property assets. The unfavorable property

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         Executive Summary


                                          conditions occurred because First Preston did not always
                                          repair, maintain and properly secure properties in
                                          accordance with the contract provisions. Consequently,
                                          efforts to effectively market assets for sale diminished,
                                          while health and safety hazards became more prevalent. In
                                          our opinion, this increased the risk of potential liabilities to
                                          HUD, and may have caused property values in surrounding
                                          neighborhoods to decline. Unless First Preston enacts
                                          adequate controls that ensure prompt and complete
                                          recognition of existing property deficiencies, and
                                          establishes procedures necessary to correct deficiencies
                                          identified, marketing efforts will be impeded; properties
                                          needing repair will remain in inventory as unsold;
                                          neighboring communities may be adversely affected; and
                                          shoddy property conditions will likely occur.

                                          An essential objective of the M&M contract is the selling
         Properties in inventory for 12
                                          of the properties and reducing the inventory. In the eight
         months or longer has
                                          months since executing the M&M contract, First Preston
         increased
                                          has reduced the overall inventory by eight percent; however
                                          the number of properties held in the inventory longer than
                                          12 months increased by 63 percent. In our opinion, this
                                          occurred because First Preston has not placed enough
                                          emphasis on the sale of properties that have been in the
                                          inventory for long periods of time. The failure to dispose
                                          of these properties results in higher holding costs; but,
                                          more importantly, such properties have a negative effect on
                                          the surrounding neighborhoods.

                                          Furthermore, First Preston has not complied with all the
         First Preston has not
                                          requirements in its contract. Specifically, First Preston: (a)
         complied with all the
                                          charged for ineligible costs; (b) did not performed tasks in a
         requirements in its’ contract
                                          timely manner; (c) did not always included the required
                                          documentation in the appropriate files; and (d) did not
                                          report all problems to the Government Technical
                                          Representative (GTR). We believe these deficiencies
                                          occurred because First Preston did not implement the
                                          necessary controls to ensure that all contract provisions
                                          were met. As a result, First Preston’s performance may
                                          have lead to excessive costs and properties remaining in the
                                          HUD inventory for extended periods of time.

                                          On August 22, 2000, we held an exit conference with First
         Exit Conference                  Preston Officials to discuss our draft findings and
                                          recommendations.

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                                               Executive Summary



         First Preston’s written response is shown in Appendix B.
         In addition, we have included a summary of First Preston’s
         pertinent comments after each finding.




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Table of Contents

Management Memorandum                                                           i



Executive Summary                                                             iii



Introduction                                                                   1



Findings

1     Properties Not Adequately Maintained or Safeguarded                      5


2     Number of Properties in Inventory for Twelve Months
      or Longer Increased                                                     13


3     First Preston Needs to Comply with all the Provisions
      of its Contract                                                         19



Management Controls                                                           31



Follow Up On Prior Audits                                                     33



Appendices
    A Property Condition Examples                                             35

    B Auditee Comments                                                        39


    C Distribution                                                            61


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Table of Contents


Abbreviations

ACL              Audit Command Language
GTR              Government Technical Representative
HOC              Homeownership Center
HUD              Department of Housing and Urban Development
M&M              Management and Marketing
OIG              Office of Inspector General
SAMS             Single Family Accounting Management System




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00-NY-229-1006                      Page viii
  Introduction
  HUD’s Single Family Mortgage Insurance Program helps low and moderate income families
  become homeowners by reducing down payments and limiting lender fees. Every year, however,
  thousands of borrowers default on their HUD insured loans. When borrowers default, HUD
  encourages lenders to work with them to bring their payments current. If the lenders are
  unsuccessful, the borrowers’ homes may be sold to third parties, voluntarily conveyed to the
  lenders, or surrendered to lenders through foreclosure. Once lenders obtain the properties, they
  generally convey title to the Secretary of HUD and submit a claim to the HUD insurance fund.




  Background                          The National Housing Act of 1934 gives the Secretary of
                                      HUD the authority to manage, rehabilitate, rent, and
                                      dispose of properties acquired under the Single Family
                                      Property Disposition Program. Title 24, Code of Federal
                                      Regulations, Part 291 implements statutory authority to
                                      manage and dispose of acquired properties. Handbook
                                      4310.5, REV-2, dated May 17, 1994, Property Disposition
                                      Handbook - One to Four Family Properties, supplements
                                      the regulations.

                                      The mission of HUD’s single family property disposition
  HUD mission is to reduce            program is to reduce the property inventory in a manner
  property inventory                  that expands home ownership opportunities, strengthens
                                      neighborhoods and communities, and ensures a maximum
                                      return to the mortgage insurance fund.

                                      HUD’s Office of Insured Single Family Housing, Asset
                                      Management Division, is responsible for developing
                                      property disposition policies and procedures governing
                                      program administration. Each of HUD’s four
                                      Homeownership Centers (HOCs) is responsible for
                                      program operations within its geographical jurisdiction.
                                      The Philadelphia HOC is responsible for overseeing First
                                      Preston’s management of Area 3 properties.

  First Preston awarded M & M         As part of a nationwide restructuring of HUD’s Single
  contract on September 23,           Family Property Division, on March 29, 1999, HUD
  1999                                awarded seven contractors a total of 16 contracts to manage
                                      and market its properties nationwide. HUD awarded seven
                                      of the contracts to Intown Management Group, LLC. Two
                                      of Intown’s contracts were for properties located in The
                                      Philadelphia HOC’s Areas 2 and 3. Area 2 consisted of
                                      New York, New Jersey, Pennsylvania and Delaware, and
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   Introduction


                                 Area 3 consisted of Washington, DC, Maryland, Virginia
                                 and West Virginia. Because of Intown’s failure to
                                 effectively manage and market properties, HUD terminated
                                 all of the contracts with Intown. On September 23, 1999,
                                 HUD awarded a M&M contract to First Preston for a
                                 revised Philadelphia HOC Area 3 that now includes New
                                 York, New Jersey, Pennsylvania, Delaware, Washington,
                                 DC, and Virginia.

                                 First Preston’s main offices are located in Addison Texas,
                                 and the Regional Office for Area 3 is located at 475 Sentry
                                 Parkway, Suite 5000, Blue Bell, Pennsylvania. The
                                 President of First Preston is Ms. Nancy Richards.

   Contract Objectives           The primary objectives of First Preston’s contract are to
                                 ensure that: (1) properties are protected and preserved,
                                 properly managed, evaluated, and marketed in a manner
                                 which produces the highest possible return to the insurance
                                 fund; (2) average losses on sales and the average time
                                 properties remain in inventory are reduced; and, (3) the
                                 overall program and the image of properties are positive.

                                 The contract’s scope of work requires First Preston to
                                 perform all of the management and marketing duties and
                                 responsibilities formerly performed by HUD. First Preston
                                 is responsible for inspecting, appraising, securing,
                                 maintaining and selling the properties. For these services,
                                 HUD pays First Preston a fee based on a percentage of the
                                 properties’ selling prices.     The fee is paid in two
                                 installments, 30 percent upon the listing of the property for
                                 sale and the remainder when the property is sold. The
                                 estimated value of the contract is $35,518,270 for the
                                 period September 23, 1999, though January 31, 2001.

                                 Intown’s mismanagement had created an excessive property
                                 inventory, poor property conditions, lack of adequate
  Prior contractor problems      records, poor public relations and many other problems.
  resulted in special contract   Because of the unique problems in taking over the
  provisions                     management and marketing function, after Intown’s
                                 termination, several special provisions were included in
                                 First Preston’s contract. A distinction was made between
                                 the properties previously assigned to Intown “transition


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                                                                      Introduction


                               properties” and new properties “newly assigned properties.”
                               Among other things the contract made concessions on time
                               frames required for listing the properties and adjusted the
                               management fee to 70 percent for properties previously
                               listed by Intown. In addition, Exhibit 16 of the contract
                               allowed First Preston to be paid on a reimbursement basis
                               during the first 60 days of the contract, the actual costs to
                               remove debris and defective paint, as well as actual costs to
                               secure the property. Also, during the first 75 days of the
                               contract, the contract allowed First Preston to be
                               reimbursed as pass through costs for fines, interest or other
                               penalties on transition properties

                               The inventory of properties at the end of September 1999,
                               was 9,626, which represented about 19 percent of the total
                               properties held nationwide. At May 31, 2000, the
                               inventory of properties assigned to First Preston was 8,817,
                               representing about 22 percent of the total nationwide
                               properties.

                               The audit objectives were to determine if First Preston: (1)
  Audit Objectives and Scope   managed properties according to HUD policies, procedures
                               and regulations and with the terms and conditions of its
                               M&M contract; (2) instituted adequate controls to ensure
                               HUD’s assets are adequately protected; and (3) established
                               operations that resulted in HUD accomplishing its mission
                               and performance goals.

                               To meet our objectives, we:

                               •   Interviewed First Preston and HOC officials;
                               •   Reviewed 29 active property cases in two cities,
                                   Buffalo, New York and Philadelphia, Pennsylvania;
                               •   Selected 29 active properties using the random
                                   sampling function in the Audit Command Language
                                   (ACL);
                               •   Reviewed 15 closed cases selected using ACL’s
                                   random sampling function;
                               •   Inspected a judgmental sample of 27 properties;
                               •   Reviewed a judgmental sample of First Preston
                                   payment vouchers;
                               •   Examined 100 percent of vouchers between October 1,
                                   1999 and March 31, 2000, using ACL for indications of
                                   possible duplicate payments;


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  Introduction


                   •   Reviewed First Preston’s policies and procedures and
                       observed its operations; and,
                   •   Analyzed inventory and sales trends.

                   We assessed management controls regarding: (1) property
                   preservation and protection, (2) billings to HUD for
                   services, (3) property sales, (4) property appraisals, (5)
                   sales closing documents, and (6) subcontracting.

                   The audit is one in a series of audits OIG performed of
                   M&M contractors’ operations. Each audit is part of OIG’s
                   nationwide assessment of HUD’s ability to meet its
                   program mission and goals while outsourcing its
                   management and marketing activities.


                   We performed our field work from April 2000 through
  Audit Period     August 2000. The audit covered the period between
                   September 23, 1999 and May 31, 2000. We updated our
                   report to reflect current actions, where applicable. We
                   conducted our audit in accordance with generally accepted
                   government auditing standards.

                   A copy of this report was sent to First Preston.




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                                                                                         Finding 1


          Properties Not Adequately Maintained or
                        Safeguarded
  Physical inspections performed by the OIG, and by subcontractors of First Preston, showed
  numerous deficiencies evidencing inadequate maintenance and safeguarding of property assets.
  The unfavorable property conditions exist because First Preston did not always repair, maintain
  or properly secure properties in accordance with contract provisions. Consequently, efforts to
  effectively market assets for sale have been diminished while health and safety hazards have
  become more prevalent. Thus, this has increased the risk of potential liabilities to HUD, and may
  have caused property values in surrounding neighborhoods to decline.




   Criteria                            The M&M contract between HUD and First Preston
                                       contains requirements relative to issues of maintenance and
                                       security of the properties. Section C-2, paragraph V.5
                                       defines one of the contractor’s tasks to routinely inspect
                                       and take all actions necessary to preserve, protect and
                                       maintain each property in a reasonable condition at all
                                       times. Further, Section C-3, paragraph VI of the contract
                                       stipulates that the contractor shall be responsible for
                                       safeguarding all government property. The contractor shall
                                       be held liable for damages to government property due to
                                       causes such as vandalism, neglect, negligence of employees
                                       and subcontractors, failure to secure property or other
                                       misconduct by the contractor.

  Scope                                Our audit included a review of First Preston’s management
                                       and marketing operations using a sample of 29 properties
                                       located in Philadelphia, Pennsylvania and Buffalo, New
                                       York. To determine the quality and accuracy of inspections
                                       performed by First Preston’s subcontractors, and to verify
                                       current property conditions, we performed physical
                                       inspections of the 27 properties in the sample. In addition,
                                       we performed exterior inspections of six additional
                                       properties in Buffalo and two in Philadelphia to assess the
                                       impact of the properties on the surrounding neighborhood.
                                       The inspections focused on conditions associated with
                                       property maintenance, safeguarding, and health and safety
                                       matters. We compared the results of our inspections to the
                                       latest inspections that were performed by First Preston’s
                                       subcontractors.

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  Finding 1




                             Numerous deficiencies noted during OIG inspections

  Inspections Results        The HOC’s monthly assessment reports of First Preston’s
                             performance have continually stated that property
                             maintenance was at an unacceptable level of performance.
                             In its letter of May 31, 2000, the HOC stated that for the
                             month of April, of the 1,510 inspections performed, 59
                             percent (889) were unacceptable. Our inspections
                             corroborated the existence of property maintenance
                             problems. While overall results varied broadly, our
                             inspections showed that all 27 properties, were deficient in
                             at least one, but often several, of the 22 relevant categories
                             examined (See Table Below).

  Property Deficiency        First Preston                       OIG

  Foundation Cracks                 0                                7
  Exterior Appearance               1                                3
  Kitchen and Bath                  0                               21
  Heating                           0                                3
  Plumbing                          0                                5
  Electrical                        0                                5
  Roof Leaks                        5                               10
  Water Damage                      1                                6
  Vandalism                         1                                6
  Needed Repairs                    3                               10
  Defective Interior Paint          9                               21
  Interior Appearance               0                                3
  Door Key Did Not Work             0                                3
  Lawn Not Cut                     10                               14
  Debris in Yard                    6                                6
  Poor Roof Condition               2                                6
  Signs Not Posted                  3                               19
  Unsecured Doors                   2                                2
  Windows Not Boarded               7                               22
  Windows Not Secured               1                               13
  Exterior Hazards                  2                                5
  Defective Paint                   8                               15


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                                                                                  Finding 1




                                    Properties were in poor condition and contained health and
                                    safety hazards

   Examples of poor property        Several properties inspected were in poor condition and
   conditions                       contained alarming health and safety hazards. Among other
                                    things, our inspectors disclosed that a shotgun was under
                                    the porch of one property; a decaying rat was in the
                                    basement of another, and an entire window was laying on
                                    the ground outside a third property. Moreover, some
                                    properties have been broken into and vandalized; some
                                    were laden with debris, and/or were in need of vital repair.
                                    Some of the more notable property deficiencies are
                                    identified within the pictures of Appendix A to this report.

                                    Differences were noted between OIG and subcontractors’
                                    inspections

  Subcontractors’ inspections not   Significant differences were noted between the results of
  consistence with OIG results      our inspections and those recently conducted by First
                                    Preston’s subcontractors. Yet, it would be reasonable to
                                    expect the observations to be similar since the OIG
                                    inspections were performed, in most instances, within two
                                    weeks or less of the latest documented subcontractor
                                    inspection. Notwithstanding, for nearly all 22 areas
                                    inspected, the subcontractor classified significantly fewer
                                    properties as deficient than the OIG. The following is a
                                    graphical illustration that compares the number of deficient
                                    properties, for nine pertinent inspection categories, as
                                    identified by both First Preston’s subcontractors and OIG
                                    appraisers.




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  Finding 1




                                                           Inspection Deficiencies Noted

                                25


                                20

         Deficient Cases
                                15
    (27 Properties Inspected)

                                10
                                                                                                                                                       OIG
                                5                                                                                                                      FP


                                0




                                                                                    Interior Paint




                                                                                                                 Debris in
                                                             Vandalism




                                                                                                                             Not Secured
                                                                                                     Defective




                                                                                                                                           Hazards
                                     Roof Leaks




                                                                         Needed
                                                                         Repairs
                                                  Damage




                                                                                                                                           Exterior
                                                                                                      Exterior
                                                   Water




                                                                                      Defective




                                                                                                                              Windows
                                                                                                                  Yard
                                                                                                       Paint
                                                                               Deficiency Type




                                                     Subcontractor inspections appear to be incomplete

   Subcontractor inspections                         As illustrated, OIG inspections consistently classified more
   incomplete                                        properties as deficient than did First Preston’s
                                                     subcontractors. In particular, subcontractors’ inspections
                                                     appear incomplete relative to detecting property
                                                     deficiencies such as: defective paint, water damage,
                                                     vandalism, needed repairs, and, inadequate security. These
                                                     results indicate that subcontractors’ inspections may be less
                                                     than adequate and may most likely contain errors and/or
                                                     omissions.

                                                     We believe the poor maintenance and security of the
                                                     properties that we inspected is the result of First Preston’s
                                                     lack of adequate controls over its subcontractors. Without
                                                     proper controls to verify and promote the accuracy of
                                                     subcontractors’ performance, First Preston cannot be
                                                     ensured that inspections will identify all existing
                                                     deficiencies, all     completed repairs or whether all
                                                     properties are properly secured. The poor condition of the
                                                     properties negatively effects the sale of the properties; may


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                                                                                    Finding 1


                                    allow health and safety situations to go uncorrected; can
                                    increase potential liabilities to HUD; and possibly decrease
                                    the value of surrounding homes and neighborhood.

                                    First Preston has not performed requirements concerning
                                    lead-based paint timely

   Inefficient processing of lead   Apart from the above, First Preston has been less than
   based paint requirements         expedient or efficient in its efforts to market certain
                                    properties located in Philadelphia, Pennsylvania.

                                    Exhibit 15 of the M & M contract contains special
                                    provisions based on a court decree mandating that lead-
                                    based paint be abated in all properties sold within
                                    Philadelphia that were built before 1978. Specifically, it
                                    provides that upon acquisition of pre-1978 HUD owned
                                    homes, the M&M Contractor shall, on a weekly basis,
                                    furnish to the City of Philadelphia, Department of Public
                                    Health a written task order listing properties requiring
                                    initial inspections for lead-based paint. The Exhibit further
                                    states that if Health Department employees cannot access a
                                    property to perform the requested inspection or re-
                                    inspection, the M&M Contractor shall be charged a “lock
                                    out” fee of $60 for each occurrence.

                                    Discussions with Philadelphia HOC staff, and a review of
                                    pertinent documentation showed that First Preston often did
                                    not request an initial lead-based paint inspection until
                                    several weeks subsequent to the date of property
                                    acquisition. In addition, as evidenced by numerous
                                    instances where HUD incurred costs for lock out fees, First
                                    Preston has not always assured access to properties
                                    subsequent to its request for an inspection.

                                    In addition to adversely effecting the marketing of
                                    Philadelphia properties, First Preston’s delay in requesting
                                    lead-based paint inspections and not assuring access to
                                    properties may have allowed a serious health and safety
                                    condition to continue unabated.


   Contractor actions required      Unless First Preston enacts adequate controls to ensure
                                    prompt and complete recognition of existing property
                                    deficiencies, and until it establishes procedures necessary to
                                    correct the deficiencies identified, marketing efforts will be
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  Finding 1


                      impeded, properties needing repairs will remain in the
                      inventory as unsold, neighboring communities may be
                      adversely affected, and shoddy property conditions such as
                      those previously described will likely occur.


  Auditee Comments    First Preston disagrees with our conclusions. Its comments
                      provide that the OIG inspections and the HOC’s monthly
                      assessments do not take into consideration the inherent risk
                      verses contractor compliance. First Preston considers there
                      to be serious conflicts of interest because several of HUD’s
                      Special Property Inspectors are disqualified M & M
                      contract bidders and are operating under terms that are
                      inconsistent with First Preston’s contract.

                      First Preston comments also provide that its inspectors do
                      not look at needed repairs the way the OIG does.
                      According to its comments First Preston will not replace
                      siding, paint and carpet, etc.; therefore, First Preston’s
                      inspectors will not write up these items during routine
                      inspections.

                      Regarding, our first recommendation First Preston
                      indicated that it will work with HUD to readdress its
                      requirements. Regarding the second recommendation,
                      concerning lead-based paint, First Preston, agreed that the
                      problem existed early on during its contract; however, First
                      Preston claims that it is now in compliance with its
                      contract.


  OIG Evaluation of    Regarding inherent risks, First Preston has a contract with
  Auditee Comments    HUD that requires First Preston to adequately maintain and
                      safeguard the properties in accordance with its contract.
                      When we performed the inspections, we used an OIG
                      Appraiser. Our inspections revealed that First Preston was
                      not adequately maintaining or safeguarding the properties
                      in accordance with the requirements of its contract. We
                      performed our inspections in accordance with the contract
                      which requires First Preston to routinely inspect and take


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                                                                   Finding 1


                     all actions necessary to preserve, protect and maintain each
                     property in a presentable condition at all times.

                      Regarding the lead-based paint issue, we recommend that
                     the HOC ensure that First Preston is in compliance with the
                     requirements.




   Recommendations   We recommend that you require First Preston to:

                            1A.     Establish procedures that: ensure all
                            significant property deficiencies are identified;
                            monitor the accuracy of subcontractor property
                            inspections; and, provide assurance that the needed
                            repairs are completed promptly.

                            1B.    Ensure that the requirements of Exhibit 15
                            of the M&M contract, regarding lead-based paint
                            are met.




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                                                                                        Finding 2


    Number of Properties in Inventory for Twelve
           Months or Longer Increased
  An essential objective of the M&M contract is to sell HUD owned properties and thereby reduce
  the inventory of HUD owned properties. In the eight months since executing the M&M
  contract, First Preston has reduced the overall inventory by eight percent; however, the number
  of properties held in the inventory longer than 12 months has increased by 63 percent. In our
  opinion, this occurred because First Preston has not placed enough emphasis on the sale of
  properties that have been in the inventory for long periods of time. The failure to dispose of
  these properties results in higher holding costs, but more importantly such properties have a
  negative effect on the surrounding neighborhoods.




  Criteria                            The M&M contract as executed on September 23, 1999,
                                      lists six primary objectives in Section C-2 paragraph I. Two
                                      of those objectives are to ensure: (1) that HUD owned
                                      properties are protected and preserved, properly managed,
                                      evaluated, and marketed in a manner which produces the
                                      highest possible return to HUD's mortgage insurance fund,
                                      and (2) that average losses on sales and the average time
                                      properties remain in inventory are reduced.

   Scope                              We reviewed the inventory, sales and profit and loss data
                                      from HUD’s Single Family Accounting Management
                                      System (SAMS). Our audit included a review of the
                                      Acquired Properties Monthly Summaries reports and the
                                      Cash Management Profit and Loss reports for October 1999
                                      to May 2000. In addition, we reviewed First Preston’s
                                      monthly Executive Reports since the execution of its
                                      contract on September 23, 1999.

                                      Properties 12 months and over increased by 63 percent

  Inventory of older properties       During the period that First Preston had the M&M contract,
  has increased                       Area 3 showed an 8 percent decrease in the number of
                                      properties in the inventory. At the end of September 1999,
                                      the inventory of HUD properties was 9,626, and as of May
                                      31, 2000, the inventory was 8,817. While properties in the
                                      inventory over 6 months decreased by 12 percent,
                                      properties that have remained in the inventory for 12


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  Finding 2


                                      months or longer have increased by 63 percent from 1,150
                                      to 1,876.



      End Of Month            SEPT OCT NOV DEC JAN FEB MAR APR MAY
      Total Inventory          9,626 9,903 10,175 10,227 10,060 9,903 9,583 9,240 8,817
      Properties > 12 Mo.      1,150 1,375 1,555 1,733 1,855 2,001 2,119 2,089 1,876

                                      Steady increase in the percent of properties 12 months and
                                      older

                                      Properties that were in the inventory 12 months or longer
                                      accounted for 12 percent of the total inventory at the end of
                                      September 1999, and had increased to 21 percent at the end
                                      of May 2000. According to the Andersen Consulting
                                      Industry Benchmarking and Best Practices Report the real
                                      estate industry standard is 2 to 3 percent.


                                   AGE OF PROPERTIES BY PERCENT

         100%
                   12%      14%    15%
         90%                                17%      18%         20%                        21%
                                                                         22%      23%
         80%

         70%

         60%

         50%
                   88%      86%    85%
         40%                                83%      82%         80%                        79%
                                                                         78%      77%
         30%

         20%

         10%

          0%
                   SEPT     OCT    NOV      DEC       JAN        FEB     MAR      APR       MAY


                Properties less than 12 Months              Properties older than 12 Months




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                                                                                          Finding 2


                                          Older properties have a higher holding cost and greater
                                          probability of deterioration

  Increased likelihood of                 The failure to timely dispose of properties results in higher
  deterioration and vandalism             holding costs and increases the likelihood that the property
                                          will deteriorate or be vandalized. Not only does this reduce
                                          the marketability of the property, but the deteriorating
                                          properties have a negative effect on the surrounding
                                          neighborhoods and the value of nearby properties. Because
                                          the M&M contract principally concentrated on selling
                                          properties quickly, we believe that First Preston has not
                                          placed enough emphasis on the sale of properties that have
                                          been in the inventory for long periods of time.

                                          Revenue losses have increased significant

  $9,529,517 in lost revenue              HUD measures revenue losses based on the differences
                                          between average sales price and appraised value, the HUD
                                          goal is to sell properties at 98 percent of appraised value.
                                          During the period of time that First Preston has been under
                                          contract to perform the management and marketing
                                          function, there has been a steady decrease in the sales price
                                          as a percent of the appraised value and an increase in the
                                          loss of revenue. The following schedule shows that sales
                                          prices decreased to 90 percent of the appraised value in
                                          May 2000; and that there has been $9,529,517 in lost
                                          revenues since October 1999.


                            ACTUAL          % OF        98%                              REVENUE
               APPRAISED        SALE      APPRAISED    GOAL                   SALES       GAIN/
     MONTH      VALUE           PRICE      VALUE      AMOUNT     DIFFERENCE   VOLUME      (LOSS)
     Oct-99      $61,985        $62,233      100%      $60,745       $1,488       667       $992,496
     Nov-99      $66,237        $66,463      100%      $64,912       $1,551       681     $1,056,231
     Dec-99      $62,503        $61,963       99%      $61,253         $710       929       $659,590
      Jan-00     $59,462        $58,127       98%      $58,273        -$146     1,140     ($166,440)
     Feb-00      $61,699        $60,051       97%      $60,465        -$414     1,192     ($493,488)
     Mar-00      $59,073        $56,943       96%      $57,892        -$949     1,427   ($1,354,223)
     Apr-00      $57,738        $53,981       93%      $56,583      -$2,602     1,293   ($3,364,386)
     May-00      $58,782        $52,703       90%      $57,606      -$4,903     1,399   ($6,859,297)
                                                                                        ($9,529,517)


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  Finding 2




                     The Good Neighbor Program may have contributed to the
                     increase in the loss of revenue

                     The large increase in the loss of revenue in May could
                     have, in part resulted from HUD’s implementation of the
                     Good Neighbor Program that began on May 1, 2000. The
                     program was designed to sell properties that are 6 months
                     or older to the local governments for $1.00. The intent of
                     the program is to reduce the inventory of older properties.
                     However, the sale of older properties for $1.00 will
                     increase the loss of revenue and significantly impede HUD
                     from meeting its goal of selling properties at an average of
                     98 percent of appraised value. While the Good Neighbor
                     Program may have contributed to the increase in the loss of
                     revenue in May, the overall trend since October 1999, has
                     been a decrease in the sales price compared to the appraised
                     value.

                     The lack of a significant reduction in the inventory is due to
                     First Preston’s failure to sell older properties in the
                     inventory. In our opinion, this results from First Preston
                     failure to allocate sufficient resources to the marketing of
                     the older properties. As a result, loss revenue to HUD has
                     increased and the average sales price has decreased to
                     significantly below HUD’s goal of a 98 percent average
                     return.


                     First Preston disagreed with our conclusion and found the
  Auditee Comments
                     finding to be deceptive and misleading. First Preston’s
                     comments provided that the reference to an industry
                     standard of 2 to 3 percent for properties in the inventory
                     longer than 12 months is inapplicable to HUD’s situation.
                     The comments further provide that the industry standard
                     does not apply because it does not take into consideration
                     such items that are beyond First Preston’s control, for
                     example, lead-based paint abatement, bad cases held off
                     market, and the properties held off market for purchase by
                     the City of Buffalo.

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                                                                     Finding 2


                      First Preston disagrees with our opinion that it has not
                      placed enough emphasis on sale of the properties that have
                      been in the inventory for long periods of time. Its
                      comments provide that where the audit reports a loss
                      revenue of $9.5 million based on percentage of sales
                      compared to appraised value, First Preston can argue a real
                      increase in revenue of over $83 million due to the increase
                      in HUD’s average sales price. First Preston agreed that the
                      Good Neighbor Program and other special interest
                      programs has caused an increase in revenue loss that has
                      made it difficult to obtain the stated goal of selling
                      properties at an average of 98 percent of appraised value.
                      First Preston does not interpret the 98 percent goal as a
                      contract requirement.


                      Our review disclosed that for Area 3, properties in the
  OIG Evaluation of
                      inventory over 12 months increased by 63 percent since
  Auditee Comments    First Preston was awarded the M & M contract. As for the
                      industry standard, we used the standard because it is
                      accepted in the industry. As for the lead-based paint
                      properties and properties held off market, we recognize that
                      these properties have contributed to the fact that properties
                      over 12 months in the inventory increased significantly.
                      These are the type properties that in our opinion, First
                      Preston has not placed enough emphasis on removing from
                      the inventory. As mentioned in our recommendation, First
                      Preston needs to work with the HOC to develop incentives
                      to sell these properties.

                      In addition, one of HUD’s performance indicators is to sell
                      properties at 98 percent of the appraised value. First
                      Preston does not interpret the 98 percent goal as a
                      requirement of the contract. For this reason we made the
                      recommendation that the HOC evaluate this goal and make
                      applicable adjustments.




   Recommendations    We recommend that you:

                             2A.   Work with First Preston to increase the
                             emphasis on the sale of older properties and/or

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  Finding 2


                      develop incentives to encourage the sale of older
                      properties.

                      2B.     Evaluate HUD programs such as the Good
                      Neighbor Program to determine their impact on the
                      goal of selling properties at an average of 98 percent
                      of appraised value. Based on that evaluation make
                      adjustments to either the goal or the programs so
                      they are not in conflict.




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                                                                                                        Finding 3


           First Preston Needs to Comply with all the
                    Provisions of its Contract

  First Preston has not complied with all the requirements in its contract. Specifically, First
  Preston (a) has charged for ineligible costs; (b) has not performed tasks in a timely manner; (c)
  has not always included the required documentation in the appropriate files; and (d) has not
  reported all problems to the Government Technical Representative (GTR). We attribute the
  cause of these deficiencies to First Preston’s failure to implement the necessary controls to ensure
  that all contract provisions are met. As a result, First Preston’s performance may have lead to
  excessive costs and properties remaining in the HUD inventory for an extended periods of time.




  Criteria                                        Section B, paragraph I of the M&M contract requires First
                                                  Preston to provide services to successfully manage single
                                                  family properties owned by or in the custody of HUD, to
                                                  successfully market those single family properties, and to
                                                  successfully oversee the sales closing activity, including
                                                  proper accounting for HUD's sales proceeds.

                                                  First Preston charged ineligible costs

                                                  Section C, exhibit 16, paragraph 3 of the contract provides
  Ineligible pass through costs                   that only for the initial transitional properties,1 First Preston
                                                  could be paid costs (pass through costs) for such items as
                                                  debris removal, securing the property, and defective paint
                                                  removal. However, our review disclosed that First Preston
                                                  charged HUD for debris removal etc., for properties newly
                                                  assigned to it. The HOC reviewed requests for
                                                  reimbursements and determined that $212,436.63 was not
                                                  allowable. This review performed by the HOC was, in part,
                                                  precipitated by the fact that an employee of First Preston,
                                                  who was responsible for the maintenance of the properties
                                                  in the Buffalo, New York area, was arrested for financial
                                                  extortion and kickbacks.

                                                  First Preston responded to the HOC stating that requests for
T.O.C.                                            reimbursement of costs for such items as debris removal
                                                  etc., were submitted to HUD in error. Officials of First
  1
      Properties assigned to First Preston by HUD at the start of First Preston’s contract.
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  Finding 3


                                   Preston claimed they performed a reconciliation that
                                   identified $238,959 as ineligible requests that were
                                   inadvertently submitted and received. Thus, First Preston
                                   reimbursed the funds to HUD.

                                   It is apparent that the controls implemented by First Preston
                                   were unable to ensure that requests for reimbursement from
                                   HUD were only for eligible expenditures. As such, First
                                   Preston needs to institute management controls that will
                                   ensure that requests for reimbursement from HUD are for
                                   eligible costs.

                                   Our review noted additional instances of questionable
   Project files did not contain
   invoices or GTR approvals       controls at one of First Preston’s Field Offices. This Field
                                   Office was unable to locate copies of invoices for various
                                   completed work and had not requested the necessary GTR
                                   approval for certain costs. Further, the Field Office’s work
                                   orders were not numbered. As a result, First Preston’s
                                   controls could not be relied upon to ensure that only
                                   requests for eligible costs were submitted to HUD.

   Possible duplicate charges      Our review disclosed another situation involving First
                                   Preston’s controls, which pertains to pass through costs that
                                   were forwarded to HUD for reimbursement. Using an audit
                                   software package, (Audit Command Language), we
                                   reviewed all pass through costs forwarded by First Preston
                                   to HUD for the period October 1, 1999, through March 31,
                                   2000. We identified 479 items that may be duplicate
                                   payments. Section C-4, paragraph III. B, of the contract
                                   provides that reimbursement by HUD for pass through
                                   costs may not be requested until First Preston pay for the
                                   service or item. We reviewed a sample of these requests at
                                   one of First Preston’s Field Offices and at the HOC. Our
                                   review disclosed that some records were not available at
                                   neither the First Preston Field Office nor the HOC.
                                   However, a member of First Preston’s staff told us that the
                                   records should be available at First Preston’s Texas Office.
                                   Because we could not verify if duplicate costs exist, we




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                                                                                                         Finding 3


                                                    originally questioned $32,549.45 of pass through costs as
                                                    duplicate costs2.

                                                    At our exit conference, officials of First Preston stated that
                                                    of the $32,549.45 of questioned duplicate costs, $20,196.95
                                                    had been reimbursed to HUD, and that the remaining
                                                    balance of $12,352.50 was for invoices that are not
                                                    duplicative. Upon review, we verified that the $20,196.95
                                                    was reimbursed to HUD. First Preston repaid $6,551.20 of
                                                    the $20,196.95 directly as a result of our audit inquires.
                                                    More importantly, duplicate costs occurred and we have
                                                    recommended that First Preston needs to institute
                                                    management controls to prevent duplicate costs from
                                                    occurring.

                                                    First Preston did not meet contract time thresholds

                                                    First Preston is required to meet certain time thresholds to
                                                    ensure that properties are listed and sold within a
                                                    reasonable time period. The timely listing and sale of
                                                    properties reduces holding costs, and provides for a greater
                                                    monetary return to the insurance fund. Our review found
                                                    several instances in which First Preston was not meeting
                                                    contract time thresholds.

                                                    For the newly assigned properties, First Preston was to
             Inspection were not performed
                                                    obtain an inspection within 24 hours per Section C-2,
             within 24 hours
                                                    paragraph V. B. 3A, of its contract. Our sample included 15
                                                    newly assigned properties. For 11 of these properties, the
                                                    inspections were not completed within 24 hours. However,
                                                    four of the 11 were a week or more late with one being 43
                                                    days late.

             Appraisals were not performed          Also, Section C-2, paragraph V. B. 9, of the contract
             within 10 business days                requires First Preston to obtain an appraisal of a property
                                                    within 10 business days of being assigned to First Preston.
                                                    For 12 of the 15 properties in our sample, the appraisals
                                                    were not received within the 10 day criteria. In fact, eight
                                                    were five or more business days late with one being 51
                                                    business days late.
             Disposition programs were not
             approved within 3 business
                                                    Section C-3, paragraph II, requires First Preston to comply
             days                                   with HUD Handbook 4310.5 REV-2. Section 6-17 of the
         2
           We arrived at this amount by questioning the second reimbursement by HUD for a service or item previously
         reimbursed to First Preston by HUD. The details of the 479 items were provided to First Preston.
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                              Handbook requires the review and approval of a disposition
                              program within three business days of receipt of the
                              appraisal. There were seven cases from a possibility of 20
                              cases in our sample in which the disposition program was
                              not approved within the required time frame. One of the
                              disposition programs was approved 32 business days late.

                              Section C, exhibit 11-1 of the contract requires First
   Title evidence was not
                              Preston to review and approve or reject title evidence of a
   approved timely
                              property within 10 calendar days of receipt from the
                              mortgagee. First Preston took an excess of 10 days to
                              approve the title evidence in six of a possible 13 cases in
                              our sample. Failure to perform within required time frames
                              results in possible increased interest payments to the
                              mortgagees which results in a greater expense to HUD.

                              The files did      not   always    contains   the   required
                              documentation

                              Section C-3, paragraph XI. of First Preston’s contract
                              provides that: First Preston will ensure that hard copies of
                              any and all required documentation under the contract be
                              maintained in the appropriate property or subject matter
                              file. Our review of the property files indicated that many
                              items could not be located in the files. Further, we were
                              unable to determine from the files whether First Preston
                              had been completing various required tasks, since the
                              information was not documented in the file. Our review
                              indicated that First Preston was not always documenting the
                              reconciliations of sales information, reviews of closing
                              documents, wire transfer receipts, actions taken on held off
                              market properties, HUD 27011 reviews, and title evidence.

                              Section C, exhibit 8-7 C, of the contract requires First
   Reconciliations were not
                              Preston to reconcile the sales information with the sales
   adequately documented
                              proceeds. Section 11-19 D of HUD Handbook 4310.5
                              REV-2 explains that no case will remain unreconciled
                              longer than 30 days past the closing without an explanation.
                              First Preston did not reconcile the sales proceeds for two of
                              15 cases within the required time frame. For the two cases,
                              the lack of reconciliations became apparent when we
                              requested reconciliation information from First Preston.


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                                     Thus, the sales proceeds for one property were reconciled
                                     111 days late. We believe that this situation was
                                     precipitated by the fact that First Preston has not adequately
                                     documented the sales reconciliation in its files. For eight of
                                     the 15 cases in our sample there were inadequate evidence
                                     that cases were reconciled.

                                     First Preston did not document that it performed the form
   Lack of evidence that
                                     HUD-1, Settlement Statement, review as required in
   Settlement Statement form
   HUD-1 was reviewed                Section C, exhibit 8-8 of the contract. The review assures
                                     the appropriateness of charges to HUD. A First Preston
                                     closing official claimed that they are reviewing the HUD-
                                     1’s. However, First Preston is not documenting that the
                                     reviews are being performed. In addition, First Preston is
                                     not reviewing the closing documents prior to closing.
                                     Section C, exhibit 8-4 B requires that First Preston must
                                     ensure the accuracy of all closing documents and that all
                                     costs being charged to HUD are appropriate. Members of
                                     First Preston’s staff stated that they do not review the
                                     documents prior to closing because the closing agents are
                                     not required to submit pre-closing packages to First
                                     Preston. Without this review, inappropriate charges to
                                     HUD could occur, which First Preston would not be aware
                                     of, until several days after the closing.

                                     First Preston is not obtaining adequate evidence that sales
   Wire transfer receipts were
                                     proceeds have been properly wired to Treasury. Section C,
   missing from the files
                                     exhibit 8-7 B, of the contract stipulates that First Preston
                                     will ensure that wire transfer receipts indicate that the
                                     proper funds were wired to Treasury. For all 15 cases in
                                     our sample, we could not locate the wire transfer receipt in
                                     the files. First Preston staff maintained that the SAMS
                                     screens indicated when the funds were transferred.
                                     However, First Preston’s contract requires First Preston to
                                     obtain the wire transfer receipts.

                                     First Preston explained that the properties in our sample are
   First Preston is not adequately
                                     maintained as held off market (HOM) for two primary
   monitoring HOM properties
                                     reasons; they were either aged inventory that has not had
                                     any bids for a lengthy period of time, or properties whose
                                     files, had missing or incorrect information. Our review
                                     indicated that First Preston is not adequately monitoring the
                                     properties that are HOM. For four of 10 properties that we
                                     reviewed, First Preston had not taken adequate steps to
                                     resolve missing document problems. As such, these

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  Finding 3


                                     properties remained HOM when they could have been re-
                                     listed and possibly sold.

                                     Section C, exhibit 12 requires First Preston to review the
   Files do not contain evidence
                                     Mortgagee Claim form HUD-27011. For 17 of 21 cases,
   of form HUD-27011 review
                                     which First Preston should have reviewed the HUD-27011,
                                     we could not locate any evidence that First Preston met
                                     this requirement. First Preston staff claimed that the
                                     entering of the information into SAMS was their evidence
                                     that Part A of the HUD-27011 was reviewed. The Chief
                                     Operating Officer told us that First Preston has created a
                                     form to be completed by staff to show that staff reviewed
                                     Parts B, C, and D of the HUD-27011. However, we could
                                     not locate any of these forms for the properties in our
                                     sample to verify this review.

                                     Mortgagees are required to submit evidence of a good and
   First Preston is not adequately
                                     marketable title within forty-five (45) days after the date a
   monitoring title evidence
   receipt                           deed to the Secretary of HUD is filed for record. This is
                                     outlined in Section C, exhibit 11 of First Preston’s contract.
                                     Further, First Preston is responsible for reviewing and
                                     approving all extension requests for conveying title,
                                     submission of title evidence, submission of fiscal data, and
                                     for filing supplemental claims. There were seven cases in
                                     our sample in which the title evidence was not received
                                     within 45 days, and there was no evidence in the files of
                                     any requests for extensions. We believe that First Preston
                                     needs to closely monitor the timely receipt of title evidence.

                                     First Preston has not notify the GTR of problems

                                     The contract requires First Preston to notify the GTR when
                                     certain situations occur. Our review disclosed that First
                                     Preston is not properly notifying the GTR in regards to
                                     mortgagee neglect and deficiencies pertaining to closing
                                     agents.

                                     After a property’s initial inspection, Section C, exhibit 11-
   First Preston is not formally
                                     19 requires First Preston to notify the GTR, if the
   notifying the GTR of
   mortgagee neglect                 inspection discloses that the property was damaged due to
                                     mortgagee neglect. There were six cases in our sample in
                                     which mortgagee neglect was identified during the initial


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                                                                                  Finding 3


                                    inspection. In all of those cases, First Preston did not
                                    formally notify the GTR of the neglect. First Preston
                                    claimed that it stopped reporting mortgagee neglect to the
                                    HOC because the HOC was not allowing the costs of
                                    repairing the mortgagee neglect. We believe that it is still
                                    the responsibility of First Preston to notify the GTR
                                    regardless of the previous actions taken by the HOC.

                                    Furthermore, our review disclosed that three initial
   Initial inspection did not
                                    inspections contained items that would constitute
   identify apparent mortgagee
   neglect                          mortgagee neglect. Items identified in these inspections
                                    included excessive debris and holes in the roof that caused
                                    additional damage. The First Preston Inspectors, in all three
                                    cases, did not identify the properties as having a mortgagee
                                    neglect condition. We believe that First Preston needs to
                                    closely monitor the initial inspections to ensure that all
                                    instances of mortgagee neglect are reported.

                                    Section C, exhibit 8-7 of the contract requires First Preston
   First Preston is not notifying
                                    to notify the GTR in those instances where the closing
   GTR of closing agent
   problems                         agent failed to comply with the wire transfer procedures
                                    specified in its contract. Also, the GTR should be notified
                                    when the closing agent failed to submit the final sales
                                    closing package within the time specified in the closing
                                    agent's contract. The purpose of this requirement is to
                                    ensure that the closing agent is assessed the proper
                                    liquidated damages for any late delivery of wire transfers.

                                    We found that for six of 15 properties reviewed, the closing
                                    agents did not wire the sales proceeds to HUD in a timely
                                    manner. However, First Preston did not formally notify the
                                    GTR when instances such as these occurred.

                                    Also, we found that for three of the same 15 properties,
                                    First Preston did not enter HUD-1 data into SAMS in a
                                    timely manner. The only explanation provided by First
                                    Preston was that sometimes closing information came in
                                    late from the closing agents. But, First Preston staff was
                                    unable to provide documentation indicating such situations.
                                    Furthermore, there was no evidence in the files indicating
                                    that if the closing information was late that First Preston
                                    notified the GTR. We believe that First Preston needs to
                                    track the dates when pertinent documents are received and
                                    notify the GTR if such information is late.

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  Finding 3


                      In summary, we believe that First Preston has not
   Summary
                      implemented the necessary management controls to ensure
                      that all contract provisions are followed.



  Auditee Comments    First Preston comments indicate that because there was an
                      inability to obtain SAMS information during the initial
                      takeover, and because of the volume of properties, it was
                      not possible to delineate between the takeover properties
                      and newly assigned cases. This caused calendar issues and
                      reimbursements that were inadvertently submitted and
                      received by First Preston.        First Preston’s contract
                      compliance accounting team conducted a quality control
                      review of all pass-through items in March 2000 and
                      identified $238,959 that was refunded to HUD.

                      Concerning files not containing invoices and GTR
                      approvals, First Preston stated that the OIG review was
                      performed in a field office; and that a field office file does
                      not have a complete case file. First Preston’s files are
                      integrated into the case file upon closing. The case files are
                      maintained in the Blue Bell, Pennsylvania, Office in
                      accordance with its Quality Control Plan. Further, in an
                      effort to eliminate the risk of duplicate payments, all
                      original invoices with GTR approval are sent to the
                      Corporate Accounting Department in Addison, Texas.

                      First Preston stated that of the $32,549.45 of questioned
                      pass through costs $20,196.95 was reimbursed to HUD
                      between March 23, 2000 and August 21, 2000. Also, First
                      Preston indicated that the remaining $12,352.50 was for
                      invoices that are not duplicative.

                      First Preston explained how it is currently operating and
                      described its new procedures.



  OIG Evaluation of   We recognize that First Preston has reimbursed HUD the
  Auditee Comments    $238,959 of ineligible costs that it improperly requested


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                                                                   Finding 3


                    and received. Our concern is that requests for ineligible
                    costs occurred. Therefore, we recommended that the HOC
                    ensure that First Preston has adequate management controls
                    to prevent this from occurring again.

                    Our review of two First Preston Field Offices in our sample
                    revealed that the controls at these Field Offices could not be
                    relied upon to ensure that only requests for eligible costs
                    were submitted to HUD. We believe that as a minimum
                    First Preston Field Offices should maintain copies of
                    numbered work orders, invoices for completed work, and
                    any necessary GTR approvals. We raised this issue and
                    made an appropriate recommendation to the HOC for its
                    consideration.

                    Regarding the questioned costs, we verified that $20,196.95
                    was reimbursed to HUD. Regarding the $12,352.50 that
                    First Preston states are not duplicate costs, we have
                    recommended that the HOC determine whether First
                    Preston is correct. More importantly, our reason for raising
                    the issue is to show that duplicate costs occurred and that
                    the HOC must ensure that First Preston has adequate
                    management controls to prevent duplicate costs submitted
                    to HUD for reimbursement.

                    Regarding First Preston’s current procedures, we made
                    various recommendations to the HOC to ensure that First
                    Preston’s contractual time thresholds are met, that files are
                    adequately documented and that the GTR is notified when
                    applicable.


  Recommendations   We recommend that your Office require First Preston to:

                         3A.     Ensure that it institutes management
                         controls that will ensure that requests for
                         reimbursement from HUD are for eligible costs.

                         3B.      Review the remaining questionable pass
                         through costs to determine whether there are any
                         duplicate payments and that each charge has an
                         original invoice and supporting documentation. If
                         additional duplicates are found, First Preston should
                         be required to reimburse HUD.

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  Finding 3


                    3C.      Maintain complete project files in its Field
                    Offices. At a minimum, those files should include
                    work orders, invoices, and GTR approvals when
                    necessary.

                    3D.       Ensure that all contract requirements are
                    performed within the required time frames, including
                    the following requirements:
                      • Properties inspected within 24 hours of
                         assignment.
                      • Appraisals are received within 10 business days.
                      • Disposition programs are approved within 3
                         business days.
                      • Title evidence approved within 10 calendar days.

                    3E.       Document in each property file that a
                    reconciliation of the sales information with the sales
                    proceeds has been performed.

                    3F.     Develop a checklist to indicate what is to be
                    reviewed on the form HUD-1 and include a copy of
                    the completed checklist in the property file.

                    3G.       Ensure that wire transfer receipts are
                    obtained from the closing agents and are maintained
                    in the property file.

                    3H.       Establish and implement procedures that
                    ensure that all properties listed as HOM are
                    legitimate. If the properties are HOM due to missing
                    documents, First Preston must take the appropriate
                    efforts to obtain the missing documents and document
                    the tracking of these efforts in the files.

                    3I.     Document in the property file the items
                    reviewed on form HUD-27011, Parts A, B, C, D.

                    3J.       Monitor the receipt of title evidence to
                    ensure that a title is submitted to First Preston within
                    the applicable time frame.


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                                                Finding 3


         3K.      Establish procedures that clearly identify
         what constitute mortgagee neglect, and which
         neglects should be reported on the initial inspection.
         Formally notify the GTR of those properties where
         mortgagee neglect has been identified.

              3L. Formally notify the GTR of deficiencies
         which the closing agent did not performed in
         accordance with the its contract.




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  Management Controls
  In planning and performing our audit, we obtained an understanding of the management controls
  that were relevant to our audit. Management is responsible for establishing effective
  management controls. Management controls, in the broadest sense, include the plan of
  organization, methods and procedures adopted by management to ensure its goals are met.
  Management controls include the processes for planning, organizing, directing and controlling
  program operations. They include the systems for measuring, reporting and monitoring program
  performance.


  Relevant Management                Relevant Management Controls
  Controls
                                     We determined that the following management controls
                                     were relevant to our audit objective:

                                     •   Program operations - Polices and procedures for
                                         ensuring that HUD owned properties are protected and
                                         preserved, properly managed, evaluated, and marketed in
                                         a manner which produces the highest possible return to
                                         HUD's mortgage insurance fund.

                                     •   Validity and Reliability of Data - Administrative
                                         controls for ensuring the validity and reliability of the
                                         data entered into the Single Family Accounting
                                         Management System (SAMS).

                                     •   Compliance with Laws and Regulations - Procedures
                                         for ensuring that First Preston complies with all
                                         contract requirements.

                                     •   Safeguarding Resources - Policies and procedures for
                                         ensuring that there are adequate controls over
                                         processing and payments for services and controls for
                                         ensuring the disposition of properties that have been in
                                         the inventory for over 12 months.

                                     We assessed all of the relevant controls identified above.
                                     The scope of our assessment is identified in the
                                     Introduction Section of this report and in the respective
                                     findings.

                                     It is a significant weakness if management controls do not
                                     provide reasonable assurance that the process for planning,

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  Management Controls


                        organizing, directing and controlling program operations
                        will meet an organization’s objectives.

                        Based on our review, we believe that significant
                        weaknesses exist in the following management controls.
                        These weaknesses are described in the findings section of
                        this report.

                        •   First Preston did not adequately maintain or safeguard
                            HUD properties. Finding 1 (Program Operations)

                        •   First Preston did not comply with all requirements of
                            the contract. Finding 3 (Compliance with Laws and
                            Regulations) (Program Operations).

                        •   First Preston was unable to ensure that requests for
                            reimbursements from HUD were only for eligible
                            expenditures. Finding 3, (Safeguarding Resources).
                            First Preston did not place enough emphasis on the sale
                            of properties that have been in the inventory for long
                            periods of time. Finding 2, (Safeguarding Resources).




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  Follow Up On Prior Audits
  This was the first OIG audit of the HOC’s Area 3 contract.




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                                                                                      Appendix A

  Property Condition Examples




                                   DRIVE-BY INSPECTION
  OIG Inspection: 06-01-00                 Location:         Buffalo, NY
  Condition:      Property appearance adversely impacts surrounding neighborhood.




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  Property Condition Examples




  Acquired:               01-14-00                    Case No:          372-166691
  OIG Inspection: 06-01-00                  Location:          Buffalo, NY
  Condition:      Shotgun under deck is a serious health and safety hazard.




  Acquired:               09-23-99                 Case No:          441-309878
  OIG Inspection: 06-06-00                 Location:        Philadelphia, PA
  Condition:      Window on street shows inadequate safeguarding of assets.



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                                                                              Property Condition Examples




  Acquired:               08-13-99                     Case No:         372-265070
  OIG Inspection: 06-01-00                    Location:        Buffalo, NY
  Condition:      Mass of wiring is an electrical hazard.




  Acquired:               12-11-99                    Case No:         441-444362
  OIG Inspection: 06-08-00                  Location:         Philadelphia, PA
  Condition: Roof leaks have caused significant ceiling damage

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                                                                                          Appendix B

  Auditee Comments



  August 28, 2000

  Mr. Alexander C. Malloy
  District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  New York/New Jersey
  26 Federal Plaza, Room 3430
  New York, NY 10278-0068

  Subject: OIG Audit (Draft) Response

  Dear Mr. Malloy:

  First Preston Foreclosure Specialists, Inc., is in receipt of your draft audit report dated July 28,
  2000. This report reviews aspects of our Philadelphia regional Marketing and Management
  Contract operation for the U.S. Department of Housing and Urban Development (HUD), and we
  appreciate the opportunity to provide a response. We are also grateful for the occasion to meet
  with yourself and senior members of your staff on August 22, 2000 to discuss this report in
  detail. During the audit, your team was very professional and courteous to all of our employees.
  The atmosphere surrounding the various interrelations between your team and First Preston was
  open and direct, which is essential to the overall success of this program.

  Before responding to specific issues detailed in your report, please allow us to recap the historical
  condition of this portfolio and the progress we have made to date.
                                   Takeover Anomalies

  Opening Day

  At the onset of the audit, a Senior OIG Auditor mentioned that he felt it was too early in our
  contract tenure to adequately review performance. On September 23, 1999, we became the
  successor to a failed contractor. First Preston had 21 days from HUD’s signing of the
  contingency contract and 1 day from HUD’s notice to proceed to begin operating under this
  contract. We hired in excess of 200 employees and subcontractors to help us meet this challenge.
  Subcontractors were not eager to engage in our employ due to the unpaid invoices owed to them
  by the previous contractor.
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  Auditee Comments


  Disarray of Files

  On September 24, 1999, approximately 60,000 case files and numerous boxes of loose paper that
  needed to be filed were delivered to First Preston to reconcile. It appeared the former contractor
  had six case files for each property. We worked with a File Transfer Protocol (FTP) report that
  was provided by HUD, which was an extraction of the First Preston assigned properties
  contained in HUD’s SAMS system, requiring the manual removal of duplicate entries. This
  report provided limited information for reconciliation purposes.

  Aged Inventory

  First Preston continues to reduce the quantity of assets that remain in inventory over six months.
  In September 1999, the number of properties in inventory over six months, according to HUD’s
  MEAP report (SAMS Report MEAPSS00), was 4,219, or 44% of HUD-owned inventory.
  Today, there are less than 3,500 properties that have been held by HUD more than six months.
  This represents a reduction of over 22%, under the constraint of the requirement for higher
  acceptable bid thresholds and without the use of marketing incentives that were typical prior to
  privatization. The statements made in your report referring to the 12-month inventory will be
  addressed on pages 6 - 8 of this response.

                                               Philadelphia Region
                                                Aging of Inventory
                                                  6 Plus Months
      5,250
      5,000
      4,750
      4,500
      4,250
      4,000
      3,750
      3,500
      3,250
      3,000
                 Jan-00        Feb-00        Mar-00     Apr-00   May-00   Jun-00   Jul-00

   (Information provided by HUD MEAPSS01 report)


  Title Evidence

  The other M&M contractors opened their offices and began processing title evidence they had
  just received from the Mortgagees. First Preston’s Philadelphia region inherited over 5,000 title
  evidences from the previous contractor that had not been approved or rejected. As you can
  imagine, reconciling these along with the current flow of new title evidence was a monumental

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                                                                               Auditee Comments


  task. The OIG’s report should take this into consideration when determining whether or not we
  are performing the review process within 10 calendar days of receipt.
  Customer Dissatisfaction

  The lack of production during the eight months prior to our contract left a negative impact on the
  communities involved in the HUD marketing program. For these months, brokers, sales agents,
  closing attorneys, etc., had witnessed a tremendous drop in the number of available properties.
  This meant several disgruntled members of the industry had to be courted back to the program by
  First Preston’s staff. The number of customer complaints at the onset of this contract was
  overwhelming. Ten thousand (10,000) calls per week were fielded by our customer service
  representatives. Much of our time and emphasis was dedicated to this endeavor.

  This chart illustrates the number of properties processed through the system, therefore, the
  number of cases the industry experienced relative to sales, closings, title policies, etc.

    Contractor         Takeover          Total Sales          Ending           Total Time
                       Inventory                             Inventory         Inventory
                                                                                Managed
     Previous             5,669             < 1,500            9,854            8 months
    Contractor
   First Preston          9,854            > 12,000            8,442            10 months




                                    First Preston Successes


  Inventory Reduction

  Prior to our contract in September 1999, HUD’s inventory for the Philadelphia 3 area was 9,854.
  As of July 2000, HUD’s inventory for this same region was 8,332. This represents a 15%
  reduction in the total number of properties held in inventory since the start of our involvement in
  this region. This significant decrease is due to First Preston’s overall plan of action within the
  scope of the contract and HUD’s regulations, and our efforts of hiring and training a sufficient
  number of real estate industry professionals dedicated to the success of this privatized marketing
  and management concept.




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  Auditee Comments


                                            Philadelphia Region Inventory


         12,000
         11,000
         10,000
          9,000
          8,000
          7,000
          6,000
          5,000
          4,000
          3,000
          2,000
          1,000
            -
                  Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00


   (Information provided by HUD MEAPSS01 report)


  Reduced Turnover Rate – Returns $18.4 Million to HUD Annually

  One of the major factors leading up to such a dramatic reduction of inventory can be found in the
  fact that First Preston successfully lowered the turnover rate of properties by 18%. We compared
  the turnover rate experienced by HUD prior to the M&M program, since the turnover rate during
  the time of our predecessor was skewed heavily due to the lack of closings. A reduction of this
  size represents a savings to the government of $18.4 million dollars per year, or $92.4 million
  over the life of our contract. We calculate this savings by multiplying current inventory by the
  turnover rate reduction and holding per diem cost, then we annualize this figure (8,442 X 46 days
  X $28/day X 1.7 periods/year = $18,484,603). [Note: The $28 per day figure is HUD’s annually
  calculated and reported per diem holding cost per property.]




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                                                                                         Auditee Comments


                                               Turnover Rate
                                 Months from Acquisition Date to Reconciliation

             HUD              Previous Contractor                        First Preston
     20
     19
     18
     17
     16
     15
     14
     13
     12
     11
     10
      9
      8
      7
      6
      5
      4
      3
      2
          Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul-
           99   99   99   99   99   99 99     99   99   99   99   00 00     00   00   00   00   00

   (Information provided by HUD MEAPSS01 report)


  Processing Time

  According to HUD’s MEAP report, processing times were reduced from 9.09 to 2.13 months
  when comparing the period prior to First Preston’s takeover with our current results. This
  represents the number of days it takes from acquiring an asset to listing, which represents a 77%
  greater success rate.


                                      Processing Rate
                      Months from Acquisition Date to Original Listing Date
                       Previous Contractor                              First Preston
     10
      9
      8
      7
      6
      5
      4
      3
      2
      1
      0
          Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul-
           99   99   99   99   99   99 99     99   99   99   99   00 00     00   00   00   00   00

   (Information provided by HUD MEAPSS01 report)




  Higher List Prices – Returns $83.3 Million to HUD

  In monitoring First Preston’s progress, we also measure sales proceeds in relationship to past
  performance. We are currently experiencing a 14% increase in average sales price over the sales

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  Auditee Comments


  price experienced prior to the M&M contracts. This achievement resulted in an increased net to
  HUD of 16%, and has returned over 12,000 homes to private homeownership. First Preston’s
  success at selling this inventory has returned $83.3 million in revenue to the FHA Fund over the
  amount realized prior to the program.


                               Philadelphia Region List Price History

      63,000

      57,500

      52,000

      46,500

      41,000

      35,500

      30,000
                  HUD     Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00   Jul-00


  (Information provided by HUD’s SAMS helpdesk)


                                                   Findings


  Finding 1: Number of Properties in Inventory for 12 Months or Longer has Increased

  Properties 12 months and over have increased by 61 percent

  For the purpose of reporting on First Preston performance, we determine this finding to be
  deceptive and misleading. Page 2 of the auditor’s report references an industry standard of 2 to 3
  percent according to Andersen Consulting Industry Benchmarking and Best Practices Report,
  which is inapplicable to HUD’s foreclosures by comparison. Although HUD’s reporting figures
  will substantiate the percentage quoted by the OIG, your report fails to expand on reasons. The
  following bullets illustrate reasons for the number of cases exceeding 12 months in inventory, all
  of which are beyond the control of First Preston:
  A. At the time of the audit over 800 properties required Lead-Based Paint abatement in the city
  of Philadelphia. HUD, not First Preston, controls the process of abatement. Currently, First
  Preston is acquiring and selling these properties at a much faster pace than HUD is capable of
  locating subcontractors to perform the abatement causing this inventory to increase substantially.
  B. Over 500 bad cases were in Step 3 Held-Off-Market. These cases have been in HUD’s
  inventory for well over a year and do not represent a cost to the government, although per diem
  charges are allocated to these case numbers.



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  C. Approximately 100 aged properties were held off market for purchase by the city of
  Buffalo.
  D. The number of properties in inventory over 12 months doubled from the time the
  predecessor’s contract ended and our contract began. In other words, if the IG had performed
  this audit on the first day of our contract, the finding would have read: “The number of properties
  held in the inventory longer than 12 months has increased by 83%.”
  E. Further price reductions beyond the scope of our contract require GTR approval. None of
  the cases marketed longer than 135 days were granted a further price reduction until February,
  2000, when we received a directive from HUD Headquarters in Washington D.C.


  Your letter states “In our opinion, this occurred because First Preston has not placed enough
  emphasis on the sale of properties in the inventory for long periods of time.” We totally disagree
  with this opinion, due to the fact that HUD has stipulated how properties are marketed during
  subsequent listing periods and First Preston must follow the thresholds set forth in our contract.
  Furthermore, First Preston has conducted over one hundred training seminars throughout the
  country, with attendances in excess of 60,000 brokers. No other M&M contractor can match this
  marketing and training effort. These seminars were heavily concentrated in the Philadelphia 3
  Region during the first few months of our contract.

  Steady increase in the percent of properties 12 months and older

  Clearly, when First Preston took over management of the Philadelphia 3 region, cases exceeding
  12 months in inventory were growing at a rate of 100-200 properties per month, with exception
  of the first month of our contract when these cases grew by 522. Today, this same inventory is
  decreasing at a rate of 100-200 properties per month. So, in fact, First Preston is decreasing the
  number of marketable properties that have been in inventory for 12 months or longer, as the
  following graph illustrates.




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  Auditee Comments


                                         Philadelphia Region
                                          Aging of Inventory
                                           12 Plus Months

      2,500
      2,250
      2,000
      1,750
      1,500
      1,250
      1,000
        750
                Jan-00      Feb-00       Mar-00    Apr-00      May-00   Jun-00   Jul-00

   (Information provided by HUD MEAPSS01 report)


  The Andersen Consulting Industry Benchmarking and Best Practices Report states that the real
  estate industry standard of aged inventory greater than 12 months is 2 to 3 percent, but does not
  take into consideration bad cases, lead-based paint abatement, lack of approval for price
  reductions, and a starting inventory where 12 percent already exceeded 12 months since
  acquisition. Therefore, comparisons of First Preston’s performance to the Andersen Consulting
  Industry Benchmarking and Best Practices Report are misleading.

  Older properties have a high hold cost and greater probability of deterioration

  First Preston agrees with this statement, however, the 500 bad cases have no direct costs and
  HUD controls the lead-based paint abatement costs and holding time. As demonstrated in the
  previous paragraph, First Preston has been successful in reducing the twelve-month inventory
  with the exception of the bad cases and the lead paint abatement properties. The length of hold
  time related to these older properties is a concern of First Preston and a considerable financial
  burden to our firm under this contract. The costs of maintaining these properties for extended
  periods are borne by First Preston. This frustration is evidenced by 425 properties in Step 8
  awaiting abatement measures of which First Preston has no control.

  Prior to the M&M contracts, HUD provided an addendum to the purchasers of properties
  requiring lead-based paint abatement in the city of Philadelphia. This addendum allowed the
  purchaser to place $1,500 in escrow, close on the property in the normal closing period, and then
  abate the paint prior to move-in. When HUD changed this program, even though the courts ruled
  it was allowed, the increased costs of holding these properties began. We have respectfully
  requested that HUD evaluate this abatement process and take immediate corrective action to
  reverse the backlog of inventory awaiting service.


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  Revenue loss has increased significantly

  In the twelve months prior to the M&M program (for the period ending March 1999), HUD’s
  average sales price was $49,151, with an average net proceeds of $43,006. Today, under First
  Preston’s management the twelve-month average through July 2000, for HUD’s average sales
  price is $56,197 with a net of $49,948. Where the OIG audit reports a revenue loss of $9.5
  million based on the percentage of sales price compared to appraised value, First Preston can
  argue a real increase in revenue of over $83 million.

                                  56,197
       60,000
                         49,151                             49,948
       50,000                                      43,006

       40,000
                                                                          HUD (12 Months Period Ending
                                                                          March 1999)
       30,000
                                                                          First Preston (12 Months Period
       20,000                                                             Ending July 2000)


       10,000


          -
                   Average Sales Price        Average Net to HUD


   (Information provided by HUD’s SAMS helpdesk)


  The Good Neighbor Program may have caused some of the increase in revenue loss

  We agree with the auditors that the Good Neighbor Program has caused an increase in revenue
  loss. However, we would like to expand by stating HUD’s special interest sales programs
  including Officer Next Door, Teacher Next Door, Good Neighbor Program and Non-Profit sales,
  make it difficult to attain the stated goal of selling properties at an average of 98 percent of
  appraised value. These special interest programs and the 98% laudable-goal are mutually
  inconsistent, or otherwise self-contradictory, and are issues concerning HUD policy that are
  inappropriate measures of First Preston’s performance.

  Another major cause that skews the measurement of our performance relative to the 98% goal, is
  the ITMG legacy inventory which hadn’t moved significantly for eight months. Although, the
  time ITMG had the contract can certainly be considered “under the M&M program,” it should
  not reflect as poor performance on the part of First Preston.

                                                   Recommendations

  We recommend that you:


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  1A.    Work with First Preston to increase the emphasis on the sale of older properties and/or
  develop incentives to encourage the sale of older properties.

  1B.    Evaluate HUD programs such as the Good Neighbor Program to determine their impact
  on the goal of selling properties at an average of 98 percent of appraised value. Based on that
  evaluation make adjustments to either the goal or the programs so they are not in conflict.

  Contractor response:

  1A.    First Preston welcomes HUD’s approval of the use of sales incentives such as those used
  by HUD prior to the M&M program. Also, we respectfully request HUD to remove all bad cases
  and revert to the lead-based paint escrow program it previously used.

  1B.      We do not interpret this goal as a contract requirement, so First Preston should not be
  held to this performance criteria. Contradictory goals should not be the vehicle to penalize the
  contractor, therefore, we request the evaluation criteria be changed to reflect actual performance,
  i.e., increases in net sales proceeds to HUD.

  Finding 2: Properties Not Adequately Maintained or Safeguarded

  Numerous deficiencies noted during OIG inspections

  The OIG inspections and the HOC’s monthly assessments do not take into consideration inherent
  risk verses contractor compliance. First Preston remains concerned, and considers there to be
  serious conflicts of interest in the fact that several of HUD’s Special Property Inspectors are
  disqualified M&M contract bidders and are operating under terms that are inconsistent with our
  contract. The fact that the contracts between HUD’s inspectors and First Preston are mutually
  inconsistent sets out a false measurement of our performance. We should not be rated
  “unacceptable” based on standards we are not required to meet.

  17 out of the 22 categories in the audit report suggest the way a property looks, or the inherent
  risk of vandalism or traffic in and out of the properties. If a vandal breaks a window, First
  Preston is required to repair the window within 24 hours of discovery. However, when the OIG
  or HUD’s Special Property Inspectors find the broken window, First Preston receives an
  unacceptable performance rating. Due to the large number of properties in the Philadelphia
  region located in blighted urban neighborhoods, and based on the parameters HUD uses when
  inspecting, our performance will never be addressed appropriately. This audit and other’s
  performed on HUD’s behalf should reflect First Preston’s performance in accordance with the
  contract, and should not equate our standards to that of the inherent risk of vandals, etc. Section
  C of the contract requires routine inspections and the repair of situations that represent safety
  hazards within 24 hours. Our inability to stop vandalism is not a failure under this contract, and
  we continue routine inspections and the issuing of work orders to correct these issues as required.


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  Furthermore, First Preston is committed to the communities that HUD serves and is receptive to
  modifications or revisions to our contract that would allow us to better serve these communities.



  Properties were in poor condition and contained health and safety hazards

  Again, the OIG inspections revealed the ongoing inherent risk of vandalism, etc. The shotgun,
  decaying rat and window lying on the ground are merely conditions that existed at the time of the
  OIG inspection, and were not necessarily present upon our last inspection. In fact, First Preston
  re-inspected and never found the shotgun shown in the OIG’s pictures attached to the report.
  Simply, someone used the space under a vacant house as a temporary hiding place for a weapon.

  In reference to the OIG’s statement: “Moreover, some properties have been broken into and
  vandalized, were laden with debris, and/or were in need of vital repair” in no way is a direct
  reflection of our performance under this contract. Again, we are required to cure some of these
  type issues upon discovery and this contract does not intend nor require a cosmetic repair
  program. Also, it should be noted that the OIG chose properties in two of the most vandal-ridden
  areas of our region.

  The first two properties in the Appendix indicate stripped siding, boarded windows and a broken
  window. We agree that these conditions adversely impact surrounding neighborhoods.
  However, when we discover broken windows, we repair by boarding or replacing within 24
  hours. The mass of wires and ceiling damage reflect conditions of the properties that are
  unsightly, yet in and of themselves do not represent safety hazards, and under our contract
  require no action.

  First Preston and the M&M contractor cannot be held accountable for vandalism in high crime
  areas. However, we are accountable to preserve and protect the properties in the communities
  that we serve. It is to that end, we have expanded all oversight and have updated our quality
  control plan.
  Differences were noted between OIG and subcontractor inspections

  The rationale that First Preston’s inspector’s inspections differ so widely from those of the OIG
  is likely for two reasons. First, our inspector indicates a snapshot of a property at the time of the
  inspection. If the windows are secure, no debris is present, a prior roof leak is inactive and
  vandalism has not occurred, the inspection will reflect such. Second, our inspectors do not look
  at repairs needed the way the OIG possibly would. We know that we will not replace siding, un-
  board windows, paint and carpet, etc., therefore, our inspectors will likely not write these items
  up on routine inspections. Mainly, routine inspections will denote attention needed due to lack
  of maintenance, vandalism, acts of God, broker/buyer traffic, etc. Again, the OIG inspected
  properties in seriously low-value areas that endure heavily vandalism. In fact, much of the
  expense for maintenance over our entire portfolio is as a direct result of vandalism.
  Subcontractor inspections appear to be incomplete


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  The OIG mentions subcontractor inspections appear incomplete relative to detecting property
  deficiencies such as: defective paint; water damage; vandalism; needed repairs; and, inadequate
  security. First Preston has spent considerable time over the last three to four months re-training
  our inspectors to conform to all requirements of our contract. Our inspectors are trained to
  understand that defective paint is scraping, pealing or chipping paint on the exterior or interior of
  properties built prior to 1978. Furthermore, First Preston is only required to remove this
  defective paint prior to the closing of the property. Without examples of these cases, it is
  difficult to provide a comprehensive response. With respect to water damage, if we have cured
  the cause it would not be reported again due to the likelihood of duplicated efforts. Vandalism,
  needed repairs and inadequate security suggest a condition present at the time of the OIG
  inspections that might not have been present upon our last inspection. Again, without examples
  of these cases, it is difficult to provide a reasonable response.

  In an ongoing effort to better train our inspectors and improve property conditions, we instituted
  a weekly regional conference call between the Regional Property Director and all Property
  Management Centers. The purpose of this call is to highlight deficiencies denoted on our own
  property condition inspections and to discuss the upcoming properties to be listed. Also, in July
  2000, we conducted a region-wide property maintenance meeting with all of our Property
  Management Centers attending, to further train and stress the requirements of the contract. All
  forms for inspection were reiterated and the Regional Property Director further explained to all
  Property Managers the requirements of each property inspection.

  Routine inspections are performed per the contract and reviewed by the appropriate staff daily.
  Data is input into the database as a measure of accountability. Work Orders are sent out for any
  corrective action as determined in the routine inspections.

  An additional level of quality control has been developed by our Corporate Office. A corporate
  oversight division has been created to review contract compliance and procedures. The staff is
  geographically located to cover all areas and perform property inspections on 10% of the
  inventory, selected randomly as required by our Quality Control Plan. Findings are submitted to
  corporate oversight coordinators, who are responsible to document and request written responses
  from the field offices. See the attached oversight chart.

  First Preston has not performed requirements concerning lead based paint timely

  The OIG is obviously referring to the handling of the Philadelphia properties requiring lead-
  based paint abatement at the onset of this contract. We regret that our actions within the first few
  weeks of contract commencement were less than we would have desired. In order to
  satisfactorily perform in tandem with HUD’s newly implemented procedures for procurement
  and abatement, First Preston formed a team to focus specifically on the process. Our issues were
  further complicated within the first sixty days of the contract when a lock we were using required



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  a “thinner” master key than those being used prior. We have explained and corrected this issue
  with HUD and the City earlier this year, and since then we have not received any complaints.

  Although our team is current with all procedures in the process that we control, and lockouts do
  not present a problem, we are still concerned that HUD’s abatement contractors cannot keep pace
  with the acquisitions and sales of First Preston on these properties.    We have requested the
  HOC to readdress their decision on how to process lead abatement and anxiously await their
  decision.

  Contractor actions required

  First Preston internally performs property inspections and file reviews every 60 days at the
  Property Management Centers. These are random and began in the second quarter of this year.
  As a result of these audits, we have redistributed portfolios and restructured local offices.

  We created a corporate oversight division to further review First Preston’s portfolio for
  compliance, timeliness and attention to maintenance issues. This adds an additional 10% of the
  properties reviewed. Vendors and inspectors will be held accountable for lack of performance.
  Any subcontractors not performing to our standards will be placed on probation and closely
  monitored. During such time they are subject to termination. Inspectors are well trained and will
  continue to receive additional training throughout the year.

  An additional level of oversight is provided by the BLB. BLB’s perform an inspection within 24
  hours of listing. Any property maintenance issues are sent to the Property Director and Contract
  Manager for immediate processing. This will reduce the likelihood that any properties listed
  have been vandalized.

  Recommendations

  We recommend that you:

  A. Establish procedures that: ensure all significant property deficiencies are identified; monitor
  the accuracy of subcontractor property inspections; and, provide assurance that the needed repairs
  are completed promptly.

  Contractor response:

  We will work with HUD on these recommendations and urge the HOC to readdress its
  requirement to rate our performance unacceptable when its subcontractor denotes the risks
  inherent with owning properties in highly vandalized neighborhoods. Our performance should
  be rated as a strict compliance with our contract. We are prepared to honor the required
  inspections, maintenance and repairs of our contract, and are happy to do more if the Statement
  of Work and contract is modified. Placing the level of expectations of the OIG or Special
  Property Inspectors on First Preston, without the consideration of inherent risks involved, is
  entirely unreasonable nor contractually required.


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  We recommend that you:

  B. Adopt controls, applicable to the requirements of Exhibit 15 of the M&M contract, ensuring
  lead-based paint inspectors access to applicable properties, and that minimize the time elapsed
  from date of property acquisition to the date initial lead-based paint inspections are requested.

  Contractor response:

  Due to the delay in time from when this finding was an issue, we believe HUD would agree that
  we are acting in accordance with Exhibit 15 and the problems we experienced early on in the
  contract no longer exists.

  Finding 3: First Preston is Not Always Performing in Accordance with the Contract
  Provisions

  This section references that First Preston (a) charged for ineligible costs, (b) has not performed
  its tasks in a timely manner, (c) has not always included the required documentation in the
  appropriate files, and (d) has not reported all problems to the Government Technical
  Representative (GTR). We will fashion our response in the same order as noted above.

  Ineligible pass-through costs

  Given that First Preston took over this contract in a contingent position within twenty-one (21)
  days, we were working without the benefit of a master list other than the FTP and did not have
  Internet connectivity. To date, First Preston was never supplied a comprehensive takeover
  inventory list. From September 24, 1999 until October 10, 1999, we only received FTP reports
  of the properties. The properties were assigned to our field property management offices off of
  the FTP report that during 1999 did not include the acquisition date. Further the connectivity of
  the field offices took about sixty days (due to delay in getting lines from the phone companies) to
  complete in order to fully automate those offices.

  With the inability to obtain SAMS information in the initial takeover and the volume of
  properties that were acquired without services, it was not possible to delineate clearly between
  the takeover properties and newly assigned cases. This caused calendar issues and
  reimbursements that were inadvertently submitted and received by First Preston. Our contract
  compliance accounting team conducted a quality control review of all pass-through items in early
  March 2000 and identified $238,959.00 that was refunded to HUD.

  On March 17, 2000, First Preston contacted the Philadelphia HOC Director to discuss the
  findings our quality control group had found in batches of invoices that had been processed. At
  this time, we requested that he direct his staff to return all batches of invoices in his office back


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  to First Preston for an additional review. This telephone conversation was followed by an email
  confirming the conversation.

  Additionally, telephone messages were left with the GTR’s and the Deputy Director seeking
  return of the bills and a meeting to discuss our findings. The HOC staff did not respond to
  multiple requests for meetings regarding these issues. On March 23, 2000, First Preston
  submitted six checks totaling $238,959.00 to the HUD lockbox with the required SAMS 1100
  detailing the case numbers to apply payments. These checks cleared First Preston’s bank on
  March 27, 2000.

  On March 31, 2000, Mr. Michael Perretta, then acting REO Director of the Philadelphia HOC,
  sent a letter requesting reimbursement of $212,436.63. This letter did not include any detail of
  the amount. On April 13, 2000, First Preston responded to Mr. Perretta in writing detailing the
  reimbursement that had already been submitted and cleared prior to the date of his letter. We
  denoted our attempts to establish a meeting to discuss these issues and again no meeting was
  established. We also advised Mr. Perretta that First Preston had submitted in excess of the
  amount requested and since we did not have a detail that we would be happy to discuss any
  variances with our submission. Shortly thereafter, Mr. Perretta left HUD.

  In conclusion, First Preston maintains that this is a false finding. We have enclosed copies of the
  cancelled checks for the reimbursements that will verify HUD has been in receipt of the funds
  since March 27, 2000. Further, additional controls have been in place since the quality control
  audit in March to ensure that requests for reimbursements from HUD are in compliance.

  Project files did not contain invoices or GTR approvals

  This finding does not represent a review of all file documents. This review was performed in a
  field office, and a field office file does not represent a complete case file. These files are
  integrated into the case file upon closing. The case files are maintained in the Blue Bell, PA
  office in accordance with our GTR approved Quality Control Plan. Further, in an effort to
  eliminate the risk of duplicate payments, all original invoices with GTR approval attached is sent
  to the Corporate Accounting Department in Addison, TX. These invoices are attached to a check
  copy maintained in the corporate office and a copy is attached to the HUD transmittal that is
  submitted for reimbursement. The review did not occur at the appropriate location to ensure that
  all documentation was included such as work orders and GTR approvals.
  Possible duplicate charges

  We are in receipt of the list of reimbursements under scrutiny totaling $32,549.45 from the OIG
  staff. The following details the reconciliation of those charges:

  Items reimbursed to HUD from 3/23/00 to 8/21/00                     $20,196.95
         Invoices that are not duplicates                                    $12,352.50
                Total amount detailed                                        $32,549.45
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  A number of the items listed as possible duplicate charges are for services with similar dollar
  amounts or with similar post codes. A review of the individual invoices identifies separate
  services and/or service dates. Additionally, a large number of the items noted were for lock
  changes. At the takeover of this contract, First Preston acquired all the approved locking
  mechanisms available from the manufacturer. Since a high percentage of the properties had not
  been secured and sufficient lock stock was not available, First Preston had to put temporary locks
  on inventory to secure it. Within the initial thirty days, all temporary locks were converted to
  permanent locks in order to allow maximum access to the brokerage community. This was an
  inherent risk due to the manner in which this contract was awarded.

  Our Contract Compliance Accounting team reviews the transmittals for compliance with the
  contract, documentation in accordance with those requirements and compares the detail to
  information in SAMS to ensure that invoices are not submitted more than once. This team has
  been instrumental in identifying items that need reimbursement to HUD out of the original
  takeover submissions. Additionally, this team reviews all transmittals prior to submission to
  HUD to ensure compliance. This team was established in early 2000 as a result of the increased
  volume of transmittals prepared by First Preston due to the Philadelphia 3 contract.

  First Preston did not meet contract time thresholds

  At the time of the takeover by First Preston, the inventory had grown from 5,669 properties in
  March 1999, to 9,854 properties. This eight-month period under the previous contractor had
  caused the processing time to increase to a high of 9.09 months. Currently, the processing rate is
  at 2.13 months, which is a 77% decrease in the time from acquisition date to original listing.
  Further, First Preston has decreased the turnover rate by 18% compared to HUD’s rate at the start
  of the M&M program. While this review may identify instances where the timeframes were not
  met, the overall performance of First Preston indicates substantial compliance with these
  requirements that has significantly reduced holding costs. Thus, there has been a greater
  monetary return to the insurance fund.

  Inspections were not performed within 24 hours

  The Contract Manager along with the Property Director receives a log sheet of all initial
  assignments. Weekly the Property Management Centers are to verify that all inspections are
  performed within 24 hours of assignment. This database is used to verify that the inspection was
  completed to First Preston’s and HUD’s specifications. First Preston is also in the process of
  expanding and upgrading our internal reporting system to provide a more detailed tracking
  system.

  An additional quality control checkpoint has been implemented by First Preston’s Corporate
  Office. A corporate oversight division has been created to review compliance and contract
  procedures. The staff is geographically located to cover all areas and perform property
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  inspections on 10% of the inventory, selected randomly as required by the contract. Findings are
  submitted to corporate oversight coordinators who are responsible to document and require
  written responses from the field offices. See attached organizational chart.

  Appraisals were not performed within 10 business days

  First Preston has expanded our roster of appraisers and retained new FHA appraisers who
  understand the requirements of appraisal reform. Simultaneously with the takeover of this
  inventory came the implementation of the new requirements of appraisal reform that on a short-
  term basis created confusion among FHA appraisers. Appraisers were required to obtain
  certifications and the FHA roster was continuously changing. Through education and
  certification we have aligned ourselves with competent appraisers that are capable of meeting the
  required timeframes. This improvement is already evidenced by the substantial reduction of Step
  1’s over the last several months. Currently, our Step 1 portfolio represents less than three weeks
  of inventory.

  Disposition programs were not approved within 3 business days

  First Preston, with the knowledge of the HOC, is listing properties on a weekly basis. This
  removes the need to perform the disposition as required by the HUD handbook. Under the
  guidelines of the handbook, HUD previously listed properties more often. However, from a
  marketing standpoint, the weekly listing program is more user friendly to the public and the
  brokerage community which is served by a routine listing day. This routine, predictable day
  fosters greater competition in bidding.

  Title evidence was not approved timely

  At the takeover of the contract by First Preston, there were over 5,000 cases with titles that were
  not approved. Currently, First Preston is current on approvals of all title evidence received for
  new acquisitions and have obtained over 69% of the initial 5,000 outstanding titles evidence.
  First Preston also has 344 cases that are sold and reconciled without title approval. We have sent
  multiple requests to lenders requesting the title packages. In cases where title has transferred to
  new owners, it is very difficult for lenders to go back and obtain title evidence. We have been
  working with the GTR on a resolution on the remaining outstanding title and the action which
  can be taken to obtain the evidence.

  Reconciliation’s were not adequately documented

  The reconciliation of the sales information is documented within the HUD-1 Checklist as
  discussed below. In addition, the closing staff reviews the unmatched sales proceeds and
  unreconciled sales closings daily for items that need attention. We are diligent in contacting
  closing agents for necessary items and preparing SAMS transmittals to correct any errors or
  payments required. The closing staff sends daily emails to the GTR (or their designee) on any
  transactions that cannot be corrected in-house or to identify any closing agent issues.

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  Lack of evidence that Settlement Statement form HUD-1 was reviewed

  In an effort to address the concerns that our files lacked evidence on the review of the HUD-1,
  First Preston has established a HUD-1 Checklist which details the information which is reviewed
  and is signed by the appropriate personnel. This checklist details thirty-four (34) items that are
  reviewed on each HUD-1 statement in accordance with the contract. The use of this checklist
  has been in place for the past several months.

  None of the contracts of HUD’s closing agents in Philadelphia area 3 require pre-closing HUD-
  1’s be sent to the M&M contractor. First Preston recently met with the Philadelphia HOC
  representatives asking them to modify the closing agent contract to require pre-closing packages.
  Effective October 1, 2000, the Philadelphia HOC Contracting office will require the closing
  agent to submit a pre-closing HUD-1 to the M&M Contractor. This will provide First Preston
  the ability to correct problems on the HUD-1 prior to closing. Additionally, we will require our
  Contract Managers to provide a weekly notification letter to the GTR listing all cases that close
  without First Preston’s review of the pre-closing HUD-1. This letter will detail the case number,
  date of closing and the closing agent. We anticipate that the GTR will address these concerns
  with the appropriate closing agent.

  Wire transfer receipts were missing from the files

  Prior to the M&M contract, acknowledgement of wire transfers were submitted by many of the
  closing agents to the HOC in response to this requirement. Evidence of the Step 10 sweep
  confirmed the validity of the wire transfer acknowledgement. Our closing staff has notified the
  closing agents that the acknowledgments are not acceptable and wire transfer receipts must be
  submitted. We will notify our GTR daily of non-compliance by the closing agent.

  First Preston is not adequately monitoring Held Off Market (HOM) properties

  At the takeover of the contract, there were over 800 properties in Step 3. A large number of
  these properties did not have case files. First Preston has worked diligently to resolve these
  issues. During meetings with the HOC in October and November, First Preston was advised to
  place these assets in a Step 3 and the HOC would review and assist us in resolving. In January
  2000, a ninety-day quality control audit was performed by First Preston. This audit was provided
  to the OIG staff. This report detailed the status of the Step 3 properties by HOM code and
  requested assistance from the HOC. Over the course of the contract, some of the original Step
  3’s have been confirmed as HUD properties and moved to listing. The vast majority of cases are
  still pending HUD’s removal. To assist HUD with this process, First Preston has hired a
  Troubled Asset Coordinator who is working with municipalities and taxing authorities to
  determine ownership. Although, this is beyond the scope of our contract, we find this imperative
  to resolve the final disposition of bad cases. First Preston can only advise of the status and
  cannot remove these cases. This action must be performed by the HOC.


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  Files do not contain evidence of form HUD-27011 review

  First Preston reviews each 27011A it receives from Mortgagees to ensure accurate information is
  input into SAMS. We do not have a formal form for this review, but check marks on the form
  and precise input will set new cases up in SAMS, at which point we print the CMC1 screen and
  various screens from SFIS. We verify the address, by cross checking the 27011A with the
  attached title policy or deed. Legal descriptions on these two documents will inform us if a
  condo unit must be added to the street address.

  We do have a comprehensive check list for the review of the 27011B,C&D forms, and perform
  this review on all properties prior to conducting a final close-out of a file. Any discrepancy in
  reporting by the Mortgagee is forwarded to our GTR with proper documentation. This is
  evidenced whereby thousands of the completed review check list can be found in Step 10 files
  located in our off-site storage. We recently heard from the HOC that Mortgagees were offset
  over $10,000 due to improper claims concerning review of these B,C&D forms in a single
  month.

  First Preston is not adequately monitoring title evidence receipt

  First Preston’s title department monitors the title evidence due report from SAMS on a daily
  basis. Letters are drafted and mailed on evidence that is overdue. In some instances, repeated
  efforts to obtain evidence have failed and First Preston is currently working with the HOC to
  address the issues of Step 10’s without title approval. See title evidence not approved timely
  paragraph above.

  First Preston is not formally notifying the GTR of mortgagee neglect

  First Preston has invested significantly in an upgrade to our internal reporting systems and will
  include a Mortgagee Neglect report that can be provided by lender, HOC area or case number.
  This report will allow our firm in conjunction with the GTR’s to identify the serious offending
  lenders and take appropriate corrective action. The completion and implementation of this
  upgrade is anticipated by the calendar year-end of 2000. In the interim, our offices will continue
  to submit mortgagee neglect reports weekly via an Excel spreadsheet to the corporate office
  where the information is downloaded to an Access database for comparative purposes.

  Upon receipt of a new property, our staff is assigning the property to the appropriate property
  management firm for inspection and securing. Along with the initial assignment, we provide the
  CMC1 screen and any Property Preservation and Protection (P&P) requests (and approvals) for
  this asset. The property management inspector must provide an initial inspection and confirm
  that all approved P&P work is complete and acceptable. If mortgagee neglect is identified upon
  the initial inspection, our Acquisition staff is contacting the lender for copies of their inspections
  for comparative purposes. This contact is documented in writing (fax, letter or email) and placed
  in the file. Our regional staff will continue to utilize the B, C and D checklist to identify any
  claims made by lenders that are not acceptable. While this checklist has been used for many


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    months, we have not identified this as an additional Quality Control checkpoint. This review
    enables the staff to deny any items that have not been completed.

    First Preston provided updated inspector and property manager training in August 2000 regarding
    the property preservation and protection guidelines. This training will reinforce previous
    sessions and will solely focus on the mortgagee neglect reporting.

    Initial Inspection did not identify apparent mortgagee neglect

    See the response above regarding mortgagee neglect reporting.


    First Preston is not notifying GTR of Closing Agent problems

    First Preston’s closing staff reviews the unmatched sales proceeds and unreconciled sales
    closings daily for items that need attention. We are diligent in contacting closing agents for
    necessary items and preparing SAMS transmittals to correct any errors or payments required.
    The closing staff sends daily emails to the GTR (or their designee) on any transactions that
    cannot be corrected in-house or to identify any closing agent issues. Additionally, the corporate
    accounting staff prepares a weekly report on both unmatched sales proceeds and unreconciled
    sales closings for the Contract Administrator. The accounting staff details the efforts of both
    accounting and the closing staff and identifies any action needed by the Contract Administrator.
    These reviews have occurred throughout the term of the contract and will continue as established.
    Also, First Preston has met with HUD staff on numerous occasions to report closing agent
    problems. A Special Report, containing our in-house 90-day Quality Assurance Audit (dated
    January 10, 2000), and detailing serious issues with two of HUD’s closing agents, was delivered
    to HUD and the OIG. One of the closing agents, after our reporting of information to the HOC,
    was terminated by HUD. The other, will not have their present contract renewed.

    Effective October 1, 2000, the Philadelphia HOC Contracting office will require the closing
    agent to submit a pre-closing HUD-1 to the M&M Contractor. This will provide First Preston
    the ability to correct problems on the HUD-1 prior to closing. Additionally, we will require our
    Contract Managers to provide a weekly notification letter to the GTR listing all cases that close
    without First Preston’s review of the pre-closing HUD-1. This letter will detail the case number,
    date of closing and the closing agent. We anticipate that the GTR will address these concerns
    with the appropriate closing agent.

    In closing, First Preston has worked diligently and tirelessly to accommodate any and all
    concerns expressed through monthly HOC assessments, Cox reviews, and OIG audits. In each
    case, First Preston has responded timely and proactively to reports and recommendations.
    Today, our critical paths (SAMS Report “Cases Exceeding Time in Current Step”) in each region
    are at an all-time high success rate. Our inventory continues to reduce. Our sales prices remain




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  stronger than months preceding the M&M contracts, despite new discounted programs of
  OND/TND and Dollar Homes. Our processes in terms of turnover rate, processing rate, and
  closing rate have never been stronger and in many cases, are superior to those under previous
  HUD management. We have employed consultants with the highest name recognition in the
  industry to upgrade asset-tracking systems and expand accounting systems, specifically tailored
  to HUD requirements. We have incorporated an oversight team of five oversight managers
  supervising seventeen field inspectors that are in place and working diligently monitoring all
  field maintenance. We have trained several thousand brokers in all six states. In short, First
  Preston has never wavered from its passion for the success of this program or its commitment to
  HUD and the communities it serves.

  Again, we thank you for the opportunity to respond and please let me know if we can be of
  further assistance.




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                                                                                      Appendix C

  Distribution
  Chief Operating Officer, First Preston, Addison, Texas (2)
  Deputy Secretary, SD, Room 10100
  Chief of Staff, S, Room 10000
  Special Assistant to the Deputy Secretary for Project Management, SD, Room 10100
  Assistant Secretary for Administration, S, Room 10110
  Assistant Secretary for Congressional & Intergovernmental Relations, J, Room 10120
  Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132
  Director of Scheduling and Advance, AL, Room 10158
  Counselor to the Secretary, S, Room 10234
  Deputy Chief of Staff, S, Room 10266
  Deputy Chief of Staff for Operations, S, Room 10226
  Deputy Chief of Staff for Programs and Policy, S, Room 10226
  Deputy Assistant Secretary for Public Affairs, W, Room 10222
  Special Assistant for Inter-Faith Community Outreach, S, Room 10222
  Executive Officer for Administrative Operations and Management, S, Room 10220
  Senior Advisor to the Secretary for Pine Ridge Project, W, Room 10216
  General Counsel, C, Room 10214
  Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom
  Assistant Secretary for Housing/Federal Housing Commissioner, H Room 9100
  Office of Policy Development and Research, R, Room 8100
  Assistant Secretary for Community Planning and Development, D, Room 7100
  Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108
  Government National Mortgage Association, T, Room 6100
  Assistant Secretary for Fair Housing & Equal Opportunity, E, Room 5100
  Chief Procurement Officer, N, Room 5184
  Deputy Secretary, SD, Room 10100
  Assistant Secretary for Public and Indian Housing, P, Room 4100
  Chief Information Officer, Q, Room 3152
  (Acting) Office of Departmental Operations and Coordination, I, Room 2124
  Chief Financial Officer, F, Room 2202
  Office of Deputy General Counsel, CB, Room 10220
  Director, Enforcement Center, V, 200 Portals Building, 1250 Maryland Avenue SW, Washington,
  DC 20024
  (Acting) Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800, Washington,
  DC 20024
  Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building, 1280 Maryland
  Avenue SW, Washington, DC 20024




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  Appendix C


  Secretary’s Representative, New York/New Jersey, 2AS (2)
  Director, HOC, Pennsylvania State Building, Pa (2)
  Assistant General Counsel, New York/New Jersey, 2AC
  Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108 (2)
  Deputy Chief Financial Officer for Finance, FF, Room 2202
  Director, Office of Budget, FO, Room 3270
  CFO, Mid-Atlantic Field Office, 3AFI (2)
  Office of Single Family, HF (Attention: Special Projects Coordinator Officer,
     Room 6232) (2)
  Departmental Audit Liaison Officer, FM, Room 2206 (2)
  Acquisitions Librarian, Library, AS, Room 8141


  Steve Redburn, Chief
  Office of Management and Budget
  725 17th Street, NW Room 9226
  New Executive Office Building
  Washington, DC 20503


  Deputy Staff Director
  Counsel Subcommittee on Criminal Justice
  Drug Policy & Human Resources
  B373 Rayburn House Office Building
  Washington, DC 20515


  The Honorable Henry A. Waxman
  Ranking Member
  Committee on Governmental Reform
  2204 Rayburn Building
  House of Representatives
  Washington, DC 20515-4305


  The Honorable Joseph Lieberman
  Ranking Member
  Committee on Governmental Affairs
  706 Hart Senate Office Building
  United States Senate
  Washington, DC 20510



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  The Honorable Dan Burton
  Chairman
  Committee on Government Reform
  2185 Rayburn Building
  House of Representatives
  Washington, DC 20515-6143


  The Honorable Fred Thompson
  Chairman
  Committee on Governmental Affairs
  340 Dirksen Senate Office Building
  United States Senate
  Washington, DC 20510-6250


  Director, Housing & Community Development Issue Area,
    United States General Accounting Office
  441 G Street, NW, Room 2474
  Washington, DC
  (Attention: Judy England-Joseph)


  Ms. Cindy Fogleman
  Subcommittee on General Oversight & Investigations
  O'Neill House Office Building, Room 212
  Washington, DC 20515




T.O.C.                                                                    Exit


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