The Department of Housing and Urban Development (HUD) failed to follow required clearance procedures when implementing changes to Federal Housing Administration programs, according to a recent audit from HUD’s Office of Inspector General (HUD-OIG).
HUD-OIG’s objective was to determine whether HUD followed proper requirements and procedures when applying changes to FHA single-family programs, policies and operations.
Though the audit does not mention any of the rule changes to the Home Equity Conversion Mortgage program over the years, the HUD-OIG found that HUD’s Office of Single Family Housing did not always pursue required departmental clearance and posted draft documents or directives in final form before receiving clearance.
Specifically, this occurred on three documents, according to the audit, including the Loan Quality Assessment Methodology (Defect Taxonomy), Addendum to Uniform Residential Loan Application (form HUD-92900-A), and the Single Family Housing Policy Handbook 4000.1.
The Loan Quality Assessment Methodology discusses policies and guidance related to HUD’s FHA lender monitoring process and enforcement of FHA loan origination defects.
Because this documentation presented information and guidance regarding proposed changes or additions to the existing guidance and would effect outside interests, HUD should have completed full departmental clearance before publicly posting the document in draft form on FHA’s Drafting Table website on September 16, 2014, according to HUD-OIG’s audit.
The Addendum to Uniform Residential Loan Application was used for establishing the eligibility of proposed mortgage transactions for FHA’s insurance endorsement. The addendum revised a previously cleared Paperwork Reduction Act document, therefore, requiring departmental clearance.
HUD-OIG found that HUD posted this document on its public Drafting Table website on May 1, 2015, however, the agency did not complete the departmental clearance process until August 11, 2015. Additionally, the audit notes the 60-day Federal Register notice relating to this document was improperly issued before it went through departmental clearance.
The Single Family Housing Policy Handbook 4000.1 consolidated FHA single-family housing policy into a single source, the intent being so lenders and other stakeholders could more easily find current policy information. HUD used its Drafting Table site to post sections of the Handbook in draft form to receive feedback from interested parties.
Before posting this document publicly, HUD’s Office of Single Family Housing completed a waiver of a housing directive, however, only HUD’s Offices of General Counsel and Housing signed the document, according to the audit.
“HUD did not provide documentation to show that the clearance process requirements were waived by the Office of Administration as required,” HUD-OIG states in its audit report. “Without an appropriately approved waiver, this document should have undergone full departmental clearance before it was posted publically [sic] in draft form.”
The audit also found that even when departmental clearance was pursued, HUD did not always ensure that key officials reviewed the documents before issuance.
“This condition occurred because HUD did not have adequate controls over the directives process,” HUD-OIG states. “Specifically, HUD did not implement clearly understood and updated guidance for directives and did not adequately monitor its clearance tracking system.”
As a result, HUD-OIG found that significant policy information was distributed without proper review and clearance, which undermined the intent and integrity of the process.
“Additionally, the risk of issuing incorrect or inconsistent information was increased, potentially resulting in significant financial losses or other unintended consequences,” HUD-OIG states.
HUD-OIG recommends that HUD pursue department clearance for the various documents and policies identified in its audit that did not go through required departmental clearance and recall any documents that cannot be appropriately cleared.
The HUD watchdog also presses HUD to implement controls, update policies and provide training to ensure that directives are reviewed and documented as required.
View the HUD-OIG audit here.
Written by Jason Oliva