GAO: HUD Neglecting 203(k) Program

The Federal Housing Administration 203(k) home rehabilitation mortgage insurance program is losing money, but the Department of Housing and Urban Development has done nothing to correct the problems, according to a draft of a General Accounting Office report obtained by MortgageWire.Numerous reports and audits over the past four years have warned that the design of the 203(k) program makes it inherently risky and highly vulnerable to waste, fraud, and abuse, the GAO says. For example, a November 1998 report by accounting firm KPMG recommended that HUD should either eliminate the 203(k) program or radically redesign it. However, the GAO says FHA Commissioner William Apgar has been too busy addressing other problems at the FHA to deal with 203(k). "When resources are freed from addressing these other programs, management would probably prepare a comprehensive plan to improve the 203(k) program," one HUD official told GAO auditors. Meanwhile, HUD projects that the net loss on the 203(k) book of business, which grew from $384 million in 1994 to $3.6 billion in 1998, will exceed $25 million after deducting premiums and other income. "HUD management stated that they find this loss rate to be acceptable for the home rehabilitation program," GAO says.