Inspections and Evaluations Reports

Information by State  Print version

Issue Date: January 24, 2008
File: IED-07-007

Title: Preforeclosure Sales Program in Region III

We completed an evaluation of the preforeclosure sales program in Region III. Our objectives were to determine whether mortgagees administered the program in compliance with Federal Housing Administration (FHA) requirements and whether these procedures effectively limited the risk of program fraud and abuse.

We determined that mortgagees technically complied with most FHA requirements in administering the program for the homes tested in our sample. However, we also found that current FHA program guidelines were not adequate to ensure that several homes approved for preforeclosure sale were sold at fair market or optimum value. As a consequence, the U.S. Department of Housing and Urban Development (HUD) may be incurring higher insurance claims than necessary on some properties sold through this loss mitigation program. Although modest in terms of volume and the total dollar amount of FHA insurance claims, preforeclosure sales, therefore, remain inherently vulnerable to investor exploitation as well as fraud schemes.