Single-Family Housing: Opportunities to Improve Federal Foreclosure and Property Sale Processes

Federal programs in the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) promote mortgage financing for low-income, first-time, minority, veteran, and rural home buyers. Congress has also chartered private corporations--Fannie Mae and Freddie Mac--to provide mortgage lending and to promote homeownership opportunities. Many homeowners fall behind in their mortgage payments each year due to unemployment, health problems, or the death of a provider. To avoid high cost foreclosure proceedings when home buyers fall behind on their obligations, FHA, VA, and RHS instruct mortgage servicers, typically large financial institutions, to assist the home buyers in bringing their mortgage payments current. Despite these efforts, in 118,000 cases in 2000 the mortgage servicers engaged in various foreclosure proceedings under the direction of the organizations. FHA procedures delay the initiation of critical steps necessary to preserve the value of foreclosed properties and to sell them quickly. Although Fannie Mae, Freddie Mac, VA, and RHS designate one entity as responsible for the custody, maintenance, and sale of foreclosed properties, FHA divides these responsibilities between its mortgage servicers and management and marketing contractors, which operate largely independently of one another. Determining the organizations' comparative performance in selling foreclosed properties is difficult because FHA and RHS do not collect all of the data necessary for comparison. However, on the basis of available data, it takes nearly 90 days longer to acquire and sell FHA foreclosed properties than VA properties, and about 130 to 145 days longer to acquire and sell FHA properties than RHS, Fannie Mae, and Freddie Mac properties.