HUD OIG: COVID-19 Forbearance Audit (2022-KC-0001)
Summary
HUD Office of Inspector General Audit Report Number 2022-KC-0001, FHA Borrowers Did Not Always Properly Receive COVID-19 Forbearances From Their Loan Servicers, dated December 15, 2021 and addressed to the Deputy Assistant Secretary for Single Family Housing. The audit examined whether FHA-insured borrowers properly received the COVID-19 forbearance under the CARES Act. It reports, based on a statistical sample, that at least one-third of the nearly 335,000 delinquent borrowers not on forbearance were not informed or were misinformed, and that servicers improperly administered forbearance for at least one-sixth of the nearly 815,000 borrowers on forbearance plans. Recommendations include reviewing the 21 loans in the sample with improperly administered forbearance and giving servicers further guidance. The report closes with sampling projections in its appendix.
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U.S. Department of Housing and
Urban Development
Office of Single Family Housing
Washington, DC
COVID-19 Forbearance
Office of Audit Audit Report Number: 2022-KC-0001
Kansas City, KS December 15, 2021
To: Julienne Y. Joseph
Deputy Assistant Secretary for Single Family Housing, HU
//signed//
From: Kilah S. White
Assistant Inspector General for Audit, GA
Subject: FHA Borrowers Did Not Always Properly Receive COVID-19 Forbearances
From Their Loan Servicers
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of Federal Housing Administration (FHA)-insured
loans to determine whether FHA-insured borrowers properly received the COVID-19-related
forbearance under the Coronavirus Aid, Relief, and Economic Security Act, March 2020.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, appendix 8M, requires that OIG post its
reports on the OIG website. Accordingly, this report will be posted at https://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call Gregory
Soames, Acting Audit Director, at (913) 551-5870.
Office of Audit
451 7th Street SW, Room 8180, Washington, DC 20410
Phone (202) 708-0364, Fax (202) 708-1783
Visit the Office of Inspector General website at https://www.hudoig.gov.
What We Audited and Why Audit Report Number: 2022-KC-0001
Date: December 15, 2021
Highlights FHA Borrowers Did Not Always Properly Receive COVID-19
Forbearances From Their Loan Servicers
What We
Audited and Why
What We Found
The Coronavirus Aid, Relief, Borrowers were not always made aware of their right to a COVID-19
and Economic Security Act forbearance under the CARES Act. Based on a statistical sample, at least
(CARES Act), signed into law one-third of the nearly 335,000 borrowers who were delinquent on their
on March 27, 2020, provided FHA-insured loans and not on forbearance in November 2020, were either
a mortgage payment not informed or misinformed about the COVID-19 forbearance. As a result,
forbearance option for all any of these borrowers experiencing a hardship due to COVID-19 did not
borrowers who suffered a benefit from the COVID-19 forbearance.
financial hardship due to the
COVID-19 national Servicers did not always properly administer the COVID-19 forbearance.
emergency. We audited the Based on a statistical sample, they improperly administered the forbearance
Federal Housing for at least one-sixth of the nearly 815,000 borrowers on forbearance plans in
Administration’s (FHA) November 2020, with the most common errors being unnecessary document
oversight of this COVID-19 requirements, improper periods for forbearance, and credit reporting.
forbearance option. Several Servicers also performed excessive communication and collection efforts for
media reports and complaints borrowers who were already in forbearance. As a result, these borrowers
filed with the Consumer experienced additional burdens from improperly administered forbearance.
Finance Protection Bureau
indicated instances when
What We Recommend
servicers did not properly
administer or offer COVID-19 We recommend that FHA identify borrowers who are delinquent and did
forbearance. In addition, not fully benefit from the COVID-19 forbearance and ensure that
OIG’s Office of Evaluation information about the CARES Act and COVID-19 forbearance is
identified issues with the distributed to these borrowers. Because FHA has already issued letters to
forbearance information delinquent borrowers in June 2021 informing them about the COVID-19
available on servicers’ forbearance, we will mark the recommendations as completed upon
websites (Memorandums issuance of this report. We also recommend that FHA review the 21 loans
issued April 27, 2020, and in our statistical sample with improperly administered forbearance to
September 30, 2020). Our ensure that the borrowers were assisted by the servicers, if possible, and
audit objective was to ensure that these servicers updated their forbearance procedures to prevent
determine whether FHA- future noncompliance; ensure that the issues found during our audit are
insured borrowers properly incorporated into servicing monitoring reviews to deter future
received the COVID-19- noncompliance and prevent potential loss to the FHA fund; and provide
related forbearance. additional guidance to the servicers so that they limit their communication
and collection efforts for the borrowers in forbearance.
For more information, visit www.hudoig.gov or contact
Gregory Soames at (913) 551-5870 or gsoames@hudoig.gov.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................5
Finding 1: Borrowers for One-Third of the Delinquent FHA-Insured Loans Not on
Forbearance Were Not Aware of Their Right to a COVID-19 Forbearance ............. 5
Finding 2: Servicers Did Not Properly Administer Forbearance for One-Sixth of
FHA Loans in Forbearance.............................................................................................. 9
Scope and Methodology .........................................................................................12
Internal Controls ....................................................................................................14
Appendixes ..............................................................................................................15
A. Schedule of Funds To Be Put to Better Use ............................................................ 15
B. Auditee Comments and OIG’s Evaluation ............................................................. 16
C. Criteria ....................................................................................................................... 21
D. Sampling and Projections......................................................................................... 25
2
Background and Objective
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) (Public Law 116-136) into law. The CARES Act provided a mortgage
payment forbearance option for all borrowers who, either directly or indirectly, suffered a
financial hardship due to the COVID-19 national emergency. Under the CARES Act, borrowers
are entitled to request an initial forbearance of their monthly mortgage payments for up to 180
days and may request up to an additional 180 days. The borrower also has the option at any time
to shorten the forbearance period and resume payments. For the borrowers who requested their
initial COVID-19 forbearance on or before June 30, 2020, the borrower may request and the
lender must approve up to two additional 3-month COVID-19 forbearance periods.
A forbearance allows for reduced or suspended payments without specific terms of repayment.
To request forbearance, borrowers do not need to provide documentation showing their hardship
and only must attest to their servicer that they are suffering a financial hardship. During the
forbearance period, servicers cannot charge borrowers additional fees, penalties, or interest, and
forbearance should not result in negative credit reporting. Before the forbearance ends, lenders
must evaluate borrowers for loss mitigation options to assist with repayment of missed amounts.
The U.S. Department of Housing and Urban Development’s (HUD) Office of Single Family
Housing administers housing assistance programs that insure mortgage lenders against losses
from default and encourages lenders to provide mortgage financing to eligible home buyers,
including first-time and low-to-moderate-income home buyers. Within the Office of Single
Family Housing, the National Servicing Center is responsible for providing guidance and
training to lenders so they can better assist the homeowners. The Quality Assurance Division
(QAD) is responsible for evaluating lenders’ portfolios to identify performance issues. The
Office of Housing Counseling provides support and oversight to HUD-approved housing
counseling agencies nationwide. These agencies, in turn, provide tools and educational
resources to borrowers so that they can make responsible choices to address their housing needs.
As of November 30, 2020, there were more than 814,000 active Federal Housing Administration
(FHA) loans in forbearance totaling $141.6 billion in unpaid principal balance, while there were
nearly 335,000 delinquent loans not in forbearance totaling $49.37 billion in unpaid principal
balance. As of June 30, 2021, these numbers had changed to more than 560,000 loans in
forbearance totaling more than $96.1 billion and nearly 316,000 delinquent loans not in
forbearance totaling $47.82 billion in unpaid principal balance.
3
Delinquent loan data
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
November 2020 June 2021
Number of loans in forbearance Number of loans not in forbearance
Our audit objective was to determine whether FHA-insured borrowers properly received the
COVID-19-related forbearance.
4
Results of Audit
Finding 1: Borrowers for One-Third of the Delinquent FHA-
Insured Loans Not on Forbearance Were Not Aware of Their Right
to a COVID-19 Forbearance
FHA-insured borrowers were not always made aware of their right to a COVID-19 forbearance
under the CARES Act. This condition occurred because FHA did not ensure that servicers
adequately informed the borrowers of this option. In addition, there was an apparent conflict
between the Federal Bankruptcy Code and the CARES Act. As a result, out of nearly 335,000
loans, at least 112,160 borrowers with FHA-insured loans totaling at least $13.25 billion did not
benefit from the COVID-19 forbearance.
Borrowers Not Informed About the COVID-19 Forbearance
From a sample of 85 delinquent loans that were not reported by servicers as in forbearance in
November 2020, 29 borrowers were not informed about the COVID-19 forbearance.
More than half of the borrowers who were not informed were in bankruptcy. The automatic stay
provisions of the Federal Bankruptcy Law limited interaction between servicers and borrowers,
so servicers were prohibited from contacting some borrowers in bankruptcy. Upon receiving
notice of a bankruptcy filing, servicers send information to the borrower’s attorney or the
borrower when appropriate, indicating that loss mitigation may be available. The FHA Single-
Family Housing Policy Handbook does not indicate that ongoing communication is required.
The borrowers in bankruptcy were especially vulnerable to the financial hardship caused by the
pandemic and potentially would have benefited from the COVID-19 forbearance. There were
two borrowers in the sample who were in bankruptcy and had asked for information about
forbearance because they lost their jobs. However, the servicer did not provide them with
information on the COVID-19 forbearance.
Some borrowers were only informed about regular loss mitigation options, which did not
include the COVID-19 forbearance. FHA requires servicers to send delinquency notices and a
pamphlet called “Save Your Home – Tips to
Avoid Foreclosure” when the loan becomes One borrower called the servicer and explained
more than 30 days delinquent. The pamphlet her COVID-19-related hardship of waiting for
provides information about special forbearance, unemployment benefits. The servicer’s agent
mortgage modification, partial claim, and the directed her to look at the information online and
FHA-Home Affordable Modification Program attempted to collect a payment, claiming that this
(FHA-HAMP). In one case, a servicer would help her to avoid foreclosure. The
discussed the standard loss mitigation options servicer’s agent should have explained the
in the pamphlet with the borrower but did not COVID-19 forbearance option, potentially
mention the COVID-19 forbearance or other placing her loan on a forbearance over the phone
information related to mortgage assistance due without further effort on her part.
to the pandemic.
5
Borrowers Misinformed About the COVID-19 Forbearance
From a sample of 85 delinquent loans that were not reported by servicers as in forbearance in
November 2020, borrowers for 7 loans received inaccurate information from the servicers, which
could have discouraged them from requesting forbearance. For example, borrowers were told
that they needed to fill out excessive documentation to obtain a forbearance, including a hardship
letter, assistance application, income and expenses verification, and other supporting documents.
The CARES Act requires servicers to provide forbearance with no additional documentation
other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency
upon the borrower’s request. (See appendix C.) Excessive documentation could have
discouraged borrowers from requesting forbearance by putting an additional burden on the
borrowers in distress.
In one case, a servicer improperly denied forbearance for a borrower experiencing a COVID-19
hardship, stating that the borrower was
delinquent and in foreclosure proceedings When interviewed by the audit team, a borrower
before pandemic, which contradicts the CARES stated that she kept her job through the pandemic
Act. Some borrowers were told that they did but her household expenses increased. The
not qualify for forbearance because they did not borrower’s children were doing remote learning,
lose a job due to the pandemic even though the and her husband was forced to work from home as
borrowers experienced indirect hardship, such well. The family needed to purchase electronics
as supporting adult children who moved back for all household members and had additional food
home. Some borrowers were given inaccurate and utility expenses. The borrower knew about the
information about repayment options. For COVID-19 forbearance but was informed by the
example, a borrower asked about forbearance servicer that she did not qualify because none of
but was told that the only two options to repay her family members lost their jobs. The borrower
the missed payments would be adding them to was behind on her mortgage for a few months but
the mortgage payments after forbearance ended eventually caught up on payments. She stated that
or repaying the missed payments in a lump the COVID-19 forbearance would have made it
sum. The servicer did not discuss the partial easier for her to handle the financial stress during
claim or other loss mitigation options. This pandemic.
misinformation may have discouraged these
borrowers from requesting a forbearance.
No Standardized Communication and Apparent Conflict With Bankruptcy Law
FHA did not ensure that servicers adequately informed borrowers of the option for a COVID-19
forbearance. In addition, there was an apparent conflict between the Federal Bankruptcy Code
and the CARES Act.
FHA did not develop a standardized communication on COVID-19 forbearance. While standard
loss mitigation options are communicated to delinquent borrowers in a clear and consistent
manner using FHA’s “Save Your Home – Tips to Avoid Foreclosure” pamphlet, there was not a
similar communication method for COVID-19 forbearances and related loss mitigation options.
(See appendix C.) The COVID-19 forbearance information could have been mailed in addition
to the standard loss mitigation options brochure and as a separate update to the borrowers who
were already in default.
6
FHA also did not identify delinquent borrowers who were not in forbearance and ensure that
they were informed. FHA had issued several mortgagee letters and press releases and provided
trainings to the servicers to inform them about the CARES Act requirements. FHA had also
updated its website with information on the COVID-19 forbearance. Although FHA did not
identify delinquent borrowers who could have benefited from the COVID-19 forbearance, had
such an analysis been performed, FHA could have instructed servicers to send notices to the
borrowers to ensure that these borrowers were adequately informed.
Further, the Federal Bankruptcy Code may have prevented some borrowers from receiving
COVID-19 forbearance. The CARES Act created an apparent conflict between Section 4022
forbearance and the Bankruptcy Code. Section 1113 of the CARES Act amended the
Bankruptcy Code to allow modifications of plans postconfirmation, based on financial hardship
caused directly or indirectly by the COVID-19 emergency. However, it did not directly address
the forbearance or moratorium provisions of the CARES Act as they relate to bankruptcy in
general. This conflict was not addressed until December 2020, when the Consolidated
Appropriations Act amended the Bankruptcy Code. That law stated that for 1 year, “A person
may not be denied relief under sections 4022 through 4024 of the CARES Act (15 U.S.C.
[United States Code] 9056, 9057, 9058) because the person is or has been a debtor under this
title [that is, Chapter 7 or 13 bankruptcy].” (See appendix C.) Because this conflict was not
resolved until December 2020, a month after our sample period, it may have prevented the
borrowers in our sample from being offered forbearance. To ensure that the maximum number
of borrowers was aware of the option for a COVID-19 forbearance, FHA could have instructed
servicers to send an informational mailing to those borrowers and their attorneys for their
consideration.
Borrowers Not Benefiting From the COVID-19 Forbearance
Some FHA-insured borrowers did not benefit from the COVID-19 forbearance. FHA insured
loans for at least 112,160 borrowers totaling at least $13.25 billion that could have been
needlessly delinquent. This represented at least one-third of the universe of nearly 335,000 loans
that were delinquent but not in forbearance in November 2020. (See appendix D.) These
borrowers may have wanted forbearance if they had been given the option or if they had been
adequately informed. As a result, some borrowers experienced financial hardship that could
have been avoided by the COVID-19 forbearance.
Conclusion
The COVID-19 forbearance was designed to help borrowers experiencing financial hardship
from the COVID-19 pandemic. However, an estimated 112,160 FHA-insured borrowers with
loans totaling at least $13.25 billion did not take advantage of the COVID-19 forbearance.
These borrowers were not informed or were misinformed about their right to a forbearance.
They would have been eligible for a forbearance if they experienced a financial hardship related
to the COVID-19 emergency and attested to such a hardship. FHA should have monitored these
borrowers and required mailing them an informational brochure similar to that used for standard
loss mitigation options to ensure that they were adequately informed about their right to a
forbearance. From not entering forbearance, the potential loss to FHA on these loans is $5.43
billion, based on the FHA insurance fund average loss rate of 41 percent as of June 30, 2021.
7
On June 14, 2021, HUD’s Office of Housing Counseling sent letters to borrowers with FHA-
insured mortgages who had not made a mortgage payment for more than 60 days as of April 30,
2021, and had not obtained a mortgage payment forbearance from their mortgage servicer. The
letters advised borrowers of the options they could take to obtain mortgage payment assistance
for their COVID-19-related financial challenges. The letters were sent to more than 300,000
FHA borrowers, including to those in bankruptcy. Therefore, the recommendations will be
marked as completed upon issuance of this report.
Recommendations
We recommend that the Deputy Assistant Secretary for Single Family Housing
1A. Perform data analysis of FHA’s portfolio to identify borrowers who are
delinquent and did not fully benefit from the COVID-19 forbearance, including
those in bankruptcy;
1B. Develop a standardized brochure or informational pamphlet that would inform
delinquent borrowers of their right to a forbearance under the CARES Act; and
1C. Ensure that this information is distributed to delinquent borrowers so it can
benefit the greatest number of borrowers to put $5.43 billion to better use by
avoiding potential future losses on 112,160 loans.
8
Finding 2: Servicers Did Not Properly Administer Forbearance for
One-Sixth of FHA Loans in Forbearance
FHA servicers did not always properly administer the COVID-19 forbearance. Due to the
evolving nature of the COVID-19 pandemic, servicers did not promptly adapt to the changing
forbearance requirements. In addition, FHA had not had sufficient time to complete the
monitoring reviews by the end of the audit period to address noncompliance issues related to the
COVID-19 forbearance. As a result, out of nearly 815,000 loans, borrowers for nearly 139,000
loans with the total unpaid balance of $22.5 billion experienced an additional burden from
improperly administered forbearance.
Improperly Administered Forbearances
From a statistical sample of 85 FHA loans, servicers improperly administered the forbearance for
21 loans. Our review focused on six requirements for the COVID-19 forbearance that were
outlined in the CARES Act and FHA guidance. (See Scope and Methodology and Appendix C.)
The table below summarizes the issues found during our review. Note that some loans had
multiple deficiencies.
Forbearance administration deficiencies Number of loans
Unnecessary information to grant forbearance 10
Improper forbearance period 7
Improper reporting of forbearance to the credit agencies 5
Forbearance approval or extension without the borrower’s request 3
Lack of proper forbearance exit contact 2
Improper application of the borrower’s payments during forbearance 1
For nearly half of the sampled loans with deficiencies, servicers required borrowers to provide
unnecessary information. The CARES Act required servicers to grant forbearance to borrowers
without requiring additional documentation other than the borrower’s attestation to a financial
hardship caused by the COVID-19 emergency. Some servicers required borrowers to fill out a
hardship application, provide documents supporting income and expenses, or submit an affidavit
of hardship. Other borrowers were required to sign, date, and return the forbearance agreement
before a certain deadline, which presented an additional burden to the borrowers.
Servicers did not always provide the proper forbearance period. The CARES Act requires
servicers to grant forbearance for up to 180 days and extend it for an additional period of up to
180 days at the request of the borrower, provided that at the borrower’s request, either the initial
or extended period of forbearance may be shortened. However, some servicers did not promptly
start or end forbearance upon the borrower’s request, and one servicer extended forbearance for
9
more than 12 months. Some servicers extended forbearance beyond the initial 180 days without
the borrower’s request in violation of the CARES Act. FHA guidance also disallowed any
negative credit reporting as a result of the COVID-19 forbearance. However, we found instances
when servicers improperly reported loans to the credit agencies as delinquent or in a loan
modification status during forbearance.
Servicers did not always conduct proper exit contact with the borrower at the end of forbearance.
FHA guidance required servicers to evaluate borrowers before the forbearance ended for a stand-
alone partial claim loss mitigation option and offer other loss mitigation options at the end of
forbearance. One servicer did not contact the borrowers before their forbearance lapsed, and
another did not provide accurate information about forbearance repayment options. The CARES
Act also prohibits servicers from charging late fees during forbearance. In one case, a servicer
assessed a late fee during forbearance.
Excessive Communication and Collection Efforts
In addition, some servicers engaged in
excessive communication and collection
efforts for borrowers who were already in A borrower was approved for a forbearance on
forbearance, including frequent phone calls, September 21, 2020. The servicer sent payment
emails, and delinquency letters. While FHA reminders on September 28, 29, and 30. The
guidance requires servicers to contact borrower eventually made a payment on
delinquent borrowers by following a specific September 30, 2020, even though he was on a
timeline, there are no limitations on the forbearance plan. The borrower attested that he
extent of servicers’ communication with was experiencing financial hardship due to the
borrowers who are in forbearance. Such COVID-19 pandemic, so he could have used
communication may have caused that payment to mitigate other financial stress
unnecessary confusion and stress for the caused by the pandemic instead of paying on his
borrowers who were already experiencing mortgage.
hardship due to the COVID-19 pandemic.
Evolving COVID-19 Environment
Due to the evolving nature of the COVID-19 pandemic, servicers had to quickly adapt to the
changing forbearance requirements. Some servicers reused their processes for administering
standard loss mitigation options, which did not align with the CARES Act requirements. For
example, servicers asked borrowers to provide documents that would be required for a standard
loss mitigation option but not allowed under the CARES Act.
FHA also needed to quickly update its procedures to monitor servicing of loans with COVID-19
forbearances. In the Office of Single Family Housing, QAD is responsible for conducting such
reviews. FHA held several meetings with the servicing industry and provided trainings to
servicers on updated forbearance policy and quality controls. QAD also issued reminders to its
staff to incorporate the forbearance requirements into monitoring reviews. Due to the time
needed to conduct reviews and communicate results, the reviews covering COVID-19
forbearances had not been completed at the end of our audit period. As a result, FHA had not
had the opportunity to act on those findings to address the noncompliance issues with servicers.
10
Additional Burden on the Borrowers
Borrowers for nearly 139,000 loans with total unpaid balance of $22.5 billion experienced an
additional burden from an improperly administered forbearance. This represented at least one-
sixth of the nearly 815,000 FHA-insured loans reported to be forbearance in November 2020.
(See appendix D.) The CARES Act was designed to provide relief to borrowers and to alleviate
their financial stress from the COVID-19 pandemic. By not following all CARES Act
requirements, servicers prevented borrowers from fully benefiting from the new mortgage relief
option.
Conclusion
The COVID-19 pandemic presented a financial burden to many FHA borrowers, and the CARES
Act was intended to alleviate such burden through the new mortgage relief option. However,
FHA servicers did not always properly administer the COVID-19 forbearance because they did
not quickly adapt to the changing forbearance requirements, and FHA did not have sufficient
time to monitor these servicers’ actions. As a result, some borrowers did not fully benefit from
the COVID-19 forbearance. By implementing our recommendations, FHA will ensure that
servicers provide FHA-insured borrowers with proper treatment while on a COVID-19
forbearance.
Recommendations
We recommend that the Deputy Assistant Secretary for Single Family Housing
2A. Review the 21 loans with improperly administered forbearance to ensure that the
borrowers were remedied by the servicers, if possible, and ensure that these
servicers updated their forbearance procedures to prevent future noncompliance;
2B. Ensure that the issues found during our audit are incorporated into QAD’s
servicing monitoring reviews; and
2C. Provide additional guidance to the servicers so they will limit their
communication and collection efforts for the borrowers in forbearance.
11
Scope and Methodology
We performed our audit work between December 2020 and July 2021. We did not conduct
onsite fieldwork for this audit. Our audit period covered March 1 through November 30, 2020.
To accomplish our objective, we
• reviewed provisions in the CARES Act and FHA guidance,
• interviewed FHA staff to gain an understanding of the program and relevant monitoring
controls,
• reviewed FHA’s policies and procedures, and
• reviewed records provided by FHA servicers for two statistical samples to determine whether
FHA-insured borrowers properly received the COVID-19 forbearance.
We relied in part on data maintained by FHA in its Single-Family Data Warehouse (SFDW) and
Neighborhood Watch Early Warning System, which displays information from the SFDW
database. SFDW is a large and extensive collection of database tables, organized and dedicated
to support the analysis, verification, and publication of single-family housing data. Specifically,
we relied on the system to identify delinquent loans that were in forbearance status and loans that
were not in forbearance status as of November 30, 2020. Although we did not perform a detailed
assessment of the reliability of the data, we determined that the computer-processed data were
sufficiently reliable for our purposes because we corroborated the data with documentation
provided by servicers in our sample.
Using data from SFDW, we identified 334,549 FHA-insured loans totaling $49.37 billion that
had an active delinquency code reported in the November reporting cycle with no associated
forbearance codes and had the oldest unpaid installment date on or before October 1, 2020.
From this universe, we selected a statistical sample of 85 loans totaling $12.7 million that were
delinquent but not in forbearance as of November 30, 2020. For each loan in the sample, we
requested documentation from servicers, including information on whether the borrowers
requested forbearance or reached out to delinquent borrowers to inform them about forbearance
and what information was provided to the borrowers. We also requested the loan payment
history, servicing notes, and records of communication with the borrowers. In addition, we
requested, if applicable, forbearance agreements, evaluation for permanent loss mitigation
options, information given to the borrowers about repayment options, and occupancy
inspections. We reviewed this information for the 85 sample items to determine whether the
borrowers were made aware of their rights under the CARES Act. We determined that 36 loans
had been on a forbearance plan, and most of these borrowers had recently exited forbearance and
were working on a permanent loss mitigation option to bring their loans current. Properties for
five loans either had a foreclosure sale held or were vacant and abandoned with foreclosure in
progress before the pandemic. For the 44 remaining sample loans, 36 borrowers were not
informed about the COVID-19 forbearance or received inaccurate information from their
servicers.
12
Using data from SFDW, we identified 814,037 FHA-insured loans totaling $141.6 billion that
were in forbearance status as of November 30, 2020, and selected a statistical sample of 85 loans
totaling $14.9 million. For each loan in the sample, we requested documentation from servicers,
including the loan payment history, servicing notes, borrower’s forbearance request, forbearance
agreement and its terms, documentation from the borrowers to approve forbearance, information
reported to the credit reporting agencies, and any communication from HUD regarding the loan.
We also requested, if applicable, evaluation for loss mitigation options and evidence that the
borrower was contacted about an extension or repayment options before the forbearance ended.
We reviewed this information to determine whether servicers properly administered the COVID-
19-related forbearance. See appendix D for a detailed explanation of our sample selection and
results projection for both samples.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
13
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
• effectiveness and efficiency of operations,
• reliability of financial reporting, and
• compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:
• Controls to ensure that borrowers were made aware of their rights under the CARES Act.
• Controls to ensure that servicers properly administered the COVID-19 forbearances.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
• FHA did not monitor its portfolio to identify delinquent borrowers who were not in
forbearance and ensure that they were informed. (See Finding 1.)
14
Appendixes
Appendix A
Schedule of Funds To Be Put to Better Use
Recommendation number Funds to be put to better use 1/
1C $5,430,000,000
1/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this case, if FHA implements our recommendation, it
could potentially avoid losses from defaulted loans that did not benefit from the COVID-
19 forbearance. The amount reflects that upon paying claims for defaulted loans, FHA’s
average loss experience is about 41 percent, based on statistics provided by FHA
($13,250,000,000 x 0.41 = $5,432,500,000 ~ $5,430,000,000).
15
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG
Evaluation Auditee Comments
U.S. DEP.'IR.L\iENT OF HOUSL'IG A.'ID URBAN DEVELOPMElli"T
WASHIKGTON. DC 2~10--S000
OFFICE OF !!OtlSING
iMEMORANDUM FOR: Kilah S. \Vhite, Assistant Inspector General for Audit, GA
~ ty '1g!IO!lb)' JUUcNNE
ULIE NNIE JOSE?H
Oa"r-:: Zl21. 11.{18 14:40:16
OSE PH -05t>J'
FROM: Julienne Y . Joseph, Deputy Assistant Secretary for Single
Family Housing, HU
SUBJECT: Discussion and C-Omments on Drafl Audit:
FHA Borrowers Did ot Always Properly Received COVID- 19
Forbearances from Then- Loan Servicers
OIG Audit Report Number: 2021 -XX-XXXX
Issue Date: Odober 14, 2021
The Office of Inspector General (OIG) audited the U.S. Depai1ment of Housing and roan
Development's (HUD) Federal Housing Administration (FHA) oversight ohhis COVID-19
forbearance option. The audit was a result of several media rep-Orts and complaints filed with the
C-Onsumer Finance Prnt.ection Bmeau indicating ins1ances when serv:icers did not properly
administer or offer COVID-19 forbearance.. Also, the OIG' s Office of Evaluation identified issues
v.<ith the forbearance info1mation available on servicers ' websites. OIG's audit objective was to
detem1ine whether FIV\-insured bo!'fowers properly received the COVID-19 related forbearance .
The Office of Single Family Hou.sing (Single Family) agrees with the OIG findings
described in the draft audit repo11 and will develop action plans to address the open audit
recommendations. Single Family's oomments to the draft audit report are outlined below:
Res_ponse to OIG Findin~s aud Pr oposed Recommendations
1. lulroducdo11, Summar y and Highlights
Comment 1 In the What We Found section, the OIG aufhots should consider qualifying language on the
summary page to make it clearer that their quantitative findings ("at least one third .. . at least one.
sixth'') are estimates based on a statistical sample.
In addition, with respect to the. discussion on Pages 6 and 7 regarding the. putpoti ed conflict
Comment 2 between the Federal ban.krnptcy law and the CARES Act, it would not have been appropriate. for
Single Famity or HUD to inte1pret or re.solve the conflict between those statutes.
2. Recommendation Highliglus and Coudusion
For Recommendations IA, 1B and IC, Single Family agrees with Finding I and ooncurs
www.hud.gov e,.pmolhad.~
16
with the OIG' s conclusion that the recorumendatious will be marked a.s completed upon
issuance of the final report. Au action plan is not needed for fhe recommendations based on the
action the Office of Housing completed. The Office of Housing identified and sent letters to
delinquent borrowers with FHA-insured mo rtgages who had not made a mortgage payment for
more than 60 days as of April 30, 2021. The letters informed bo1rnwers of lhe options they
could take lo obtain mortgage payment assistance for financial challenges related to COVID•
19.
For Recommendation 2C , regarding additional guidance to seivicers so they will limit their
Comment 3
commmucation and collection efforts, Single Family issued both regulatot)' and Handbook
v.'aivers in December 2020, waiving the requirements that mo,tgagees issue delinquency notices
to bon owers. The waivers were not referenced in the draft audit report and Single Family
recommends that the recommendation is marked complete upon issuance of the final repo11,
Please see attachments.
Conclusion
As indicated above, Single Family agree.s with the findings outlined in the draft audit report and
agrees to take appropriate con ective actions for the open recommendations. Single Family will
provide details and final action target date in its Management Decisioo.
Attachments:
I. Handbook (HB) Waiver (HUD2) for COVID-19 Delinquency Notices
2. Regulatory (Reg) Waiver for COVID-19 Delinquency Notices
17
Request for U.S. Department of Housing OMB Approval No. 2502-0029
Office of Housing
Waiver of Housing Directive and Urban Development
Federal Housing Commissioner
1. Field Office 2. Program and DAS (e g., multifamily development)
National Servicing Center {NSC) Single Family Housing
3. Waiver Requested by (person, entity, HUD employee)
Matt Martin, Director. NSC
4. Waiver Item (directive number, date, page, paragraph, etc.)
Handbook 4000.1. Section IIIA2.h.iii {Colection Communication Timeline, Mortgagee Action table. Days 20 and 32), viii, ix, and x.
RaW Sought
For borrowers on a COVID-19 Forbearance, ths waiver provides temporary relief nor mortgagees from the requirements to semi notices related to
delinquency as listed in Handbook 4000.1 Section I LA.2.h.iii (only waiving the Colection Communication Timeline. Mortgagee Action table, Days 20 and
32). Section III.A.2.h.viii {Assigned Loss Mitigation Personnel), Section I iA.2.h.a {Required Notices to Bwrower by 45f Day of Delinquency), and Section
III.A-2.h.x {Required Notices to Borrower by oOth Day of Delinquency).This temporary waiver wil remain in effect for loans on a COVID-19 Forbearance.
g Dd a check of ShareFotit Indcate Yes (skip No. 6) if previously approved, give Counsel's name and date of approval.
’ PriorApfroval of a detail/ similar
X No (go to No. 6)
6. Counsel Determination. The Waiver Proposal does not conflict Q7] conflicts | [with statutory or regulatory provisions (cite rule or provision)
The related temporary wa ver of the requirements of 24 CFR § 203.602 - Delinquency Notice to Mortgagor prevents this Waiver Proposal from conflicting
with that regulation. There is no statutory conflict.
CMinsal (Signature) Cuba y sq-ed by EUZMETH Date
ELIZABETH DAVIS owb
csb: zmti.ii. 14123=148-ceca
7. Employee Justification (attach additional pages if necessary)
The purpose of this waiver is to reduce confusion among borrowers ami mortgagees.
For borrowers on a COVID-19 Forbearance, this waives the requ irement fo' mortgagees to send ea-y delinquency notices under Handbook 4000.1:
— Section III.A.2.h.iii (only waiving the Collection Communication Timeline, Mortgagee Action table, Days 20 and 32),
— Section III.A.2.h.viii Assignee Loss Mitigation Personnel,
— Section III.A.2.h.ix Required Notices to Borrower by 45th Day of Delinquency, and
— Section III.A.2_h.x Required Notices to Borrower by 60th Day of Delinquency.
These sections require mortgagees to provide multiple notices to borrowers, beginning on the 45th and 60th days of delinquency, to help prevent
foreclosure and provide borrowers with additional options in delinquency. Mortgagees may not proceed with foreclosure white a borrower is on a COVID-19
Forbearance. The notices corid cause confusion, as borrowers may interpret them to mean that a mortgagee s proceeding with a foreclosure. Therefore,
HUD is waving the requirement to send out these notices to borrowers on a COVID-19 Forbearance. This temporary waiver will remain in effect for loans
on a COVID-19 Forbearance.
Field Office Concurrence
Name rule Data
Elissa O. Sawders Acting Director, Office of Single Family Asset Management
8. | v | Granted Housing Director (signature) -1 I^QA □se.lS-;r*:b,LUSSA Date
izi-ioon smnMiib
| | Not Granted SAUNDERS
Comments
Effective as of December 17.2O2D.
Public reporting burden far this collection of in formation is estimated to average xx minutes per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information, MUD may not
collect this information, and you are not required to complete this form, unless it displays a currently valid OMR control number.
Distribution: (indudes waivers granted and denied!
Original Io Field Office;
One copy 10 each of the following: Director, Organizational Policy, Planning and Analysis Division, Room 9116, HUD Headquarters, HAO
Assistant General Counsel, Multrfarnily Mortgage Division, HUD Headquarters, Room 9230, CAHAA
And one copy to either of lias following: Office Of the Deputy Assistant Secretary for Single Famiy Housing, Room 9292, HUD Headquarters, HU
Previous versions obsolete form HUD-2 (12/2013)
18
UW14.M atWUY KM H
FUXXAL NOCHNCCOWdllMI
Temporary Waiver of 24 C FR § 203.602 - Delinquency Notice to Mortgagor on a C OVID
19 Forbearance
Pursuant to § 7(q) of the Department of Housing and Urban Development Act (codified
at 42 U.S.C. § 3535(q)). and the waiver authority contained in 24 CFR §5.110,1 hereby
temporarily waive the requirements of 24 CFR § 203.602 - Delinquency Notice to Mortgagor,
as provided in more detail below Through this waiver, for borrowers provided a COVID-19
Forbearance. I temporarily waive the requirement that a mortgagee shall give notice to any
mortgagor in default no later than the end of the second month of any delinquency in payments
under the mortgage dunng the period of the COVID-19 Forbearance This waiver is being
issued to address potential confusion and uncertainty surrounding policy changes enacted due to
the Coronavirus Disease 2019 (COVID-19) pandemic.
In support of the temporary waiver. I make the following Findings and Determinations:
FINDINGS
1. HUD requires that mortgagees give notice to each mortgagor in default on a form
supplied by the Secretary or. if the mortgagee wishes to use its own form, on a
fomi approved by the Secretary, no later than the end of the second month of any
delinquency m payments under the mortgage In the case of borrowers provided
forbearance specifically related to the spread of COVID-19, this requirement is
potentially confusing. Borrowers who are provided a COVID-19 Forbearance are
technically delinquent: however, they are granted a period of reduced or suspended
payments and do not face adverse actions, such as foreclosure, dunng that period
2. HUD recognizes that providing delinquency notices to borrowers on a COVID-19
Forbearance will likely confuse borrowers about their payment obligations and create
uncertainty about the overall status of their mortgages dunng the forbearance period
Additionally, mortgagees who comply with the notice requirement may appear to be
acting contrary to the provisions of Mortgagee Letters 2020-06 and 2022. as well as
subsequent guidance setting forth the COVID-19 Forbearance requirements The
borrower confusion and uncertainty stemming from delinquency notices, and the
resulting misperception about noncompliance with COVID-19 Forbearance
requirements, creates legal and financial uncertainty for mortgagees.
3. A temporary waiver is necessary to allow mortgagees to forego transmission of
delinquency notices to borrowers who are technically delinquent but are not subject to
an adverse action (e g. foreclosure) arising from their delinquency dunng the
COVID-19 Forbearance period.
4. Without the waiver, there will be increased potential for borrower confusion and
mortgagee uncertainty.
DETERMINATIONS
1. To prevent borrower confusion and uncertainty, and mortgagee uncertainty, in the
case of mortgages provided a COVID-19 Forbearance, a waiver of the notice
requirements prescribed under 24 CFR § 203.602 must be granted.
2. The granting of the waiver is consistent with the Department’s objectives to promote
homeownership and avoid foreclosure.
3. All other requirements and guidance concerning FHA servicing requirements in 24
CFR § 203 remain in effect
4. Pursuant to the authority contained in 24 CFR §5.110. the above findings constitute
good cause for the granting the waiver of 24 CFR § 203.602.
5. The waiver does not violate any statutory requirements.
6. This waiver shall be in effect for all mortgages on a COVID-19 Forbearance pursuant
to the provisions of Mortgagee Letters 2020-06 and 2020-22.
12/11/2010
Issned|December 17-2020 |
Signed by O AN A W AOt
Dana T. Wade
Assistant Secretary for Housing
-Federal Housing Commissioner
19
OIG Evaluation of Auditee Comments
Comment 1 The Office of Single Family requested OIG to consider qualifying language on
the summary page to make it clearer that OIG’s quantitative findings are estimates
based on a statistical sample. We updated the language on the summary page as
requested.
Comment 2 The Office of Single Family stated that it would not have been appropriate for
HUD to interpret or resolve the conflict between the bankruptcy law and the
CARES Act. We did not recommend that HUD interpret or resolve the conflict,
but instead merely suggested that FHA could have instructed servicers to send an
informational mailing to those borrowers and their attorneys for their
consideration to ensure that the maximum number of borrowers was aware of the
option for a COVID-19 forbearance.
Comment 3 The Office of Single Family issued regulatory and Handbook waivers in
December 2020, waiving the requirements that mortgagees issue delinquency
notices to borrowers to prevent confusion and uncertainty. We did not reference
the waivers in our report because they were issued outside of our audit period
ending November 30, 2020. However, based on our review of these waivers that
we received with the auditee comments, the waivers did not specifically require
servicers to discontinue outreach to the borrowers in forbearance about their
delinquency via other communication methods and to stop collection efforts. For
example, some borrowers were constantly contacted via phone calls and emails
while being in forbearance. Therefore, we will leave the recommendation 2C
open.
20
Appendix C
Criteria
Coronavirus Aid, Relief, and Economic Security Act (enacted on March 25, 2020, and
signed into law on March 27, 2020)
Section 1113 Bankruptcy
(b) Bankruptcy Relief
(1) In General
(C) Modification of Plan After Confirmation
Section 1329 of title 11, United States Code, is amended by adding at end the following:
“(d)(1) Subject to paragraph (3), for a plan confirmed prior to the date of enactment of this
subsection, the plan may be modified upon the request of the debtor if—
(A) the debtor is experiencing or has experienced a material financial hardship due,
directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic; and
(B) the modification is approved after notice and a hearing…”
Section 4022 Foreclosure Moratorium and Consumer Right to Request Forbearance
(b) Forbearance
(1) In general. During the covered period, a borrower with a Federally backed mortgage loan
experiencing a financial hardship due, directly or indirectly, to the COVID–19
emergency may request forbearance on the Federally backed mortgage loan, regardless of
delinquency status, by
(A) submitting a request to the borrower’s servicer; and
(B) affirming that the borrower is experiencing a financial hardship during the COVID–
19 emergency.
(2) Duration of forbearance. Upon a request by a borrower for forbearance under paragraph
(1), such forbearance shall be granted for up to 180 days and shall be extended for an
additional period of up to 180 days at the request of the borrower, provided that, at the
borrower’s request, either the initial or extended period of forbearance may be shortened.
(3) Accrual of interest or fees. During a period of forbearance described in this subsection,
no fees, penalties, or interest beyond the amounts scheduled or calculated as if the
borrower made all contractual payments on time and in full under the terms of the
mortgage contract, shall accrue on the borrower’s account.
(c) Requirements for Servicers
(A) In general. Upon receiving a request for forbearance from a borrower under subsection
(b), the servicer shall with no additional documentation required other than the
borrower’s attestation to a financial hardship caused by the COVID–19 emergency and
with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the
borrower made all contractual payments on time and in full under the terms of the
mortgage contract) charged to the borrower in connection with the forbearance, provide
the forbearance for up to 180 days, which may be extended for an additional period of up
to 180 days at the request of the borrower, provided that, the borrower’s request for an
extension is made during the covered period, and, at the borrower’s request, either the
initial or extended period of forbearance may be shortened.
21
H.R. [House of Representatives] 133 -Consolidated Appropriations Act, 2021
Title X – Bankruptcy Relief
Section 1001. Bankruptcy Relief
(c) Protection Against Discriminatory Treatment.
(1) In general. Section 525 of title 11, United States Code, is amended by adding at the end
the following:
“(d) A person may not be denied relief under sections 4022 through 4024 of the CARES
Act (15 U.S.C. 9056, 9057, 9058) because the person is or has been a debtor under this
title.”
Handbook 4000.1, FHA Single Family Housing Policy Handbook (issued October 24, 2019)
III. Servicing and Loss Mitigation
A. Title II Insured Housing Programs Forward Mortgages
2. Default Servicing
h. Early Default Intervention
iii. Collection Communication Timeline
(F) Definition
The Collection Communication Timeline sets forth the servicing actions that Mortgagees
[lenders] must take when contacting a Borrower with a Delinquent Mortgage.
x. Required Notices to Borrower by 60th Day of Delinquency
(A) Standard
Beginning on the 32nd Day but no later than the 60th Day from the date payment was due, the
Mortgagee must send the:
• Delinquency Notice Cover Letter; and
• “Save your Home – Tips to Avoid Foreclosure” pamphlet (form HUD-2008-5-FHA).
(2) “Save Your Home: Tips to Avoid Foreclosure” Brochure
The brochure (form HUD-2008-5-FHA) is available in English, Spanish, Chinese,
and Vietnamese. Mortgagees may either obtain the brochure by accessing HUD’s
Direct Distribution Center or reproduce electronic versions of the brochure at
their own expense. The Mortgagee may not change the contents of the brochure
in any way.
j. HUD’s Loss Mitigation Program
(1) Definitions
A Loss Mitigation Option is one of the following strategies under FHA’s Loss Mitigation
Program requirements intended to minimize economic impact to the MMIF [Mutual
Mortgage Insurance Fund] and to avoid foreclosure, if possible:
• SFB-Unemployment [special forbearance - unemployment]
• FHA-HAMP Loan Modifications, Partial Claims, and Combination Loan
Modification/Partial Claims
• PFS [preforeclosure sale]
• DIL of Foreclosure [deed in lieu of foreclosure]
22
Mortgagee Letter 2020-06 (issued April 1, 2020)
Loss Mitigation for Borrowers Affected by the COVID-19 National Emergency
The Mortgagee must not deny COVID-19 National Emergency Home Retention Options to
Borrowers that experience an adverse impact on their ability to make on-time Mortgage
Payments due to the COVID-19 National Emergency and satisfy the loss mitigation criteria set
forth in this section.
(A) Forbearance for Borrowers Affected by the COVID-19 National Emergency
If a Borrower is experiencing a financial hardship negatively impacting their ability to make
on-time Mortgage Payments due to the COVID-19 National Emergency and makes a request
for a forbearance, the Mortgagee must offer the Borrower a forbearance, which allows for
one or more periods of reduced or suspended payments without specific terms of repayment.
The Mortgagee may utilize any available methods for communicating with a Borrower
regarding a forbearance to meet these requirements. Acceptable methods of communication
regarding a forbearance include, but are not limited to, emails, texts, fax, teleconferencing,
websites, or sending out a general communication advising Borrowers that forbearance is
granted provided the Borrower emails a request or calls their Servicer.
The initial forbearance period may be up to 6 months. If needed, an additional forbearance
period of up to 6 months may be requested by the Borrower and must be approved by the
Mortgagee.
The term of either the initial or the extended forbearance may be shortened at the Borrower’s
request.
The Mortgagee must waive all Late Charges, fees, and penalties, if any, as long as the
Borrower is on a Forbearance Plan.
(B) COVID-19 National Emergency Standalone Partial Claim
For any Owner-Occupant Borrower who receives a Forbearance for Borrowers Affected by
the COVID-19 National Emergency, the Mortgagee must evaluate the Borrower for the
COVID-19 National Emergency Standalone Partial Claim no later than the end of the
forbearance period(s).
(D) Required Financial Evaluation for other Loss Mitigation Home Retention Options
The Mortgagee must evaluate any Borrower not brought current through a “COVID-19
National Emergency Standalone Partial Claim” Option for other Loss Mitigation Home
Retention Options and Home Disposition Options.
Borrowers who are Delinquent due to a forbearance received following a COVID-19
National Emergency Declaration are deemed to satisfy the eligibility requirements for FHA
Loss mitigation Home Retention and Home Disposition Options.
(F) Reporting to Consumer Reporting Agencies of Borrowers Impacted by COVID-19
National Emergency
23
Any Borrower who is granted a “Forbearance for Borrowers Affected by the COVID-19
National Emergency” and is otherwise performing as agreed is not considered to be
delinquent for purposes of credit reporting.
FHA requires Servicers to comply with the credit reporting requirements of the Fair Credit
Reporting Act (FCRA); however, FHA encourages Servicers to consider the impacts of the
COVID-19 National Emergency on Borrowers’ financial situations and any flexibilities a
Servicer may have under the FCRA when taking any negative credit reporting actions.
Mortgagee Letter 2020-22 (issued July 8, 2020)
iii. Forbearance for Borrowers Affected by the COVID-19 National
Emergency (COVID-19 Forbearance)
The COVID-19 Forbearance allows for one or more periods of reduced or suspended
payments without specific terms of repayment.
All FHA-insured Borrowers are eligible for a COVID-19 Forbearance, regardless of the
delinquency status of the Mortgage.
iv. COVID-19 Home Retention Options
(B) COVID-19 Owner-Occupant Loan Modification
For Borrowers who do not qualify for the COVID-19 Standalone Partial Claim, the
Mortgagee must review the Borrower for a COVID-19 Owner-Occupant Loan
Modification, which modifies the rate and term of the Mortgage, at the end of the
COVID-19 Forbearance period.
(C) COVID-19 Combination Partial Claim and Loan Modification
For Owner-Occupant Borrowers where the modified monthly Mortgage payment will
increase utilizing the COVID-19 Owner-Occupant Loan Modification, and who are
unable to bring the Mortgage current through the COVID-19 Standalone Partial Claim
because the total arrearage exceeds the available portion of the statutory maximum for
Partial Claims and the available portion of the statutory maximum for the Mortgage has
not been fully exhausted, or because the Borrower cannot resume their existing monthly
Mortgage Payments with a COVID-19 standalone Partial Claim, the Mortgagee must
review the Borrower for a COVID-19 Combination Partial Claim and Loan
Modification.
(D) COVID-19 FHA-HAMP Combination Loan Modification and Partial Claim with
Reduced Documentation
Borrowers may provide income documentation to be reviewed for an affordable monthly
payment under a COVID-19 FHA-HAMP Combination Loan Modification and Partial
Claim with Reduced Documentation, which may include a principal deferment.
(E) COVID-19 Non-Occupant Loan Modification
At the expiration of the COVID-19 Forbearance period, the Mortgagee must review Non-
Occupant Borrowers for a COVID-19 Non-Occupant Loan Modification, which modifies
the rate and term of the Mortgage.
24
Appendix D
Sampling and Projections
Delinquent Loans Not in Forbearance
Sample Selection
Our sampling objective was to determine whether delinquent borrowers, who are not in
forbearance, were aware of their rights under the CARES Act. The sample design provided an
estimate of the total dollar amounts and counts of FHA loans with material deficiencies based on
the audit results. The audit universe consisted of 334,549 delinquent FHA loans that totaled
$49.37 billion in unpaid principal balance in SFDW as of November 30, 2020.
We identified a stratified sample of 85
records for auditing in the universe. We Sample design table
designed the strata to group sampling units -
~
... , ... -
..-.!. ••
' "" -
.....,if'""l ...lf, .
', ~
~
- -
-p;
~
II fll I !.a
by the size of their valuation. Therefore, we 0-l0pct >0
'
33,457
"
8 4182.1
rank ordered the sampling units by the 10-30pct ~ $5 1,918 66,905 17 3935.6
unpaid balance for each loan. The strata 30-50pct ~ $90,356 66,911 17 3935.9
breakpoints encompassed the following 50-70pct ~ $127,034 66,912 17 3936.0
ranges by percentile: 0-10, 10-30, 30-50, 70-90pct ~ $175,3 18 66,909 17 3935.8
50-70, 70-90, 90-95, 95-98, and 98-100. We 90-95pct ~$267,022 16,727 4 4181.8
employed a systematic sort in the final 95-98pct ~ $321,748 10,037 3 3345.7
sample design to help control for differences 98-l00pct ~ $404,272 6,691 2 3345.5
across servicers and the State in which the T o tals 334,549 85
property is located.
We tested the sample design with various rates of error to confirm that we could obtain a reliable
projection answer with this sample design and that the confidence intervals as specified would
provide an accurate probabilistic statement. Based on the testing and simulated sampling
distributions, we found a stratified sample of 85 to be more than sufficient, and we selected that
sample size.
Methodology
We computed the percentage and number of counts of loans that may be needlessly delinquent
based on the sampling results and extended this result to the population using the surveyfreq
procedure provided by SAS® 1. We estimated the lower confidence interval using a Gaussian
sampling distribution, which is appropriate for error rates in this range. We extended these
percentages to the 334,549 records in the universe to get the total universe count of these records.
We used the surveymeans procedure in SAS® to estimate the total loan dollars that may be
needlessly delinquent. We reduced the average amount by the margin of error (that is, the
standard error with a student’s t factor) associated with this sample design. For complex sample
designs, such as the stratified technique used for this review, the surveymeans procedure in SAS
1
Statistical analysis software that includes exact techniques for small data sets, high-performance statistical
modeling tools for large data tasks and modern methods for analyzing data with missing values.
25
uses the Taylor expansion method to estimate sampling errors (standard errors). We then
extended this result to the 334,549 records in the universe.
The basic estimation calculations are as follows:
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐿𝐿𝐿𝐿𝐿𝐿 = N *(µ - 𝐴𝐴𝛼𝛼/2 𝑆𝑆𝑆𝑆$ )
𝐶𝐶𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐿𝐿𝐿𝐿𝐿𝐿 = N * (pct - 𝐴𝐴𝛼𝛼/2 𝑆𝑆𝑆𝑆% )
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐿𝐿𝐿𝐿𝐿𝐿 = total review-finding amount after deducting a margin of error.
𝐶𝐶𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐿𝐿𝐿𝐿𝐿𝐿 = total number of sampling units with the error after deducting a margin of error.
𝑁𝑁 = total number of sampling units in the sampling frame.
µ = weighted average value of the error per unit.
pct = weighted percent of sampling units with the error in the sampling frame.
SE$ = standard error per unit, as applies to projecting dollars.
SE% = standard error per unit, as applies to projecting proportions.
tα/2 = student’s - t for projecting a one-sided confidence interval for a sample of this
size.
Projection Results
We found that in 36 of 85 loan records reviewed, borrowers could be needlessly delinquent with
their FHA loans and could have potentially been in forbearance. This amounts to a weighted
average of $52,886.00 per loan. Deducting for a statistical margin of error, we can say - with a
one-sided confidence interval of 95 percent - that this amounts to at least $39,617.32 per loan
that could be needlessly delinquent. In the context of the universe of 334,549 loan records, this
amounts to at least $13.25 billion in FHA loans that could be needlessly delinquent and could be
in forbearance, and this dollar amount could be more.
Per loan calculation: $52,886.00 – (1.665 ⨉ $7,969.73) ≈ $39,617.32 LCL
Universe projection: 334,549 ⨉ ($52,886.00 – (1.665 ⨉ $7,969.73)) ≈
13,253,933,685.50 LCL
We found that in 36 of 85 loan records reviewed, borrowers could be needlessly delinquent with
their FHA loans and could have potentially been in forbearance. This amounts to a weighted
average of 42.4 percent. Deducting for a statistical margin of error we can say - with a one-sided
confidence interval of 95 percent - that at least 33.5 percent of the loans could be needlessly
delinquent. Extending this percentage to the universe of 334,549 loan records, at least 112,160
FHA loans could be needlessly delinquent and could be in forbearance, and the count of loans
could be more.
Percentage calculation: 42.4% – (1.664 ⨉ 5.3%) ≈ 33.5% LCL
Total loans projection: 334,549 ⨉ (42.4% – (1.664 ⨉ 5.3%)) ≈ 112,160 LCL
Delinquent Loans in Forbearance
Sample Selection
Our sampling objective was to determine whether FHA servicers properly administered
forbearance under the CARES Act. The sample design provided an estimate of the total dollar
amount and count of FHA loans that had material deficiencies in how servicers administered
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forbearance. The audit universe consisted of 814,037 FHA loans in COVID-19 forbearance,
which totaled $141.6 billion in unpaid balance in SFDW as of November 30, 2020. Sampling
Stratum Label Amount Total count in stratum sample count weight
We identified a stratified sample of 85
records for auditing in the universe. We Sample design table 0-10pct 0 81,402 8 10175.3
designed the strata to group sampling units
by the size of their valuation. Therefore,
we rank ordered the sampling units by the 10-30pct 162,8 12 17 9577.2
?: S66.202
unpaid balance for each loan. The strata 30-50pct ?: $111 ,484 162,805 17 9576.8
breakpoints encompassed following 50-70pct 162,807
?: $1 53,322 17 9576.9
ranges by percentile: 0-10, 10-30, 30-50,
70-90pct ?: $208,084 162,807 17
50-70, 70-90, 90-98, and 98-100. We
9576.9
employed a systematic sort in the final
90-98pct ?: $303 ,352 65 ,123 7 9303.3
sample design to help control for
98-l OOpct ?: $457,322 16,28 1 2 8140.5
differences across servicers and the State
Totals 814,037 85
in which the property is located.
We tested the sample design with various rates of error to confirm that we could obtain a reliable
projection answer with this sample design and that the confidence intervals as specified would
provide an accurate probabilistic statement. Based on the testing and simulated sampling
distributions, we found a stratified sample of 85 to be more than sufficient, and we selected that
sample size.
Methodology
We computed the percentage and number of counts of loans with forbearance deficiencies based
on the sampling results and extended this result to the population using the surveyfreq procedure
provided by SAS®. We estimated the lower confidence interval using a Gaussian sampling
distribution, which is appropriate for error rates in this range. We extended these percentages to
the 814,037 records in the universe to get the total universe count of loans with forbearance
deficiencies.
We used the surveymeans procedure in SAS® to estimate the total unpaid balance of loans with
forbearance deficiencies. We reduced the average amount by the margin of error (that is, the
standard error with a student’s t factor) associated with this sample design. For complex sample
designs, such as the stratified technique used for this review, the surveymeans procedure in SAS
uses the Taylor expansion method to estimate sampling errors (standard errors). We then
extended this result to the 814,037 records in the universe.
The basic estimation calculations are as follows:
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐿𝐿𝐿𝐿𝐿𝐿 = N *(µ - 𝐴𝐴𝛼𝛼/2 𝑆𝑆𝑆𝑆$ )
𝐶𝐶𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐿𝐿𝐿𝐿𝐿𝐿 = N * (pct - 𝐴𝐴𝛼𝛼/2 𝑆𝑆𝑆𝑆% )
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐿𝐿𝐿𝐿𝐿𝐿 = total review-finding amount after deducting a margin of error.
𝐶𝐶𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐿𝐿𝐿𝐿𝐿𝐿 = total number of sampling units with the error after deducting a margin of
error.
𝑁𝑁 = total number of sampling units in the sampling frame.
µ = weighted average value of the error per unit.
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pct = weighted percent of sampling units with the error in the sampling frame.
SE$ = standard error per unit, as applies to projecting dollars.
SE% = standard error per unit, as applies to projecting proportions.
tα/2 = student’s - t for projecting a one-sided confidence interval for a sample
of this size.
Sample Projections
We found that in 21 of 85 loan records reviewed, there was a deficiency related to forbearance of
the FHA loan. This amounts to a weighted average of $44,721.91 per loan. Deducting for a
statistical margin of error, we can say - with a one-sided confidence interval of 95 percent - that
this amounts to at least $27,678.73 per loan. In the context of this universe of 814,037 loan
records, this amounts to at least $22.5 billion in FHA loans with a deficiency related to their
forbearance, and this dollar amount could be more.
Per loan calculation: $44,721.91 – (1.665 ⨉ $10,238.45) ≈ $27,678.73 LCL
Universe projection: 334,549 ⨉ ($44,721.91 – (1.665 ⨉ $10,238.45)) ≈
$22,531,508,653.42 LCL
We found that in 21 of 85 loan records reviewed, there was a deficiency related to forbearance of
the FHA loan. This amounts to a weighted average of 24.5 percent. Deducting for a statistical
margin of error we can say - with a one-sided confidence interval of 95 percent - that at least
17.0 percent of the loans met this condition. Extending this percentage to this universe of
814,037 loan records, at least 138,946 FHA loans have a deficiency related to their forbearance,
and the count of loans could be more.
Percentage calculation: 24.57% – (1.663 ⨉ 4.51%) ≈ 17.1% LCL
Total loans projection: 814,037 ⨉ (24.57% – (1.663 ⨉ 4.51%)) ≈ 138,946 LCL
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