The Department of Housing and Urban Development (HUD) is at the center of two new reports issued by the Government Accountability Office (GAO).
A July report on reverse mortgages—a type of loan against home equity available to seniors—finds that recent policy changes have had a positive to neutral effect on most lenders but raises some concerns for HUD.
The Housing and Economic Recovery Act of 2008 made several changes to HUD’s Home Equity Conversion Mortgage (HECM) program, including how origination fees are calculated and an increase in the loan limit.
HUD has enhanced its analysis of the program’s costs, but less favorable house price trends and loan limit increases have increased the department’s risk of losses, according to the GAO.
“Although the program historically has not required a subsidy, HUD has estimated that HECMs made in 2010 will require a subsidy of $798 million, largely due to more pessimistic assumptions about long-run home prices,” noted the report, adding that a higher loan limit may also increase the potential for losses.
GAO’s analysis of data of HECM borrowers from 2007 shows that if the changes had been in place at the time, “most would have paid less or the same amount in up-front costs, and most would have had more or the same amount of loan funds available.” For example, about 46 percent of borrowers would have realized a decrease in up-front costs and an increase in available loan funds. However, 17 percent would have had an increase in up-front costs and a decline in available loan funds.
A separate GAO report finds that HUD needs to improve its information technology (IT) management.
“HUD’s ability to effectively and efficiently perform mission-critical operations, including those integral to our nation’s economic recovery and reinvestment activities, is constrained by its current IT environment,” said the report.
The GAO noted that the department has established key IT modernization controls and credited the department for being aware of the areas in need of improvement. However, it found several shortcomings. For example, it is behind schedule or not making progress on about half of the activities need to achieve its strategic goals.