oversight

The Wyoming Community Development Authority Properly Administered HUD's Loss Mitigation Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-01-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

OFFICE OF AUDIT                                      DRAFT
REGION   8
   For Discussion and Comment Only - Subject to Review and Revision
DENVER, CO




        Wyoming Community Development Authority,
                    Casper, WY


                   HUD’s Loss Mitigation Program for
                       FHA-Insured Mortgages




2014-DE-1001                                                          JANUARY 22, 2014
                                                 U.S. DEPARTMENT OF
                              HOUSING AND URBAN DEVELOPMENT
                                          OFFICE OF INSPECTOR GENERAL


                                                                    Issue Date: January 22, 2014

                                                                    Audit Report Number: 2014-DE-1001


TO:            Charles S. Coulter, Deputy Assistant Secretary for Single Family Housing, HU

               //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT:       The Wyoming Community Development Authority Properly Administered
               HUD’s Loss Mitigation Program


    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 Wyoming Community Development
Authority’s administration of HUD’s Loss Mitigation Program for FHA-insured mortgages.

    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 8M, 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
913-551-5870.




                                                Office of Audit Region 8
                                   1670 Broadway, 24th Floor, Denver, CO 80202
                                      Phone (303) 672-5452, Fax (303) 672-5006
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
                                           January 22, 2014
                                           The Wyoming Community Development Authority
                                           Properly Administered HUD’s Loss Mitigation Program




Highlights
Audit Report 2014-DE-1001


 What We Audited and Why                    What We Found

We reviewed the administration of the The Authority properly administered HUD’s Loss
U.S. Department of Housing and Urban Mitigation Program for the FHA loans reviewed.
Development’s (HUD) Loss Mitigation
Program at the Wyoming Community
Development Authority, located in
Casper, WY. Our objective was to
determine whether the Authority
properly administered HUD’s Loss
Mitigation Program for Federal
Housing Administration (FHA)-insured
mortgages. We selected the Authority
based on its high rate of foreclosure
claims. Its foreclosure rate was more
than four times the national average.

 What We Recommend

This report contains no
recommendations; therefore, no further
action is necessary with respect to this
report.
                           TABLE OF CONTENTS

Background and Objective                                                  3

Results of Audit
      The Authority Properly Administered HUD’s Loss Mitigation Program   4

Scope and Methodology                                                     5

Internal Controls                                                         7

Appendix
A.   Auditee Comments                                                     9




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                       BACKGROUND AND OBJECTIVE

The Wyoming Community Development Authority is an approved Federal Housing
Administration (FHA) loan servicer in Casper, WY. The Authority services more than 13,000
mortgage loans of which approximately a fourth are currently FHA loans. A State statute created
the Authority in 1975 to finance affordable housing. The Authority’s largest housing program is
the Single Family Mortgage Purchase Program for first-time home buyers. To fund this
program, the Authority raises capital by selling tax-exempt mortgage revenue bonds to investors.

FHA provides mortgage insurance on loans made by FHA-approved lenders. This insurance
provides lenders with protection against losses as the result of homeowners’ defaulting on their
mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the
event of a homeowner’s default. Loans must meet certain requirements established by FHA to
qualify for insurance.

The U.S. Department of Housing and Urban Development (HUD) established the Loss
Mitigation Program in 1996 to ensure that distressed FHA-insured borrowers would have
opportunities to keep their homes and reduce losses to FHA’s insurance fund. Loan servicers
must offer loss mitigation options to borrowers in distress based on the borrower’s financial
circumstances. The Program consists of reinstatement options to promote retention of
borrowers’ homes and disposition options which assist in disposing of their homes.

The reinstatement options are special forbearance, partial claim, loan modification, and the
Home Affordable Modification Program. A special forbearance is a written repayment
agreement between a loan servicer and borrower, containing a plan to reinstate a delinquent loan.
A partial claim consists of an interest-free loan to the borrower in the amount needed to reinstate
the mortgage, thereby becoming a subordinate mortgage payable to HUD. On February 3, 2010,
the Authority obtained permission from HUD to exclude the loan modification and the Home
Affordable Modification Program from its available options to borrowers.

The disposition options are preforeclosure sale and deed in lieu of foreclosure. The
preforeclosure sale option allows the defaulted borrower to sell his or her home and use the sales
proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed. A
deed in lieu of foreclosure allows a borrower to hand over his or her home to HUD in exchange
for a release from all mortgage obligations.

Our objective was to determine whether the Authority properly administered HUD’s Loss
Mitigation Program for FHA-insured mortgages.




                                                 3
                               RESULTS OF AUDIT


The Authority Properly Administered HUD’s Loss Mitigation Program
The Authority properly administered HUD’s Loss Mitigation Program for the 20 FHA loans
reviewed.



 The Authority Properly
 Administered the Program


      The Authority properly approved and rejected borrowers from HUD’s Loss
      Mitigation Program. We selected and reviewed a sample of three FHA loans the
      Authority approved for each of the four loss mitigation options it used during our
      audit period and a sample of eight FHA loans it rejected for loss mitigation. The
      loss mitigation options used by the Authority included special forbearance, partial
      claim, preforeclosure sale, and deed in lieu of foreclosure. We reviewed the
      Authority’s loan files to determine whether it properly approved or rejected the
      borrowers for each loss mitigation type. All 20 borrowers appeared to have been
      properly eligible or ineligible for the Program. We did note minor instances of
      noncompliance with HUD’s loss mitigation requirements; however, these minor
      deficiencies did not directly affect the eligibility of the participants.

 Recommendations

      This report contains no recommendations, and no further action is necessary with respect
      to this report.




                                               4
                                                
                             SCOPE AND METHODOLOGY

   We performed our onsite audit work at the Authority’s office located at 155 North Beech Street,
   Casper, WY, between May and September 2013. The audit covered the period April 1, 2011
   through March 31, 2013.

   To accomplish our objective, we

          Interviewed Authority and HUD staff;
          Reviewed Federal regulations, HUD handbooks, and mortgagee letters;
          Evaluated the Authority’s policies and procedures; and
          Reviewed the Authority’s loan servicing case files.

   Additionally, we used HUD’s data maintained in its Single Family Data Warehouse database to
   identify the Authority’s FHA loans. However, we did not rely on these data for our conclusions.
   All conclusions were based on additional review performed during the audit. The Single Family
   Data Warehouse includes a collection of database tables allowing users to access Single Family
   Housing data on properties and associated loans, insurance, claims, defaults, and demographics.

   During the audit period, the Authority had 76 FHA loans that underwent loss mitigation,
   resulting in claims totaling more than $6.8 million. We selected a sample of three FHA loans the
   Authority approved for each loss mitigation type it used. These 12 selected loans had more than
   $1.2 million in resulting claims. The sample consisted of all three of the partial claims and deeds
   in lieu of foreclosure approved. We also selected the three special forbearance and
   preforeclosure sales that had the fewest days from the loan closing to the first default as the
   fewer the days from the loan closing, the more risk is involved since these loans may have the
   highest unpaid balance due. We reviewed these loan files to determine whether the Authority
   properly approved the loan for each loss mitigation type.

               The Authority's FHA loans that underwent loss mitigation during the audit period 
Loss mitigation type           Total loans    Total claims  Selected loans  Total claims for selected loans 
Special forbearance                      29 $3,853,910.55                 3                      $397,277.34
Partial claim                             3    $188,186.66                3                      $188,186.66
Preforeclosure sale                      41 $2,286,672.06                 3                      $130,162.97
Deed in lieu of foreclosure               3    $514,161.19                3                      $514,161.19
Totals                                   76 $6,842,930.46                12                    $1,229,788.16

   The Authority had 44 FHA loans that went into foreclosure during the audit period totaling more
   than $6.5 million that were ineligible for loss mitigation. We selected the eight loans with the
   fewest days from loan closing to the first default, which resulted in more than $1.2 million in
   claims. We reviewed these loan files to determine whether the Authority properly rejected the
   loan from each loss mitigation type.



                                                     5
                                                      
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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                6
                                                 
                              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:

                     Policies and procedures to ensure that eligible borrowers are accepted and
                      ineligible borrowers are rejected under HUD’s Loss Mitigation Program for
                      FHA-insured mortgages.

               We assessed the relevant controls 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.

 Significant Deficiencies

               We evaluated internal controls related to the audit objectives 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 Authority’s internal controls.




                                                 7
                                                   
Separate Communication of
Minor Deficiencies

           We reported minor deficiencies to the auditee in a separate management
           memorandum.




                                           8
                                            
                              APPENDIX A



                       AUDITEE COMMENTS

The Authority chose not to provide written comments for this audit report.




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