Home Foreclosure Sales: FHA, Rural Housing Service, and VA Could Better Align Program Metrics with Their Missions
Fast Facts
Poorly maintained foreclosed properties can hurt communities. The agencies we reviewed—Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service—own foreclosed properties.
These agencies
Oversaw contractors that maintained and repaired properties
Generally focused on financial goals for the properties, such as getting a good return
Did not always measure if they achieved other goals, like stabilizing communities or selling homes to low-income buyers
We recommended they measure how well foreclosed property programs strengthen neighborhoods or help meet these agencies' other missions.
Some foreclosed properties could require a lot of maintenance and repair, such as this Atlanta-area home.
Highlights
What GAO Found
By 2019, the number of foreclosed properties—known as real estate-owned (REO) properties—that federal entities owned declined to historically low levels because of the housing market recovery and the sale of many of the properties (see figure).
Real Estate-Owned Properties of Selected Federal Entities, 2004–2019
Note: Fannie Mae and Freddie Mac are the government-sponsored enterprises shown here. Data for the enterprises and FHA are calendar year; for VA and RHS, fiscal year ending September 30.
The entities GAO reviewed each have processes to oversee their REO maintenance contractors' activities and performance, including internal and external performance reviews and on-site inspections. Entities generally have standardized maintenance policies for REO properties across the country, such as emergency repairs for broken windows and routine maintenance requirements for the frequency of cutting grass. GAO found that the performance of contractors whose documentation GAO reviewed generally met entities' standards and requirements. However, entities' oversight of contractors identified instances of underperformance in maintenance. For instance, the Federal Housing Administration (FHA) recouped almost $3 million from seven property maintenance contractors for work below quality standards from 2017 to 2020.
The REO program metrics of FHA, the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) focus on required financial goals, such as minimizing losses, but do not always align fully with other program goals or agency missions. For example, FHA does not collect comprehensive information on REO property sales to public-sector homeowners or local nonprofits—missing an opportunity to measure the extent to which its REO program supports its goal to strengthen neighborhoods and communities. Similarly, VA and RHS lack metrics that would show whether their REO programs align with their broader agency missions to serve veterans and rural homebuyers, respectively. Incorporating additional metrics could help FHA, VA, and RHS ensure that their REO programs assist in meeting their agencies' missions.
Why GAO Did This Study
Poor maintenance of foreclosed properties can negatively affect communities and threaten neighborhood stability. FHA, VA, RHS, and Freddie Mac are among the federal entities owning foreclosed properties through REO programs.
GAO was asked to review how these federal entities monitor REO property conditions. The objectives this report examines include trends in the number of REO properties; oversight of maintenance contractors; and whether metrics used to assess REO program performance align with entities' missions.
GAO reviewed and analyzed reports and data on the number of REO properties and documentation on FHA, Freddie Mac, VA, and RHS oversight of REO property maintenance from 2017 to 2020. GAO also analyzed data on REO reimbursements to contractors for maintenance activities.
Recommendations
GAO recommends that FHA, VA, and RHS consider additional REO program metrics that measure how the programs support their respective missions of strengthening communities and serving veterans and rural homeowners. The entities generally agreed with the recommendation.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Housing Administration | The Commissioner of FHA should identify and use metrics that measure how the agency's REO program supports its regulatory goal of strengthening communities. For example, the agency might measure the policy outcomes from the REO property sales made through FHA's alternative sales programs. (Recommendation 1) |
As of January 2024, HUD implemented this recommendation. HUD identified metrics that measure how the agency's REO program supports its regulatory goal of strengthening communities. More specifically, HUD's fiscal year 2023 annual performance plan included metrics that were related to policy changes to the REO program by extending the listing period where an owner-occupant, governmental entity, or HUD approved nonprofit could bid on an REO property. One metric was to "increase opportunities for state and local government and non-profit organizations to participate in HUD asset sales" and the other metric was to "prioritize homeownership in the sale of HUD (FHA)-single family insured properties." The annual performance plan noted ways to operationalize this metric by assessing options to expand REO property sales to local entities and nonprofit to revitalize distressed properties and prevent blight. To track the impact of these changes and address GAO's recommendation, HUD made updates to its data systems to help measure how the policy change of an extended exclusive listing period was impacting buyers of REO properties and the timing of the purchases. Officials explained that HUD can now differentiate sales that occurred between days 1-15 and 16-30 to gauge the impact and potential success. Additionally, HUD made changes to how it collects data on the FHA's Claims Without Conveyance of Title (CWCOT) so that participants could input their ongoing and the results of their post-foreclosure sales. As of September 2022, HUD provided data that showed an increase in the mission and owner occupied sales since FY 2020 and illustrated ways it can tracks information, such as different sales types (owner occupied, mission-driven sales, and investment) and the ratio of mission/owner occupants to investors. Further, in March 2023, HUD's FY 2024 annual performance plan and FY 2022 performance report stated that policy changes to direct federally-held housing supply to owner-occupants and mission-driven entities instead of large investors had made major impacts. By identifying and tracking new metrics, HUD has made progress in understanding how its REO programs can also help achieve its mission goals.
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| Department of Veterans Affairs | The VA Under Secretary for Benefits should identify and use metrics that measure how the agency's REO program contributes to VA's mission to support veterans and veteran homeownership, such as metrics that track veteran purchases of REO properties. (Recommendation 2) |
VA has implemented this recommendation. More specifically, according to officials, the Veterans Benefit Administration reviewed data collected on veteran purchases of real-estate owned (REO) properties, including its REO loan program in 2021. Based on this review, VA determined that the data was useful to measure how the agency's REO programs contributed to VA's mission to support veterans and veteran homeownership. As a result, VA added two new measures to its monthly performance reports to track the percentage of veterans purchases of REO properties and the percentage of veterans using VA's REO loan program, known as a Vendee loan, to make the purchase. According to VA, these metrics will be tracked over time to continually look for opportunities for improvement. By incorporating these additional metrics, VA is better positioned to assess the extent to which the program supports the Veterans Benefit Administration's goal of supporting veteran homeownership.
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| Rural Housing Service | The Administrator of RHS should identify and use metrics that measure how the agency's REO program contributes to RHS's mission of supporting low-income homeowners in rural areas, such as metrics that track this population's purchases of REO properties. (Recommendation 3) |
RHS generally agreed with the recommendation. As of January 2024, since our 2021 report, RHS has made changes to the contractor that handles its real estate owned (REO) properties. In addition, RHS has done some internal reorganizing around REO properties. More specifically, the REO department fully centralized the disposition of the REO properties, and the related property preservation associated with each property, on December 31, 2021. RHS is still in the early stages of using the nationwide default management services contracts and are working to automate reporting from these contracts. RHS anticipates a report that may include metrics that measure how the REO program contributes to RHS mission of supporting low-income homeowners in rural areas in June 2024. We will continue to monitor RHS's progress in implementing our recommendation.
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