Federal Housing Administration:

Improvements Needed in Risk Assessment and Human Capital Management

GAO-12-15: Published: Nov 7, 2011. Publicly Released: Nov 7, 2011.

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The Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) has helped millions purchase homes by insuring private lenders against losses from defaults on FHA-insured single-family mortgages. In recent years, FHA has experienced a dramatic increase in its market role due, in part, to the contraction of other mortgage market segments. The increased reliance on FHA mortgage insurance highlights the need for FHA to ensure that it has the proper controls in place to minimize financial risks while meeting the housing needs of borrowers. In addition to providing data on FHA's single-family workload, GAO was asked to evaluate (1) FHA's risk assessment strategy, including the extent to which it is consistent with HUD and GAO internal control standards, and (2) steps FHA has taken to manage the risks in its single-family programs. To address these objectives, GAO analyzed data from fiscal years 2006-2010 on single-family business volume and workload, reviewed FHA documents on risk assessment and changes made to manage risks (such as those to human capital), and interviewed FHA officials.

While FHA has taken steps to identify risks in its single-family programs, it has not combined these risk assessment efforts and lacks annual assessments and tools to anticipate risks from changing conditions. To improve its risk assessment strategy, FHA created a risk office in 2010 and hired a consultant to recommend best practices for its operation. It also began a quality control initiative in the Office of Single Family Housing (SFH), in which program and field offices assess risks and report on efforts to mitigate them. Internal control standards require agencies to have an integrated risk assessment plan. While FHA's consultant recommended integrating risk assessment, SFH's quality control initiative and the risk office's activities remain separate efforts. Although HUD's guidance requires annual risk assessments, SFH has not updated its assessments since 2009. Finally, FHA has not yet acted on the consultant's recommendation to report on emerging risks. Delays in defining the risk office's authority, staff shortages, and changes in FHA leadership have slowed implementation of the new approach. Without integrated and updated risk assessments that identify emerging risks, FHA lacks assurance that it has identified all its risks. FHA has enhanced efforts to manage risks in its single-family programs, but human capital still presents challenges. To address risk associated with lenders and appraisers, FHA reduced the number of lenders directly participating in the program and revised its oversight. FHA addressed some risks related to staffing but lacks strategic workforce and succession plans. HUD and GAO standards require workforce planning that identifies critical skills needed to meet future needs, defines skill gaps, and considers succession planning. Although it has determined that SFH needs more staff, FHA has not created a workforce plan that systematically identifies critical skills and gaps in skills. Also, 63 percent of homeownership center staff (who conduct most day-to-day functions) are eligible to retire in the next 3 years, but FHA has not developed a plan to manage retirements or hire staff with needed skills. Without a workforce planning process that includes succession planning, FHA's ability to systematically identify workforce needs is limited. FHA should develop an integrated risk assessment strategy, conduct annual risk assessments, establish ongoing mechanisms to anticipate emerging risks, and develop workforce and succession plans. HUD agreed with the recommendations, stating that it was either currently working toward achieving the recommendations or had plans to do so in the very near future.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response, the Federal Housing Administration (FHA) has taken steps to integrate the efforts of the Office of Single Family Housing and the Office of Risk Management. For example, in preparation for an inaugural annual risk assessment completed in September 2013, the Office of Risk Management and Regulatory Affairs developed baseline operational risk assessments using the Office of Single Family Housing's internal quality control initiative reports. In addition, FHA formed an operational risk committee. According to the committee's charter that was approved in March 2013, one objective of the committee was to establish an integrated risk assessment strategy. This committee met for the first time in June 2013, did not meet again for a while, and then began meeting quarterly in fiscal year 2015. According to FHA officials, when they started assessing operational risks quarterly, they adopted aspects of the Office of Single Family Housing's internal quality control initiative and expanded it to cover all of FHA. Taking these steps should help FHA more effectively identify, plan for, and address risk.

    Recommendation: As FHA continues to implement its new risk assessment strategy, the Secretary of HUD should direct the Acting Assistant Secretary for Housing-Federal Housing Commissioner to integrate the internal quality control initiative of the Office of Single Family Housing into the operational risk processes of the Office of Risk Management to comply with our internal control standards and HUD Handbook 1840.1.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: In response, the Federal Housing Administration (FHA) completed an inaugural risk assessment for the Office of Single Family Housing in September 2013, and established a quarterly risk assessment process in 2015. For the inaugural risk assessment, the Office of Risk Management and Regulatory Affairs (ORMRA) designed and completed templates for baseline operational risk assessments and frequency and severity charts. ORMRA and the Office of Single Family Housing then conducted site visits to four homeownership centers. As a follow-up to the visits, ORMRA updated and finalized the operational risk assessments and frequency and severity charts to incorporate the findings from the site visits. Beginning in the second quarter of 2015, FHA revised its risk assessment process. According to FHA officials, an operational risk committee meets quarterly to discuss a risk register to which all of the offices within FHA contribute. The officials stated that each quarter, the Office of Risk Management sends a survey to the key leaders within FHA asking them to update the risk register from the prior quarter, including identifying mitigation strategies and any new risks. They noted that the final risk register for each quarter is discussed at the quarterly operational risk committee meeting. To document this process, FHA provided the risk registers from two quarters. Taking these steps should help FHA more effectively identify, plan for, and address risk.

    Recommendation: As FHA continues to implement its new risk assessment strategy, the Secretary of HUD should direct the Acting Assistant Secretary for Housing-Federal Housing Commissioner to conduct an annual risk assessment to comply with our internal control standards and HUD Handbook 1840.1.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: In response, the Federal Housing Administration (FHA) has taken steps to create ongoing mechanisms to anticipate and address risks that might be caused by changing conditions. For example, FHA created committees to address single-family credit and operational risks. The charters for both committees, which were approved in March 2013, indicate that they are to discuss and address emerging risks. According to FHA officials, the credit risk committee uses three different reports to anticipate and address emerging risks. For example, one report includes monthly foreclosure statistics and trends. In addition, FHA officials stated that since the second quarter of 2015, the operational risk committee has used quarterly risk registers to address emerging risks. Taking these steps should help FHA more effectively identify, plan for, and address risk.

    Recommendation: As FHA continues to implement its new risk assessment strategy, the Secretary of HUD should direct the Acting Assistant Secretary for Housing-Federal Housing Commissioner to establish ongoing mechanisms--such as use of the report templates from the 2010 consultant's report--to anticipate and address risks that might be caused by changing conditions, including risks related to the rapid increase in single-family business volume to comply with our internal control standards and HUD Handbook 1840.1.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: In response, the Federal Housing Administration (FHA) has taken a number of steps. In November 2012, it published a workforce analysis and succession plan for the Office of Single Family Housing that (1) presented the demographic profile of the office, including the percentage of employees eligible to retire, (2) identified the general and technical competencies needed by employees in mission critical occupations, (3) acknowledged gaps in critical competencies, and (4) outlined additional steps that need to be taken to address the gaps. The plan also stated that FHA planned to hire a contractor to validate the information contained in the plan. In September 2013, a contractor completed a report containing workforce planning recommendations for FHA. Specifically, the report included (1) a demographic profile, including retirement trends and projections; (2) a competency assessment, including skill gaps; and (3) recommendations that FHA, among other things, conduct continuous skill gap analysis and establish a new and effective succession planning strategy. To implement the contractor's recommendation to conduct continuous skill gap analysis, FHA officials stated that they had developed a competency assessment tool that was to be rolled out soon. According to documents FHA provided, the tool is intended to help managers identify current skill sets and determine gaps with the end goal of determining training needs for employees, and is to be implemented starting in June 2016. Taking these steps should help enhance FHA's ability to identify critical skills and gaps and meet future program demands.

    Recommendation: To help ensure that FHA has sufficient staff in place with the appropriate skills to oversee single-family insurance programs during a period of continued program demand, the Secretary of HUD should direct the Acting Assistant Secretary for Housing-Federal Housing Commissioner to develop (1) a workforce plan for the Office of Single Family Housing that identifies the critical skills and competencies the agency will need to meet its future program goals, defines skill gaps, and includes a process to develop strategies to address gaps in the number, skills, and competencies of staff.

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: In response, the Federal Housing Administration (FHA) has taken a number of steps. In November 2012, it published a workforce analysis and succession plan for the Office of Single Family Housing that (1) presented the demographic profile of the office, including the percentage of employees eligible to retire, (2) identified the general and technical competencies needed by employees in mission critical occupations, (3) acknowledged gaps in critical competencies, and (4) outlined additional steps that need to be taken to address the gaps. The plan also stated that FHA planned to hire a contractor to validate the information contained in the plan. In September 2013, a contractor completed a report containing workforce planning recommendations for FHA. Specifically, the report included (1) a demographic profile, including retirement trends and projections; (2) a competency assessment, including skill gaps; and (3) recommendations that FHA, among other things, conduct continuous skill gap analysis and establish a new and effective succession planning strategy. To implement the contractor's recommendation to establish a succession planning strategy, FHA has created a Position Organization Listing that lists all positions and vacancies that can be filled in accordance with established ceilings. The tool is to be utilized to identify critical backfills and recruitments as necessary and has an implementation date of mid to late 2016. In addition, FHA has plans to hire and increase utilization of junior staff, reduce the quantity of senior staff to be more in line with federal benchmarks, and offer leadership training. Taking these steps should help enhance FHA's ability to plan for upcoming retirements and meet future program demands.

    Recommendation: To help ensure that FHA has sufficient staff in place with the appropriate skills to oversee single-family insurance programs during a period of continued program demand, the Secretary of HUD should direct the Acting Assistant Secretary for Housing-Federal Housing Commissioner to develop a succession plan that outlines steps to help ensure that qualified employees succeed members of the workforce expected to retire over the next several years.

    Agency Affected: Department of Housing and Urban Development

 

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