Outdated FHA Computer System Cost Taxpayers $41 Million

The Federal Housing Administration’s outdated computer systems were partially to blame for nearly 10,000 improperly insured mortgages, a blunder that could end up costing $41 million in federal money.

An internal investigation in March revealed that in 2016, the FHA signed off on 9,507 mortgages  — with a total balance of $1.9 billion — for borrowers who didn’t actually qualify for government-backed loans, either because they had unpaid federal debts or delinquent child-support payments.

Now a new analysis from the Urban Institute, a non-partisan Washington think tank, pegs the cost of those erroneous loans at $41 million based on overall FHA claims data and the significantly higher delinquency rates for the flagged mortgages.


“This is just one example of the economic consequences of relying on an outdated system,” Urban Institute researchers Karan Kaul and Edward Golding wrote.

Ancient information technology infrastructure at the FHA and the Department of Housing and Urban Development has long been identified as a significant problem for borrowers and lenders alike. The government tracks mortgages using software based on COBOL, a programming language that dates back to the late 1950s, and officials have found it increasingly difficult to hire programmers who know how the system works. 

In the case of the inappropriately approved mortgages, a database first developed in 1987 was to blame. When officials from HUD’s Office of the Inspector General (OIG) cross-checked the Credit Alert Interactive Voice Response System (CAIVRS) against the Treasury Department’s Do Not Pay system, they found a significant portion of delinquent borrowers that HUD’s system did not identify.

The Urban Institute researchers note that HUD and FHA have agreed to make the necessary changes, but that officials are waiting on a $30 million cash influx from Congress.

“With adequate resources and systems, the FHA might have avoided insuring the ineligible loans and the $41 million in estimated losses for taxpayers,” Kaul and Golding concluded. “The $30 million would have more than paid for itself.”

Written by Alex Spanko

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  • This comes as no surprise.

    This money should have been paid out of monies that went to counseling. While it is nice to save seniors $50 or so per counseling session, the result is now paying out $41 million and who knows how much more for computers. So now the total cost of not withholding funds for counseling is estimated at least at $71 million. There have been years in the past when HUD granted no monies for counseling to offset the costs of counseling. Why not so in the last few years to buy a modern computer system and design custom software?

    As part of their annual audit, the OIG should have advised in their letter to HUD management that the current cost would be less than the loss from improper handling of loans. Perhaps this is all of such losses but then again who knows.

  • While I trust Alex Spanko’s reporting, in most cases, I have grave doubts as to the validity of this report. EX: Who knew of computer programming back in the 1950’s ?

    This raises a multitude of questions:
    1. How did the figure of $41,000,000 come to be ?
    2. Did the investigators expect all the borrowers to default on their reverse mortgage ?
    3. Did the investigators calculate the rate of inflation over the past six years, and more particularly, the huge uptick in housing prices nationwide since this president took office which works very nicely to FHA’s benefit.
    4. How does this recent disclosure compare to “forward mortgage lenders” again offering loans to borrowers with credit scores in the 500’s; which looks like a return to the dreadful practices of Wall Street during the previous administration.

    • Mr. Hackney,

      Where did you come up with this one? “EX: Who knew of computer programming back in the 1950’s?” Ignorance is bliss.

      FORTRAN was written at IBM back in 1954. COBOL, the language at issue, was written in 1959 which corresponds with the statement in the article which states: “COBOL, a programming language that dates back to the late 1950s.”

      It was early Baby Boomers as they grew older moved all computer languages forward. But we were working from what was started by our parents. Accurate history in our country is at a real premium.

      Who says the loss relates only to HECMs? You are making a huge assumption.

  • Mitchell,

    Your reply to me is much better than your original comment.

    My first reply to you in this thread was also trying to point out some of the holes in your original comment.

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