An upgraded system could have helped FHA avoid insuring $1.9 billion in ineligible mortgages
The Federal Housing Administration (FHA) could lose about $41 million after it inappropriately insured 9,507 mortgages with a total mortgage amount of $1.9 billion in 2016, according to an analysis by the Urban Institute.
According to the analysis, the FHA’s potential loss is an economic consequence due to its reliance on an outdated IT database. The FHA relies on the Credit Alert Interactive Voice Response System (CAIVRS) database to mitigate the risk of insuring loans to borrowers with delinquent outstanding federal debt. The CAIVRS was developed by the Department of Housing and Urban Development (HUD) in 1987.
The analysis follows a report by the Office of the Inspector General (OIG) at HUD that concluded that the FHA inappropriately insured the 9,507 mortgages in 2016. The report found that those loans were made to two types of ineligible borrowers: borrowers with delinquent federal debt and borrowers with delinquent child support payments.
The OIG arrived at its conclusion after cross-checking 1.8 million FHA borrowers against the Do Not Pay system, a collection of databases housed within the Treasury’s Bureau of Fiscal Service. Under current practice, FHA lenders are required to cross-check mortgage applicants against HUD’s CAIVRS system but not against the Do Not Pay database.
The OIG recommended that the FHA rely on the Do Not Pay system instead. The FHA has agreed to pursue the change once it secures funding to make the updates and replace the 30-year-old CAIVRS system.
The Urban Institute said its analysis shows how urgent the FHA’s need for funding is. The FHA could have avoided insuring the ineligible loans if the HUD had been granted adequate funding to upgrade the database.
“For fiscal year 2018, HUD requested $30 million for this purpose, far less than the estimated $41 million in losses from the ineligible loans because of this one issue,” according to the analysis. “With adequate resources and systems, the FHA might have avoided insuring the ineligible loans and the $41 million in estimated losses for taxpayers. The $30 million in funding would have more than paid for itself.”