HUD Management: FHA's Multifamily Loan Loss Reserves and Default Prevention Efforts: Rced/Aimd-95-100

 
9781289127237: HUD Management: FHA's Multifamily Loan Loss Reserves and Default Prevention Efforts: Rced/Aimd-95-100
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Pursuant to a legislative requirement, GAO reviewed the adequacy of the loan loss reserves covering the Federal Housing Administration's (FHA) multifamily loan portfolio, focusing on the: (1) methodology FHA used to establish loan loss reserves for its fiscal year (FY) 1993 portfolio; (2) benefit of creating a new insurance fund for all new multifamily housing insurance commitments; and (3) Department of Housing and Urban Development's (HUD) initiatives for preventing future defaults on FHA multifamily housing loans.
GAO found that: (1) FHA used an improved methodology to estimate its FY 1993 loan loss reserves of $10.3 billion; (2) the reliability of the FHA estimate is limited by weaknesses in FHA data, FHA use of several default factors, and assumptions about the probability of default; (3) creating an actuarially sound insurance fund for all new multifamily housing commitments would eliminate the need for appropriations to cover anticipated losses on new FHA loans, but it might entail reducing the amount of mortgage insurance available for high-risk loans; (4) FHA could have difficulty complying with a requirement for actuarial soundness, since defaults on insured multifamily loans are hard to predict; (5) HUD is undertaking initiatives to strengthen its management abilities and prevent future defaults, such as using contractors to compile information about the physical and financial condition of insured multifamily properties; and (6) HUD has yet to make specific plans to develop data systems that can take full advantage of the new information it hopes to gain through its initiatives.

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