OFFICE OF AUDIT
REGION 3
PHILADELPHIA, PA
State of Maryland Department of Housing and
Community Development
Crownsville, MD
Emergency Mortgage Assistance Program
2013-PH-1006 AUGUST 8, 2013
Issue Date: August 8, 2013
Audit Report Number: 2013-PH-1006
TO: Sarah S. Gerecke, Deputy Assistant Secretary for Housing Counseling, HC
//signed//
FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region, 3AGA
SUBJECT: The State of Maryland, Crownsville, MD, Generally Administered Its Emergency
Mortgage Assistance Program According to Applicable HUD Requirements
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the State of Maryland’s Department of
Housing and Community Development’s administration of its Emergency Mortgage Assistance
program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
215-430-6729.
August 8, 2013
The State of Maryland, Crownsville, MD, Generally
Administered Its Emergency Mortgage Assistance
Program According to Applicable HUD Requirements
Highlights
Audit Report 2013-PH-1006
What We Audited and Why What We Found
We audited the State of Maryland’s The State generally administered its Emergency
Department of Housing and Community Mortgage Assistance program in accordance with
Development’s administration of its applicable HUD requirements. It ensured that
Emergency Mortgage Assistance homeowners met eligibility requirements, maximum
program. We audited the State’s loan amounts were within established loan limits, and
program because the U.S. Department its administrative expenses were eligible and supported
of Housing and Urban Development by adequate documentation. Also, it generally ensured
(HUD) awarded the State $61.6 million that homeowners’ debt-to-income ratios were below 55
in Emergency Homeowner’s Loan percent.
program funds to administer its
Emergency Mortgage Assistance
program. Our objective was to
determine whether the State
administered its Emergency Mortgage
Assistance program in accordance with
applicable HUD requirements.
What We Recommend
This report contains no
recommendations.
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding: The State of Maryland Generally Administered Its Emergency 4
Mortgage Assistance Program in Accordance With HUD Requirements
Scope and Methodology 7
Internal Controls 10
Appendix
A. Auditee Comments 11
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BACKGROUND AND OBJECTIVE
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was revised and
reauthorized to provide $1 billion to the U.S. Department of Housing and Urban Development
(HUD) to implement the Emergency Homeowners’ Loan program. This program authorized
HUD to allow funds to be administered by a State that had an existing program that provided
substantially similar assistance to homeowners as determined by HUD. HUD awarded grant
funds to 32 States and Puerto Rico. HUD awarded the State of Maryland $61.6 million because
it determined that the State’s Emergency Mortgage Assistance program was substantially similar
to its program. The State’s program is designed to provide emergency assistance to homeowners
at risk of foreclosure due to a substantial reduction in income brought on by layoff,
underemployment, or a medical condition.
The Maryland Department of Housing and Community Development was responsible for
administering the State’s grant, and it entered into a cooperative grant agreement with HUD on
March 30, 2011. In doing so, it agreed to carry out its activities under the agreement in
compliance with the Emergency Homeowner’s Relief Act 1, as amended, and any other
applicable laws and requirements. The performance period of the grant began on March 30,
2011, and ends on December 1, 2013. With these funds, the State’s Emergency Mortgage
Assistance program offered a deferred-payment “bridge loan” of up to $50,000 with no interest
to assist eligible borrowers with payments on their mortgage for up to 24 months. HUD
authorized the State to use $5 million of the $61.6 million for administrative costs associated
with the program. As of January 2013, the State had provided emergency mortgage assistance
totaling $43.4 million to the owners of 1,320 homes.
The Department of Housing and Community Development is located at 100 Community Place,
Crownsville, MD. The Department is responsible for implementing housing policies that
promote and preserve home ownership and create innovative community development initiatives
to meet the challenges of a growing Maryland.
Our audit objective was to determine whether the State administered its Emergency Mortgage
Assistance program in accordance with applicable HUD requirements.
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The Emergency Homeowner’s Relief Act authorizes temporary assistance to help defray mortgage payments on
homes owned by persons who are temporarily unemployed or underemployed as the result of adverse economic
conditions.
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RESULTS OF AUDIT
Finding: The State of Maryland Generally Administered Its Emergency
Mortgage Assistance Program in Accordance With HUD Requirements
The State generally administered its Emergency Mortgage Assistance program in accordance
with applicable HUD requirements. We audited 14 statistically selected loan files valued at
$473,916 and determined that the State generally ensured that homeowners met eligibility
requirements, maximum loan amounts were within established loan limits, debt-to-income ratios
were below 55 percent, and its administrative expenses were eligible and supported by adequate
documentation. We did not review additional loans from our sample since the review of the first
14 disclosed no significant problems.
Assisted Homeowners Met
Eligibility Requirements
The State ensured that homeowners were eligible to receive assistance. We
reviewed the files for 14 of the 1,320 loans that the State made. The owners of
these 14 homes received assistance totaling $473,916. We verified that the
owners were eligible to receive assistance. Article V, section E, of the State’s
cooperative agreement required that assistance be awarded to homeowners who
met eight eligibility requirements. Homeowners were required to meet residency,
event, income limit, loss of income, delinquency and imminence of foreclosure,
likelihood to resume payment, flood zone insurance, and immigration status
requirements. In the 14 files, we reviewed documentation such as intake
applications, wage and earning statements, income tax returns, employment-
related documentation, medical documentation, loan repayment history, and
mortgage delinquency documentation.
Additionally, we reviewed the applications for 14 homes for which the State
determined that the homeowners were not eligible to participate in its program to
ensure that they were not assisted for valid reasons. The State did not assist these
homeowners because 13 homeowners did not meet the eligibility requirements
and one homeowner decided not to participate in the program.
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Loans Complied With the
Established Assistance Limit
Article V, section F(2), of the State’s cooperative agreement limited assistance to
a borrower to $50,000 or less. The State provided assistance ranging from $6,881
to $49,752 to the owners of the 14 homes reviewed who met eligibility
requirements.
Assisted Homeowners’ Debt-to-
Income Ratios Were Generally
Acceptable
The State generally ensured that homeowners’ debt-to-income ratios were below
55 percent. Article V, section E(6), of the cooperative agreement required the
State to ensure that the applicant had a reasonable likelihood of being able to fully
resume making the full mortgage payment after the emergency mortgage
assistance ended. Regulations at 24 CFR (Code of Federal Regulations) 2700.110
require that homeowners demonstrate a likelihood of repayment of full mortgage
payments. The regulations require that homeowner has a debt-to-income ratio
below 55 percent.
We reviewed the State’s debt-to-income calculations supporting the assistance it
provided to the owners of the 14 homes, who received assistance totaling
$473,916. We reviewed the homeowners’ credit reports and income
documentation. In one case, the homeowner’s debt-to-income ratio exceeded 55
percent. The State did not accurately calculate the homeowner’s debt as reported
on the credit report. The correct debt-to-income ratio was 63 percent, rather than
39 percent as determined by the State. Although the debt-to-income ratio
exceeded the required limit in this case, the homeowner had made timely
payments to the State for the homeowner portion of the monthly mortgage
payment. The State’s assistance to this homeowner will end in August 2013. The
State informed us that as part of its normal closeout procedures, it would ensure
that the homeowner would be capable of resuming full mortgage payments as
required.
Administrative Costs Were
Eligible and Adequately
Supported
The State incurred administrative costs that were eligible, and it maintained
documentation to adequately support them. Article V, section D, of the State’s
cooperative agreement required it to use administrative funds for eligible
expenses such as staffing, technology, training, and indirect costs. Article X,
section G, of the agreement required the State to maintain source documentation
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to support its requests for payment. The State requested payment for
administrative costs totaling $4.2 million during the period June 2011 through
December 2012. We reviewed $280,413 of those expenses to determine whether
the expenses were eligible program expenses and whether the State maintained
documentation to adequately support them. We reviewed timesheets, payroll
records, temporary staff contracts, and other documentation to ensure that the
administrative costs were eligible and properly supported.
Conclusion
The State generally administered its Emergency Mortgage Assistance program in
accordance with applicable HUD requirements. It ensured that homeowners met
eligibility requirements, maximum loan amounts were within established loan
limits, and its administrative expenses were eligible and supported by adequate
documentation. Also, it generally ensured that homeowners’ debt-to-income
ratios were below 55 percent.
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SCOPE AND METHODOLOGY
We conducted the audit from January to May 2013 at the State’s office located at 100
Community Place, Crownsville, MD, and at our offices located in Philadelphia, PA, and
Baltimore, MD. The audit covered the period April 2011 through December 2012.
To achieve our objective, we reviewed
• Relevant background information.
• HUD regulations at 24 CFR Part 2700 and the Notice of Funding Availability -
Emergency Homeowners’ Loan Program: Notice of Allocation of Funding for
Substantially Similar State Programs.
• The Department of Housing and Community Development’s cooperative agreement with
HUD, emergency mortgage assistance policy and procedures, quarterly reports to HUD
for the period April 2011 through September 2012, organizational charts, employee
listing as of September 30, 2011, personnel policies and procedures, applications for
assistance, and loan files.
• The State’s fiscal year 2011 audited financial statements.
We conducted interviews with the State’s employees and HUD staff.
We relied in part on computer-processed data in the State’s database. We used the computer-
processed data to select a sample of loan files to review. Although we did not perform a detailed
assessment of the reliability of the data, we did perform a minimal level of testing and found the
data to be adequate for our purposes.
During our audit period, the State provided emergency mortgage assistance totaling $43.4
million to the owners of 1,320 homes. Using a stratified random sampling method, we selected a
statistical sample of 70 loans valued at $2.3 million for review to determine whether the
assistance was provided in accordance with HUD requirements. The statistical sampling plan
had a one-sided 95 percent confidence interval with a precision level of 30.90 percent. However,
we reviewed only the first 14 loans valued at $473,916 because our review of those loans
disclosed no significant problems. We also used a simple random sampling method to select and
review 14 of 2,900 applications of persons who the State determined were not eligible to
participate in its program.
We screened the Social Security numbers of 1,721 persons (borrowers and coborrowers) related
to the 1,320 homes that received emergency mortgage assistance against a Social Security
number verification database. Thirteen Social Security numbers were associated with deceased
persons. We reviewed the loan files, conducted Lexis/Nexis and Accurint public record
searches, and determined that in five cases, the Social Security numbers or names of the
borrowers or coborrowers were transposed or listed inaccurately in the State’s database. In one
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case, a coborrower died before the application for assistance was approved, and the State
properly processed the application based on the remaining coborrower’s information. Lastly,
there were six borrowers and one coborrower who died while participating in the program. The
State properly ended the mortgage assistance as required for the six borrowers and adjusted the
payments for the surviving coborrower.
We also screened the Social Security numbers of the 1,721 persons against HUD’s Public and
Indian Housing Information Center database to determine whether these individuals received
assistance through HUD’s Housing Choice Voucher program or low-rent public housing
program. We found that one borrower also participated in the Housing Choice Voucher
Homeownership program.
We screened the names of the owners of the 14 homes, who met eligibility requirements, which
we reviewed against the Federal System for Award Management to determine whether they were
prohibited from receiving assistance. None of the owners was excluded from receiving Federal
financial and nonfinancial assistance and benefits in the system.
We screened the names of the 379 employees of the State’s Department of Housing and
Community Development as of September 30, 2011, against the list of the 1,721 names of the
borrowers and coborrowers related to the 1,320 homes, who received emergency mortgage
assistance, to determine whether any employees received assistance. We found that two
employees received assistance. HUD regulations and the cooperative agreement did not prohibit
employees from participating in the program. We reviewed the loan files and found that the
employees met eligibility requirements. No conflicts of interest were noted. The employees did
not have familial relationships with the loan underwriters, and they were not excluded from
receiving the assistance in the Federal System for Award Management.
The State requested payment for administrative costs totaling $4.2 million during the period June
2011 through December 2012. We nonstatistically selected and reviewed $280,413 of those
expenses to determine whether the expenses were eligible program expenses and whether the
State maintained documentation to adequately support them. We found these expenses to be
eligible and supported by adequate documentation. We selected these expenses from the
quarterly performance report for the quarter ending September 30, 2011. We selected this
quarterly report because it had the greatest amount of administrative expenses reported ($1.2
million) from the seven quarterly reports the State submitted to HUD. We reviewed expenses
from the personnel and fringe benefits and temporary staff expense categories because they had
the largest amounts of expenses reported for the period ($477,907 and $296,533, respectively).
Of the $477,907, we reviewed supporting documentation for $214,063, representing expenses for
all 14 employees who worked more than 300 hours during the quarter. Of the $296,533, we
nonstatistically selected every fourth employee’s name and reviewed supporting documentation
for $66,350, representing expenses for 10 employees.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
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objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
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INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal control was relevant to our audit
objective:
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that the program meets
its objectives.
We assessed the relevant control identified above.
A deficiency in internal control exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
We evaluated internal controls related to the audit objective in accordance with
generally accepted government auditing standards. Our evaluation of internal
controls was not designed to provide assurance regarding the effectiveness of the
internal control structure as a whole. Accordingly, we do not express an opinion on
the effectiveness of the State’s internal control.
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APPENDIX
Appendix A
AUDITEE COMMENTS
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The State of Maryland, Crownsville, MD, Generally Administered Its Emergency Mortgage Assistance Program According to Applicable HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-08-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)