Feds paid $23 million to unqualified mortgage borrowers that system missed

The federal housing department’s inspector general also said the agency’s claims processing system couldn’t detect and prevent payment to lenders for claims that were unqualified for certain loans, so more millions will be lost if the problem isn’t fixed quickly.

“This condition occurred because HUD did not design and implement sufficient claim payment system controls,” the inspector general said. “If HUD does not strengthen its controls, the claims system will continue to pay potentially ineligible claims.”

Borrowers who defaulted on their mortgages may be eligible for the Federal Housing Administration’s Home Affordable Modification Program, which was established under the Helping Families Save Their Home Act of 2009. Qualified borrowers can receive modifications to their mortgage.

They may also receive an interest-free loan from the housing department for up to 30 percent of the remaining balance of their mortgage that can be used to decrease their monthly payments.

To be eligible for such a loan, the borrower could not have modified their mortgage for at least two years.

However, the inspector general reported that 705 claims totaling $22.2 million violated that rule as of Jan. 17, 2015.

Investigators also found that the housing department mistakenly paid 16 claims from lenders twice. Though 10 f those were repaid, the inspector general couldn’t determine if the repayments were initiated by the mortgage lender or by the government.

Federal officials also miscalculated the maximum loan amounts because of a discrepancy in how the modification program’s policy was interpreted. Consequently, investigators reported that another 56 claims worth more than $260,000 were paid, even though the loans were for more than 30 percent of the unpaid mortgage balance.

Housing department officials pledged to correct the problems with its claims processing system.

Go here to read the full report.