10.3: Risk Management
Improve Federal Housing Administration (FHA) risk management Other Information:
HUD’s FHA will improve its procedures and systems to better control risks at all stages of the mortgage insurance process,
from oversight of underwriting, to monitoring loan servicing, to reforming the way it manages defaulted loans. FHA borrowers
have been exposed to fraud, with some lenders and appraisers scheming to acquire FHA insurance on properties with falsely
inflated prices. These schemes harm both FHA and the borrowers it serves. HUD’s Inspector General reports indictments and
convictions in FHA fraud schemes in Los Angeles, Baltimore, Chicago, Brooklyn, and Long Island. These fraudulent activities
are occurring at the same time that FHA delinquencies are rising, even as delinquencies of conventional loans gradually decline.
The Expected Results—Improving the early stages of the mortgage insurance process, HUD will prevent fraud by holding lenders
accountable for the performance of brokers and appraisers by 2002. By 2004, HUD will eliminate most, if not all, falsely inflated
appraisals. It will take strong action against those found culpable of fraud. Improving the last stage of the mortgage insurance
process, HUD will increase amounts recovered from disposition of its foreclosed properties. By 2003, HUD will move out of
the property management business by implementing its statutory authority to accelerate the mortgage insurance claim process,
helping FHA manage its business more like the private sector.
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