Washington region consumers aren’t getting as much in home loan assistance as they were promised, a recent report by the D.C. Office of the Auditor General said.
Auditors reviewed how the settlement between the Federal Housing Administration and banks and private companies involved a federal lawsuit claiming lenders were not compensating borrowers adequately for loan modifications that lowered their monthly mortgage payments. That took place between 2012 and 2014, the report said.
Regulators asked the banks to repay $3.7 billion to the FHA, a national insurer that insures mortgages and also offers loans directly to consumers through its affiliates. The audit found that the funds “cannot be tracked, and if tracked, are not used effectively.”
“I am concerned that Washington region consumers, who have suffered as a result of the so-called HAMP (Home Affordable Modification Program) settlement payments, have not been compensated for their losses as a result of not having their payments modified in the way the settlement stipulated,” said Office of the Auditor General Auditor Anthony E. Eramo in a statement.
Washington metro-area borrowers who took advantage of the program were eligible for up to 90 percent of their loan balance to be reduced in principal, interest or loan interest rates, according to the OAG.
Borrowers also received at least $1,000 for various hardship scenarios, such as home repairs or a move.
Eramo said there were too many cases where the money wasn’t applied to the original loan balance and didn’t target residents of low- and moderate-income households.
The OAG reviewed these cases and gave the FHA $70 million dollars in funds to help compensate borrowers.
“I would like to see the folks that got money, when they have money, use that money to address people’s needs in a way that benefits them,” Eramo said.
The OAG report also found that the FHA couldn’t follow a government requirement to monitor a program’s progress and make quarterly reports to congress. FHA didn’t submit these reports until 2014.
They also found the FHA “fundamentally lacked financial transparency, governance structure, and management oversight and control.”
“Particularly troubling is the FHA’s lack of financial transparency and governance structure. There is no financial reporting to the U.S. Treasury or the public about its financial condition or its transactions,” the report said.
President Donald Trump’s administration asked the OAG to review the results of the loan modification program. The program was set up under former President Barack Obama’s administration.
The Obama administration estimated that FHA needed more than $9 billion to pay off the unspent funds allocated to the program. The OAG report estimated that a $3.7 billion forfeiture would be enough to pay off FHA’s outstanding balances.
“These funds are among FHA’s reserves; if we were to forfeit the funds, it would reduce the size of the reserve and put it at risk,” Eramo said.
FHA has faced criticism in the past from Congress for not paying out money quickly enough to struggling homeowners. The Washington area is particularly cash-strapped for housing, with an average home price of $337,442.