United States Government Accountability Office

GAO Report to the Committee on Banking, 

Housing, and Urban Affairs, U.S. Senate

FEDERAL HOUSING 

ADMINISTRATION 

Improvements Needed 

in Risk Assessment 

and Human Capital 

Management 

November 2011 

GAO-12-15 
 United States Government Accountability Office 

Highlights of GAO-12-15, a report to the 

Committee on Banking, Housing, and Urban 

Affairs, U.S. Senate 

November 2011 

FEDERAL HOUSING ADMINISTRATION 

Improvements Needed in Risk Assessment and 

Human Capital Management 

Why GAO Did This Study 

The Department of Housing and Urban 

Development’s (HUD) Federal Housing 

Administration (FHA) has helped 

millions purchase homes by insuring 

private lenders against losses from 

defaults on FHA-insured single-family 

mortgages. In recent years, FHA has 

experienced a dramatic increase in its 

market role due, in part, to the 

contraction of other mortgage market 

segments. The increased reliance on 

FHA mortgage insurance highlights the 

need for FHA to ensure that it has the 

proper controls in place to minimize 

financial risks while meeting the 

housing needs of borrowers. In 

addition to providing data on FHA’s 

single-family workload, GAO was 

asked to evaluate (1) FHA’s risk 

assessment strategy, including the 

extent to which it is consistent with 

HUD and GAO internal control 

standards, and (2) steps FHA has 

taken to manage the risks in its singlefamily programs. To address these 

objectives, GAO analyzed data from 

fiscal years 2006–2010 on singlefamily business volume and workload, 

reviewed FHA documents on risk 

assessment and changes made to 

manage risks (such as those to human 

capital), and interviewed FHA officials. 

What GAO Recommends 

FHA should develop an integrated risk 

assessment strategy, conduct annual 

risk assessments, establish ongoing 

mechanisms to anticipate emerging 

risks, and develop workforce and 

succession plans. HUD agreed with 

the recommendations, stating that it 

was either currently working toward 

achieving the recommendations or had 

plans to do so in the very near future. 

What GAO Found 

While FHA has taken steps to identify risks in its single-family programs, it has 

not combined these risk assessment efforts and lacks annual assessments and 

tools to anticipate risks from changing conditions. To improve its risk assessment 

strategy, FHA created a risk office in 2010 and hired a consultant to recommend 

best practices for its operation. It also began a quality control initiative in the 

Office of Single Family Housing (SFH), in which program and field offices assess 

risks and report on efforts to mitigate them. Internal control standards require 

agencies to have an integrated risk assessment plan. While FHA’s consultant 

recommended integrating risk assessment, SFH’s quality control initiative and 

the risk office’s activities remain separate efforts. Although HUD’s guidance 

requires annual risk assessments, SFH has not updated its assessments since 

2009. Finally, FHA has not yet acted on the consultant’s recommendation to 

report on emerging risks. Delays in defining the risk office’s authority, staff 

shortages, and changes in FHA leadership have slowed implementation of the 

new approach. Without integrated and updated risk assessments that identify 

emerging risks, FHA lacks assurance that it has identified all its risks. 

FHA has enhanced efforts to manage risks in its single-family programs, but human 

capital still presents challenges. To address risk associated with lenders and 

appraisers, FHA reduced the number of lenders directly participating in the program 

and revised its oversight. FHA addressed some risks related to staffing but lacks 

strategic workforce and succession plans. HUD and GAO standards require 

workforce planning that identifies critical skills needed to meet future needs, defines 

skill gaps, and considers succession planning. Although it has determined that SFH 

needs more staff, FHA has not created a workforce plan that systematically identifies 

critical skills and gaps in skills. Also, 63 percent of homeownership center staff (who 

conduct most day-to-day functions) are eligible to retire in the next 3 years, but FHA 

has not developed a plan to manage retirements or hire staff with needed skills. 

Without a workforce planning process that includes succession planning, FHA’s 

ability to systematically identify workforce needs is limited. 

Number of FHA Loans and Single-Family Staff, 2006–2010 

Source: GAO analysis of FHA data.

Number of loans (in thousands)

Loans

Number of staff

Fiscal year

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010

Office of Single Family Housing staff

Fiscal year

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010

View GAO-12-15. For more information, 

contact Mathew J. Scirè at (202) 512-8678 or 

sciremj@gao.gov. 
Page i GAO-12-15 

Contents 

Letter 1 

Background 3

FHA Business Volume and Workload Increased at a Greater Rate 

than Staffing Levels 7

FHA Has Yet to Implement a Comprehensive Risk Assessment 

Strategy 18

Although FHA Has Enhanced Risk Management and Plans to 

Modernize Information Technology, Human Capital Challenges 

Remain 26

Conclusions 42

Recommendations for Executive Action 43

Agency Comments and Our Evaluation 44

Appendix I Objectives, Scope, and Methodology 45 

Appendix II Comments from the Department of Housing and Urban Development 51 

Appendix III GAO Contact and Staff Acknowledgments 54

Tables 

Table 1: Homeownership Center Divisions and Responsibilities 7

Table 2: Single Family Housing Staff Levels, 2006–2010 10

Table 3: Loss Mitigation Actions, 2006–2010 15

Table 4: Credit and Operational Risks That FHA Identified in Its 

Single-Family Insurance Programs 22

Table 5: Status of Key Leadership Positions Involved in 

Implementing FHA’s New Risk Assessment Strategy, as of 

September 2011 26

Table 6: Five Most Critical Information Technology Initiatives for 

FHA’s Single-Family Insurance Programs 33

Table 7: Percentage of FHA Staff Eligible to Retire within the Next 

1, 2, and 3 Years, as of July 2011 41

Figures 

Figure 1: Office of Single Family Housing Organizational Chart 6

FHA Oversight Capacity 
Figure 2: FHA Loan Volume and Market Share, 2006–2010 8

Figure 3: Number and Results of Post-endorsement Technical 

Reviews, 2006–2010 11

Figure 4: Number and Results of Appraisal and Appraiser Reviews, 

2006–2010 12

Figure 5: Active Real Estate-Owned Property Inventory and REO 

Staff, 2006–2010 14

Figure 6: Number and Results of Lender and Loan Reviews, 2006–

2010 16

Figure 7: Organizational Chart for FHA’s Office of Risk 

Management and Regulatory Affairs, as of August 2011 19

Figure 8: Average Number of Appraisals Reviewed per Appraiser 

and Percentage of Appraisers Reviewed, 2006–2010 31

Figure 9: Selected FHA Single-Family Contractors, 2006–2010 36

Figure 10: FHA Single-Family Overtime Expenditures, 2006–2010 37

Page ii GAO-12-15 FHA Oversight Capacity
Abbreviations 

CHUMS Computerized Home Underwriting Management System 

FHA Federal Housing Administration 

FTE full-time equivalent 

HUD Department of Housing and Urban Development 

IG Inspector General 

IT information technology 

LTV loan-to-value 

PSD Program Support Division 

OCSD Operations and Customer Service Division 

ORM Office of Risk Management 

PETR post-endorsement technical review 

PUD Processing and Underwriting Division 

QAD Quality Assurance Division 

REAP Resource Estimation and Allocation Process 

REO Real Estate Owned Division 

SFH Office of Single Family Housing 

TOTAL Technology Open to Approved Lenders 

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Page iii GAO-12-15 FHA Oversight Capacity
Page 1 GAO-12-15 FHA Oversight Capacity 

United States Government Accountability Office

Washington, DC 20548 

November 7, 2011 

The Honorable Tim Johnson 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, 

 and Urban Affairs 

United States Senate 

The Department of Housing and Urban Development’s (HUD) Federal 

Housing Administration (FHA) has helped millions of families purchase 

homes through its single-family mortgage insurance programs. In recent 

years, FHA has experienced a dramatic increase in its market role due, in 

part, to the contraction of other mortgage market segments. At the same 

time, it has faced fiscal challenges. As we reported in September 2010, 

FHA is not meeting statutory capital reserve requirements.1

 Additionally, 

although FHA’s single-family insurance programs historically have 

produced budgetary receipts for the federal government, a weakening in 

the performance of FHA-insured loans could increase the possibility that 

FHA will require additional funds to help cover its costs on insurance issued 

to date.2

 The increased reliance on FHA mortgage insurance highlights the 

need for FHA to ensure that it has the proper controls in place to minimize 

financial risks while meeting the housing needs of borrowers. 

Your committee asked us to examine FHA’s oversight capacity in light of 

the recent expansion in single-family mortgage insurance programs. 

Specifically, this report discusses (1) recent changes in FHA’s volume, 

workload, and resources; (2) FHA’s risk assessment strategy, including 

the extent to which it is consistent with HUD and GAO internal control 

standards; and (3) steps FHA has taken to manage the risks in its singlefamily mortgage insurance programs. 

 

1

See GAO, Mortgage Financing: Opportunities to Enhance Management and Oversight of 

FHA’s Financial Condition, GAO-10-827R (Washington, D.C.: Sept. 14, 2010). 

2

As of August 31, 2011, FHA had about 7.3 million single-family mortgages in force with 

an outstanding balance of over $1.0 trillion. 

 
 

To determine changes in FHA’s single-family business volume, we 

analyzed data on business volume and market share from FHA’s 

quarterly reports to Congress and quarterly reports on U.S. housing 

market conditions. To determine how FHA’s workload has changed, we 

analyzed data for 2006–2010 from various HUD information systems.3

We also analyzed data on staff assigned to the Office of Single Family 

Housing in 2006–2010 and contractor staff hired to perform selected 

functions. To assess the reliability of these data, we reviewed 

documentation from FHA, interviewed FHA officials who administer these 

information systems and officials who routinely use these systems for 

workload management, and verified selected data across multiple 

sources. We determined that the data were sufficiently reliable for our 

purposes. To determine the extent to which FHA’s risk assessment 

strategy is consistent with GAO’s and HUD’s risk assessment 

requirements and guidelines, we reviewed Federal Managers’ Financial 

Integrity Act requirements, our internal control standards and evaluation 

tool, HUD’s management control handbook, and Office of Management 

and Budget Circular No. A-123 requirements regarding an internal control 

structure for risk assessment. To identify FHA’s risk assessment strategy, 

we reviewed (1) quality management plans and examples of risk 

assessment worksheets, quarterly statements, and other documentation 

for the Office of Single Family Housing’s internal quality control initiative 

and (2) a report on the proposed structure and functions of the Office of 

Risk Management and Regulatory Affairs. We also interviewed Office of 

Single Family Housing and Office of Risk Management and Regulatory 

Affairs staff. We then compared FHA’s risk assessment strategy with our 

internal control standards and HUD’s guidance. To describe the steps 

FHA has taken to manage the risks it has identified, we reviewed 

changes to regulations and FHA guidance that address credit risk and 

risks associated with lenders and appraisers. To determine the 

advantages and disadvantages of changes FHA has made to its oversight 

of lenders and appraisers, we reviewed relevant documents and 

interviewed FHA officials and officials at trade organizations representing 

large and small lenders. To determine the steps FHA has taken to 

manage the risks associated with its information systems, we reviewed 

documents related to FHA’s efforts to transform its information systems 

and interviewed the FHA Transformation Initiative program manager. To 

assess the steps FHA has taken to address its staffing needs, we 

 3

Unless otherwise stated, the years shown in this report are fiscal years. 

Page 2 GAO-12-15 FHA Oversight Capacity
 

reviewed the 2009 Resource Estimation and Allocation Process study for 

Single Family Housing field staff and HUD’s Strategic Human Capital 

Plan. We also interviewed FHA officials about their workforce and 

succession planning and obtained any related documents. We compared 

this information with our internal control standards and HUD’s human 

capital guidance. 

We conducted this performance audit from October 2010 to November 

2011 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 objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. Appendix I contains 

additional information on our scope and methodology. 

FHA’s single-family programs insure private lenders against losses from 

borrower defaults on mortgages that meet FHA criteria for properties with 

one to four housing units.4 FHA insures a variety of mortgages for initial 

home purchases, construction and rehabilitation, and refinancing. It also 

insures reverse mortgages, a type of loan against the borrower’s home 

that is available to persons 62 years or older and allows them to convert 

home equity into flexible cash advances while living in their homes. In 

2010, FHA insured over 1.7 million single-family mortgages representing 

about $319 billion in mortgage insurance. The agency has played a 

particularly large role among minority, lower-income, and first-time 

homebuyers. In 2010, almost 80 percent of FHA-insured home purchase 

loans went to first-time homebuyers, 30 percent of whom were minorities. 

FHA generally is thought to promote stability in the market by helping to 

ensure the availability of mortgage credit in areas that may be 

underserved by the private sector or that are experiencing economic 

downturns. 

Background 

Legislation sets certain standards for FHA-insured loans. FHA borrowers 

who are purchasing a home are required to make a cash investment of at 

least 3.5 percent of the current purchase price. This investment may come 

from the borrowers’ own funds or from certain third-party sources. 

 4

FHA also insures mortgages for multifamily properties and health care facilities. 

Page 3 GAO-12-15 FHA Oversight Capacity
 

However, borrowers are permitted to finance their mortgage insurance 

premiums and some closing costs, which can create an effective loan-tovalue (LTV) ratio—that is, the ratio of the amount of the mortgage loan to 

the value of the home—of close to 100 percent for some FHA-insured 

loans. Congress also has set limits on the size of the loans FHA may 

insure, which can vary by county. For the period from January 1, 2011, 

through September 30, 2011, the limits ranged from $271,050 to $729,750 

for one-unit properties in the continental United States. Starting October 1, 

2011, the limits ranged from $271,050 to $625,500 for these properties. 

FHA insures almost all of its single-family mortgages under its Mutual 

Mortgage Insurance Fund (the Fund). The Fund is supported by 

borrowers’ insurance premiums. FHA has the authority to establish and 

collect a single up-front premium (in an amount not to exceed 3.0 percent 

of the amount of the original insured principal obligation of the mortgage) 

and annual premiums of up to 1.5 percent of the remaining insured 

principal balance, or 1.55 percent for borrowers with down payments of 

less than 5.0 percent. Since April 18, 2011, FHA has charged a 1.00 

percent up-front premium and a 1.10 or 1.15 percent annual insurance 

premium, depending on the LTV ratio. 

As of September 2011, almost 3,700 lending institutions were approved 

to participate in FHA’s mortgage insurance programs for single-family 

homes. Virtually all of these lending institutions have direct endorsement 

authority, meaning that they can underwrite loans and determine their 

eligibility for FHA mortgage insurance without HUD’s prior review.5

Although they can make underwriting decisions without HUD’s prior 

review, direct endorsement lenders are still subject to a HUD review of 

loan paperwork prior to endorsement as well as a post-endorsement 

review of the loan. They can apply to participate in the Lender Insurance 

program, which enables high-performing lenders to approve mortgages 

for FHA insurance without a pre-endorsement review by HUD. As of 

 5

Underwriting refers to a risk analysis that uses information collected during the origination 

process to decide whether to approve a loan. Prior to January 1, 2011, about 13,000 

lending institutions were approved to participate in FHA’s single-family mortgage 

insurance programs. At that time, FHA stopped allowing loan correspondents to 

participate in FHA programs. Loan correspondents were lenders that originated FHAinsured loans—meaning that they could accept mortgage applications, obtain employment 

verifications and credit histories on applicants, order appraisals, and perform other tasks 

that precede the loan underwriting process—but did not have direct endorsement 

authority. 

Page 4 GAO-12-15 FHA Oversight Capacity
 

September 2011, about 20 percent of direct endorsement lenders 

participated in the Lender Insurance program. In 2010, these lenders 

accounted for about 73 percent of FHA’s single-family loans. 

FHA’s single-family insurance programs are administered by the Deputy 

Assistant Secretary for Single Family Housing (see fig. 1), who reports to 

the Assistant Secretary for Housing-Federal Housing Commissioner. 

Within the Office of Single Family Housing, three offices develop policy 

and manage oversight functions: Program Development, Asset 

Management, and Lender Activities and Program Compliance. Program 

Development is responsible for developing policies, procedures, and 

guidance for lenders that originate and underwrite FHA insured singlefamily mortgages; administering FHA’s housing counseling program; and 

establishing protocols for property appraisals. Asset Management is 

responsible for policies and procedures relating to servicing of FHAinsured mortgages from the point of loan insurance until loan payoff or 

disposition, helping homeowners overcome financial difficulties that lead 

to mortgage delinquency (loss mitigation), and managing and selling real 

estate-owned properties (that is, acquired by FHA through the foreclosure 

process). It includes the National Servicing Center, which implements 

many of these policies and procedures. Lender Activities and Program 

Compliance’s three divisions oversee lenders and carry out enforcement 

activities. Specifically, the Lender Approval and Recertification Division 

approves and recertifies qualified lenders to originate, purchase, or 

service FHA-insured mortgages. The Quality Assurance Division 

assesses lender performance, internal controls, and compliance with FHA 

origination and servicing requirements through on-site reviews, off-site 

evaluations, and electronic monitoring tools. Finally, the Mortgagee 

Review Board Division—which serves as staff for the Mortgagee Review 

Board—pursues administrative actions and sanctions against lenders and 

related parties that violate FHA requirements. The Mortgagee Review 

Board takes administrative action against FHA-approved lenders that are 

not in compliance with FHA lending requirements. 

Page 5 GAO-12-15 FHA Oversight Capacity
 

Figure 1: Office of Single Family Housing Organizational Chart 

Source: FHA.

Deputy Assistant Secretary

for Single Family Housing

Office of Single

Family Program

Development

Office of Single

Family Asset

Management

Homeownership Centers

(Atlanta, Denver,

Philadelphia, Santa Ana)

Office of Lender Activities

and Program Compliance

Program

Support

Division

Processing

and Underwriting

Division

Real Estate

Owned

Division

Operations and

Customer Service

Division

Quality

Assurance

Division

Director’s Office

FHA’s four homeownership centers, in Atlanta, Georgia; Denver, 

Colorado; Philadelphia, Pennsylvania; and Santa Ana, California, 

undertake many of the day-to-day functions associated with loan 

endorsement, processing, and lender oversight. For example, the 

homeownership centers endorse loans for FHA insurance and oversee 

lenders and appraisers. As shown in table 1, each homeownership center 

is divided into five divisions. 

Page 6 GAO-12-15 FHA Oversight Capacity
 

Table 1: Homeownership Center Divisions and Responsibilities 

Division Responsibilities 

Processing and Underwriting (PUD) Processes requests for FHA mortgage 

insurance and oversees lenders and appraisers 

Real Estate Owned (REO) Oversees the management and marketing of 

homes acquired through foreclosure 

Quality Assurance (QAD) Monitors mortgage lenders 

Program Support (PSD) Performs an array of technical services, 

including (1) approving and monitoring housing 

counseling agencies and nonprofit organizations 

and (2) providing training 

Operations and Customer Service 

(OCSD) 

Provides internal operational support for the 

other divisions and customer service to lenders 

and the public 

Source: FHA documents. 

FHA’s loan volume and the number of lenders and appraisers 

participating in its programs grew significantly from 2006 to 2010. During 

the same time period, Single Family Housing field staffing levels 

remained relatively constant, while key workload items such as volumedriven loan reviews and the management of foreclosed homes grew 

considerably. Although FHA has taken a number of steps to address its 

increased workload, it is too soon to determine the effectiveness of these 

process changes. 

FHA Business Volume 

and Workload 

Increased at a Greater 

Rate than Staffing 

Levels 

FHA’s Business Volume, 

Market Share, and 

Program Participants 

Increased Dramatically in 

Recent Years 

FHA’s loan volume and market share grew considerably from 2006 to 

2010, as did the number of lenders and appraisers participating in its 

programs. FHA insured almost half a million loans, totaling $70 billion in 

mortgage insurance, in 2006. For 2009, the agency insured about 1.9 

million loans, totaling more than $350 billion in mortgage insurance. The 

number of loans dropped slightly in 2010 to over 1.7 million, or about 

$319 billion in mortgage insurance. The drop in overall volume in 2010 

largely reflected a decrease in the number of refinance and reverse 

mortgages FHA insured. However, the number of home purchase 

mortgages that FHA insured continued to grow, as shown in figure 2. The 

growth in loan volume in this period resulted from the sharp contraction of 

other segments of the mortgage market and increases in the loan 

Page 7 GAO-12-15 FHA Oversight Capacity
 

amounts eligible for FHA insurance.6 FHA’s business volume continued 

to be high in 2011. As of August 31, 2011, it had insured about 1.2 millio

loans. 

n 

Figure 2: FHA Loan Volume and Market Share, 2006–2010 

Source: GAO analysis of FHA data.

Number of loans (in thousands)

Loan volume Market share

Overall market share

Purchase

mortgage

market

share

Percentage

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2006 2007 2008 2009 2010

Fiscal year Fiscal year

Total loan volume

Reverse mortgages

Refinance mortgages

Purchase mortgages

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010

FHA’s overall market share followed a similar trend as loan volume, 

increasing from 3.3 percent in 2006 to 19.9 percent in 2010, as the 

private mortgage market contracted.7 Additionally, FHA’s market share of 

purchase mortgages increased from 4.5 percent in 2006 to 40.2 percent 

in 2010. 

 6

See GAO-10-827R. 

7

The market share data do not include reverse mortgages. 

Page 8 GAO-12-15 FHA Oversight Capacity
 

Lender and, particularly, appraiser numbers also jumped during the same 

period. The total number of FHA-approved lenders increased 24 percent, 

from 10,370 in 2006 to 12,844 in 2010. The number of FHA-approved 

appraisers increased approximately 67 percent from 33,553 in 2006 to 

56,192 in 2010. FHA attributes these increases to the growth in its share 

of the mortgage market. 

FHA’s Field Staffing Levels 

Remained Relatively 

Constant, while Key 

Workload Items Increased 

Significantly 

Overall, FHA’s single-family staff increased 8 percent, from 932 

employees in 2006 to 1,011 employees in 2010, while increases in key 

workload areas often surpassed 100 percent over that period. 

Homeownership center staff in the field—which account for almost 80 

percent of the single-family workforce and conduct most of the day-to-day 

functions for the Office of Single Family Housing—increased about 4 

percent, from 769 employees in 2006 to 799 employees in 2010. At the 

four homeownership centers, the divisions responsible for key functions 

include PUD (loan and appraisal reviews), REO (management and 

marketing of foreclosed properties), and QAD (annual lender reviews). 

Single-family headquarters staff—who are responsible for policy 

development and oversight—increased 30 percent, from 163 in 2006 to 

212 in 2010. Much of the staffing growth in headquarters derived from 

enlarging the Deputy Assistant Secretary’s office from 12 employees in 

2009 to 31 employees in 2010.8 See table 2 for more information. 

FHA Oversight Capacity

 8

According to FHA officials, 18 employees assigned to the Office of the Deputy Assistant 

Secretary for Single Family Housing were actually located in the field. 

Page 9 GAO-12-15 
 

Table 2: Single Family Housing Staff Levels, 2006–2010 

2006 2007 2008 2009 2010

Percentage 

change from 

2006 to 2010

Single Family Housing total 932 896 942 937 1,011 8

Headquarters total (including 

the National Servicing Center)

163 162 145 157 212 30

Homeownership center total 769 734 797 780 799 4

Homeownership center 

divisions 

 PUD 217 203 250 270 265 22

 REO 143 144 165 158 162 13

 QAD 133 125 113 111 135 2

 PSD 200 202 204 182 175 -13

 OCSD 48 39 43 41 41 -15

 Director’s Office 28 21 22 18 21 -25

Source: FHA. 

PUD staff levels grew at a slower rate (22 percent) than key workload 

items, particularly volume-driven loan reviews (which increased by more 

than 100 percent). PUD staff conduct a variety of oversight functions that 

include technical reviews of loan underwriting quality, evaluation of loans 

from lenders seeking direct endorsement authority, and reviews of 

appraisers. PUD staff levels increased 22 percent, from 217 in 2006 to 

265 in 2010. In addition to relying on these staff, PUD relied on 

contractors to assist with loan and appraiser reviews. FHA estimates that 

contractor full-time equivalents (FTE) devoted to PUD activities increased 

66 percent, from 89 FTEs in 2006 to 148 FTEs in 2010.9 The contract for 

loan reviews was not renewed in 2011, reducing the number of contractor 

staff available to assist with these reviews. 

Loan and Appraisal Reviews 

The number of post-endorsement technical reviews (PETR) that PUD 

conducted more than doubled, from 40,373 in 2006 to a peak of 102,000 

in 2009 before falling to 85,669 in 2010. These desk audits constitute a 

primary lender oversight function by evaluating the underwriting quality of 

 9

The contractor FTE data presented here (and throughout the report) are a head count of 

contractor employees for 2010 and estimates for 2006–2009 (based on the 2010 data). 

Page 10 GAO-12-15 FHA Oversight Capacity
 

a selection of individual loans already insured by FHA.10 Reviews 

revealing serious deficiencies may result in HUD requiring the lenders to 

compensate the department for financial losses, known as 

indemnification.11 FHA met its goal of conducting PETRs on at least 5 

percent of insured loans each year from 2006 to 2010 (see fig. 3), 

although the percentage of loans reviewed declined over time. 

Indemnification agreements as a result of PETRs decreased from 293 in 

2006 to 66 in 2008 before increasing to 645 in 2010. Less than 1 percent 

of PETRs conducted each year resulted in an indemnification agreement. 

Figure 3: Number and Results of Post-endorsement Technical Reviews, 2006–2010 

Percentage of 

endorsements

reviewed through 

PETR

= annual

 goal

PETRs conducted

2006

2007

2008

2009

2010

9

7

6

5

5

40,373 %

36,218

66,531

102,000

85,669

Indemnification agreements

293

112

66

283

645

Source: GAO analysis of FHA data.

In 2010, PUD performed significantly more evaluations of individual loans 

from lenders seeking direct endorsement authority than it performed in 

2006. Lenders seeking such authority must submit 15 acceptable test 

cases in a 12-month period. Lenders may submit up to 30 loans while 

seeking to meet the threshold of 15 acceptable test cases. The number of 

loans reviewed through this approval process increased almost 500 

percent, from 1,472 in 2006 to 8,736 in 2009, before dropping to 6,381 in 

2010. The number of approved direct endorsement lenders grew by about 

500, from 3,095 in 2006 to 3,598 in 2010. 

In contrast, PUD workload for appraisal reviews varied little, even though 

the number of FHA-approved appraisers increased by nearly 70 percent. 

 10Reviewers evaluate the quality of the mortgage credit evaluation of the borrower and the 

valuation of the mortgaged property. 

11Indemnification agreements require the lender to repay FHA for any losses that it incurs 

after a loan has gone into default and the property has been sold. 

Page 11 GAO-12-15 FHA Oversight Capacity
 

Page 12 GAO-12-15 FHA Oversight Capacity 

The appraiser reviews consist of desk reviews (analyses of appraisal 

reports for completeness, compliance, and reasonable and logical 

conclusions of property value) and additional field reviews 

(comprehensive inspections of appraised properties intended to assess 

the quality of appraisal reports). From 2006 to 2010, staff conducted 

between 8,900 and 11,000 desk reviews, meeting their goal of reviewing 

at least 7,200 appraisals annually.12 Additionally, PUD conducted 

between 1,700 and 2,400 field reviews each year. PUD addressed the 

increase in appraiser participation by reducing the number of appraisals 

reviewed per appraiser. This allowed FHA to review a greater number of 

appraisers, while the number of appraisal reviews completed remained 

fairly stable from 2006 to 2010. For example, the number of appraisers 

reviewed each year increased from 1,285 in 2006 to 3,458 in 2010. 

Appraiser reviews may result in a variety of actions, ranging from removal 

from FHA programs to required education to notices of deficiency for 

minor processing errors (see fig. 4). 

Figure 4: Number and Results of Appraisal and Appraiser Reviews, 2006–2010 

PUD staff undertook 5,016 actions against appraisers from 2006 to 2010. 

Annual appraiser actions increased from 386 in 2006 to 1,610 in 2010. 

The majority, 70 percent, were notices of deficiency, which have little 

potential to affect value estimates. Another 23 percent of actions required 

FHA-approved appraisers to complete education before conducting 

 

12FHA’s goal specifically refers to the number of appraisals reviewed, not to the number of 

appraisers reviewed. 

Appraisers reviewed

Appraisal reviews

completed = annual

 goal Notice of deficiency Education

2006

2007

2008

2009

2010

151

109

142

289

477

1,285

1,685

1,665

2,784

3,458

11,331

12,383

11,268

12,895

10,779

174

254

232

1,820

1,044

Removal

61

58

42

74

89

Source: GAO analysis of FHA data.

Desk reviews

Field reviews
 

additional FHA appraisals. The remaining 6 percent of actions resulted in 

removal of 324 appraisers from participation in FHA programs.13

Increases in contractor staff and workload related to management of 

foreclosed or real estate-owned properties were substantial, but 

noncontractor staff levels increased at more modest levels. FHA uses 

contractors to dispose of foreclosed properties through its management 

and marketing program.14 Management and marketing contract functions 

include conducting property inspections, performing cosmetic 

enhancements and other ongoing maintenance, and marketing 

properties. FHA’s inventory of properties increased 85 percent, from 

27,747 active properties at the end of 2006 to 51,292 properties at the 

end of 2010 (see fig. 5). To manage the additional properties, contractor 

FTEs nearly tripled from 360 in 2006 to 980 in 2010. FHA also increased 

the total number of management and marketing contracts from 24 to 55 in 

2010, as a result of a significant change in the structure of these 

contracts. Before 2010, the program operated through 24 geographic 

areas, with one contractor responsible for all management and marketing 

functions in an area. In 2010, FHA consolidated the 24 areas into 10 and 

assigned multiple contractors to an area, with each responsible for a 

particular function.15 This resulted in 55 management and marketing 

contracts. If a contractor does not perform to expectation, other 

contractors are available to take over the work. 

Foreclosed Property 

Management 

 13The percentages do not add to 100 percent because of rounding. 

14The lenders deed the foreclosed homes to the Secretary of HUD in exchange for an 

insurance claim payment, and the contractors then manage and market the foreclosed 

(single-family) properties. 

15FHA awarded contracts for (1) a mortgagee compliance manager, who performs 

services such as reviewing property inspections and providing guidance to lenders; (2) 

field service managers, which are companies that provide property preservation and 

protection services such as inspecting the property, securing the property, performing 

cosmetic enhancements, and providing ongoing maintenance; and (3) asset managers, 

who are responsible for the marketing and sale of real estate-owned property. 

Page 13 GAO-12-15 FHA Oversight Capacity
 

Figure 5: Active Real Estate-Owned Property Inventory and REO Staff, 2006–2010 

0

10

20

30

40

50

60

2006 2007 2008 2009 2010

0

200

400

600

800

1,000

0

130

145

160

175

2006 2007 2008 2009 2010

Fiscal year

Source: GAO analysis of FHA data.

Contractor FTEs

Properties (in thousands) Staff

Homeownership

center REO staff

Homeownership center REO staff

Properties

Staff

Note: The contractor FTE data provided by FHA were a head count of contractor employees for 2010 

and estimates for 2006–2009 (based on the 2010 data). 

In contrast, noncontractor REO staff at the homeownership centers 

increased 13 percent, from 143 employees in 2006 to 162 in 2010. These 

employees oversee the management and marketing contracts. A 2009 

Resource Estimation and Allocation Process (REAP) study stated that 

REO workload would increase because the staff would have to monitor 

more contracts than the previous 24 and the division would require 

additional staff to manage the workload.16 As a result, it recommended 

177 FTEs for REO. As of May 2011, REO had 158 FTEs. 

 16REAP studies establish a staffing baseline for budget formulation and execution, 

strategic planning, organizational and management analyses, and ongoing management 

of staff resources. 

Page 14 GAO-12-15 FHA Oversight Capacity
 

Loss mitigation actions more than doubled from 2006 to 2010, while loss 

mitigation staff levels have remained relatively constant. At FHA’s 

National Servicing Center, which is responsible for overseeing lenders’ 

servicing of FHA mortgages and loss prevention, staff levels dropped 

from 46 in 2006 to 37 in 2008 before rising to 44 in 2010. As shown in 

table 3, loss mitigation actions more than doubled, from 80,772 in 2006 to 

199,223 in 2010.17 The vast majority of these actions, 94 percent, were 

focused on home retention, which includes special forbearances, partial 

claims, and loan modifications. Special forbearance is a payment plan 

that allows the lender to accept less than the total delinquency due. 

Through partial claims, FHA advances funds to the lender on behalf of the 

borrower to cure a default, and the amount of the partial claim is due 

when the borrower sells the property or the mortgage is paid in full. Loan 

modifications, FHA’s most utilized loss mitigation tool, are permanent 

changes to one or more terms of the loan that result in a payment that the 

borrower can afford. 

Loss Mitigation Actions 

Table 3: Loss Mitigation Actions, 2006–2010 

Actions 2006 2007 2008 2009 2010

Special forbearance 20,666 23,912 22,144 20,713 16,602

Partial claim 16,354 15,711 16,416 22,812 15,754

Loan modification 38,508 46,904 57,922 83,609 150,612

Total home retention 75,528 86,527 96,482 127,134 182,968

Preforeclosure sale 4,909 4,026 4,071 6,474 15,291

Deed-in-lieu of foreclosure 335 454 614 936 964

Total nonretention 5,244 4,480 4,685 7,410 16,255

Total actions 80,772 91,007 101,167 134,544 199,223

Source: FHA. 

If a borrower does not qualify for home retention, FHA also uses 

nonretention actions, which consist of preforeclosure sales, or short sales, 

and a deed-in-lieu of foreclosure. A short sale allows borrowers to sell their 

houses for less than the outstanding debt. Through a deed-in-lieu of 

foreclosure, borrowers voluntarily transfer a property to the mortgagee. 

 17Loss mitigation actions seek to minimize losses from potential foreclosures by finding 

alternatives to foreclosure and helping homeowners retain their homes, if possible. 

Page 15 GAO-12-15 FHA Oversight Capacity
 

Staffing levels for monitoring approved lenders remained relatively constant 

in 2006–2010, as did the number of loans reviewed. Lender reviews typically 

involve an in-depth analysis of a sample of loans and on-site visits to assess 

lenders’ internal control processes for making loans. These reviews are 

meant to help ensure compliance with FHA standards and provide feedback 

to lenders to improve their performance. QAD staff at each homeownership 

center schedule and perform these reviews. QAD staff levels fell from 133 in 

2006 to 111 in 2009, before increasing to 135 in 2010. 

Annual Lender Reviews 

Although the number of lenders grew, FHA’s review of individual loans as 

part of its annual reviews of lenders’ operations remained somewhat 

constant from 2006 to 2010.18 The number of loans reviewed (the most 

direct metric of lender review workload) fluctuated between 13,500 and 

16,600 annually. FHA sets an annual goal for lender reviews of 10 

percent of active lenders; therefore, the number of lender reviews 

conducted each year varies.19 As shown in figure 6, FHA exceeded its 

goal for lender reviews each year from 2006 to 2010. For example, in 

2010 FHA exceed its goal of 300 reviews by completing 327 reviews. 

Figure 6: Number and Results of Lender and Loan Reviews, 2006–2010 

Loans reviewed

Lender reviews

Annual

goal Completeda Indemnifications

Limited denial 

of participation

2006

2007

2008

2009

2010

4

3

8

4

19

16,131

13,524

16,567

15,647

13,709

561

368

313

302

327

500

360

300

300

300

858

407

232

397

702

Referralsb

523

602

1,032

1,585

1,637

Source: GAO analysis of FHA data.

a

In 2006, FHA counted lender reviews at subsidiary branches of larger institutions as additional 

reviews. Starting in 2007, lender reviews conducted at subsidiary branches of a larger lending 

institution were not counted as separate lender reviews. 

b

Referrals include cases that are referred to the Mortgagee Review Board, the HUD Inspector 

General, or other entities such as state regulatory agencies. 

 18FHA selects lenders for review using a risk-based approach. We will discuss this 

selection process in more detail later in this report. 

19Active lenders are those that have at least one loan underwritten or in their servicing 

portfolio as of July 31 of the prior fiscal year. 

Page 16 GAO-12-15 FHA Oversight Capacity
 

FHA can take a variety of administrative actions as a result of lender 

reviews, such as denying participation in FHA programs or referring 

cases containing material violations to the Mortgagee Review Board, 

cases of fraud to the HUD Inspector General (IG), or cases to other 

entities such as state regulatory agencies. If a lender review found 

serious deficiencies with specific loans or the lender’s internal controls, 

FHA could require indemnification agreements of lenders. The number of 

indemnification agreements FHA reached annually as a result of lender 

reviews dropped from 858 in 2006 to 232 in 2008 before increasing to 

702 in 2010. The number of lenders denied participation in FHA 

programs, or given a limited denial of participation, increased from 4 

lenders in 2006 to 19 lenders in 2010. Additionally, FHA referrals to the 

Mortgagee Review Board, the HUD Inspector General, or other entities as 

a result of lender reviews increased from 523 in 2006 to 1,637 in 2010. 

According to FHA officials, the number of referrals increased because, 

among other things, guidance changes emphasized HUD’s requirement 

that lenders report findings of fraud or other serious violations to FHA and 

there has been continued emphasis on lender reporting requirements 

during QAD reviews of lenders. 

Data on how FHA’s workload and staffing have affected its capacity are 

limited. In 2008, FHA hired consultants to, among other things, examine 

process constraints related to Single Family Housing’s capacity to 

process increasing workloads.20 The study indicated that processes 

supported by the homeownership centers from June 1, 2008, through 

December 6, 2008, exceeded capacity because of a lack of staff. For 

example, the time to process applications increased during this period, as 

did the backlog of PETRs. The study noted that historical data needed to 

conduct additional analyses were not available. Although its loan volume 

has declined somewhat from its peak in 2009, FHA has made changes to 

its work processes to accommodate its increased workload. We discuss 

these changes, their potential advantages and disadvantages, and 

additional human capital challenges later in this report. However, it is too 

soon to determine how effective process changes will be in managing 

FHA’s increased workload. 

 20G&B Solutions and KPMG, Risk Capacity Study, Single Family Housing Application and 

Endorsement Processes, a report prepared at the request of the Department of Housing 

and Urban Development, Feb. 2, 2009. 

Page 17 GAO-12-15 FHA Oversight Capacity
 

Although FHA has taken steps to assess credit and operational risks 

facing its single-family insurance programs, its current risk assessment 

strategy is not comprehensive because it is not integrated across the 

agency and lacks annual assessments and mechanisms to anticipate 

changing conditions. FHA established a risk office and hired a consultant 

to help the office develop a strategy for identifying and addressing risks. 

However, implementation of the consultant’s recommendations has been 

slow because of delays in defining the new office’s authority, difficulty 

filling new staff positions, and changes in FHA leadership. 

FHA Has Yet to 

Implement a 

Comprehensive Risk 

Assessment Strategy 

FHA Established a Risk 

Office, Added Management 

Controls, and Undertook 

Other Efforts to Assess 

Risks 

To improve its risk assessment strategy, FHA established a risk office, 

implemented a new system of management control in the Office of Single 

Family Housing, and undertook studies to identify and address risks 

related to the rapid increase in single-family business volume.21 In 2010, 

FHA received congressional approval to establish the Office of Risk 

Management and Regulatory Affairs and create the position of Deputy 

Assistant Secretary for Risk Management and Regulatory Affairs (see fig. 

7), which reports directly to the Assistant Secretary for Housing-FHA 

Commissioner. The new office functions within the Office of Housing to 

assess and manage risks in three program areas: single-family housing, 

multifamily housing, and health care. Within the Office of Risk 

Management and Regulatory Affairs, risk assessment and management 

functions reside in two offices: the already existing Office of Evaluation 

(with approximately 25–30 staff) and the newly established Office of Risk 

Management (ORM). When FHA reorganized in 2010, it moved the Office 

of Evaluation into the Office of Risk Management and Regulatory Affairs. 

Among other functions, the Office of Evaluation oversees the annual 

independent actuarial studies that determine the net worth of the 

insurance fund and conducts ongoing portfolio analyses designed to 

assess risks to the insurance fund. The actuarial studies forecast the 

effect that various economic risks will have on the fund, including 

alternative scenarios for volatile interest rates and recoveries and 

recessions of various degrees. The Office of Evaluation also performs 

ongoing and in-depth analyses to determine the effects various risk 

 21According to our internal control standards, risk assessment is the identification and 

analysis of risks. See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

Page 18 GAO-12-15 FHA Oversight Capacity
 

factors, including those identified by the annual actuarial review, have had 

and likely would continue to have on the portfolio.22

Figure 7: Organizational Chart for FHA’s Office of Risk Management and Regulatory 

Affairs, as of August 2011 

Source: FHA.

Deputy Assistant Secretary for Risk

Management and Regulatory Affairs

Office of Risk Management

Portfolio

Analysis Division

Market

Analysis Division

Reporting and

Analysis 

Office of Evaluation

Office of Manufactured

Housing Programs

Associate Deputy Assistant

Secretary for Risk Management

and Assessment 

To provide assistance to ORM in developing a risk management strategy 

and organizational structure and establishing risk management policies 

and processes, FHA hired a consultant to produce a comprehensive 

report and recommend best practices for its operation. The consultant’s 

December 2010 report outlined a consolidated framework for the risk 

assessment activities carried out in different parts of the organization.23

The study also provided a strategy for classifying, assessing, and 

mitigating risk; options for organizational design and governance; options 

 22See GAO-10-827R for a discussion of the results of the independent actuarial report and 

some of the risk analyses the Office of Evaluation conducted (related to the credit quality 

of loans, trends in delinquency rates, and policy changes, such as in insurance premiums 

and underwriting). 

23McKinsey & Company, Building the ORM Organization, Close-out Materials, a report 

prepared at the request of the Department of Housing and Urban Development, 

December 2010. 

Page 19 GAO-12-15 FHA Oversight Capacity
 

and recommendations for improvements to key risk processes and 

reporting; and a timeline for implementing changes. Regarding the 

options for organizational design, the study recommended a risk officer 

for each of the three program areas (single-family housing, multifamily 

housing, and health care) and for operations. Regarding the options for 

governance, the consultants recommended that FHA establish charters 

for the following committees: Enterprise (or overall) Risk Management 

Committee, Single Family Credit Risk Committee, Multifamily Credit Risk 

Committee, Health Care Risk Committee, and Operational Risk 

Committee. The charters would identify the issues each committee would 

address, how (such as by majority vote) and to which manager it would 

make its recommendations, the composition of committee members, and 

the frequency of meetings. For example, the Enterprise Risk 

Management Committee would meet quarterly to address, among other 

things, agencywide risk issues, such as those related to its mission and 

the balancing of risks. The FHA Commissioner or the Deputy Assistant 

Secretary for Risk Management and Regulatory Affairs would make 

decisions related to these issues, the Deputy Assistant Secretary for Risk 

Management and Regulatory Affairs would be the committee chair, and 

the FHA Commissioner and all deputy assistant secretaries would be 

standing committee members. According to FHA officials, FHA plans to 

adopt the consultant’s recommendation to establish a two-tiered 

structure, with an enterprise risk committee to address overall risk to the 

organization and a second tier of committees to address program and 

operational risks. As discussed later in this report, the risk committees 

and ORM’s operational procedures remain under development. 

In addition to commissioning the recent study, FHA had undertaken other 

efforts to assess risks in its single-family programs. For instance, in 2009 

Single Family Housing implemented a new system of management 

control for risk assessment, the internal quality control initiative, at 

headquarters and the four homeownership centers. Although the 

implementation was the result of an ongoing improvement effort, it was 

also intended to address a 2008 HUD IG audit report finding that Single 

Family Housing had not complied with our internal control standards and 

Page 20 GAO-12-15 FHA Oversight Capacity
 

HUD Handbook 1840.1 requirements.24 Among other requirements, our 

internal control standards state that management must comprehensively 

identify risks, analyze them for possible effects, and determine what 

actions should be taken to manage risks. The HUD handbook specifies 

that HUD managers should assign individual programs and administrative 

functions an annual risk rating of low, medium, or high, using a HUD risk 

assessment worksheet. To comply with the handbook requirements as 

the IG had recommended, Single Family Housing completed its initial 

assessment of risks by April 2009. On the basis of this analysis, most of 

the functional areas in headquarters and the homeownership divisions 

were scored as high-risk. For example, PUD, PSD, and REO at the 

homeownership centers were considered high-risk. For the areas 

identified, headquarters and the homeownership center divisions 

developed internal quality control plans to document control objectives 

and established a monitoring strategy that requires each homeownership 

center to submit quarterly reports to the Deputy Assistant Secretary’s 

office at headquarters on the effectiveness of these controls, including the 

status of any mitigation efforts. Quarterly, the homeownership centers 

review multiple control processes in each of their divisions. For example, 

in 2010 one homeownership center reviewed a total of 26 processes in 

five divisions, including PUD processes for evaluations of loans from 

lenders seeking direct endorsement authority, PETRs, loan 

endorsements, appraiser reviews, and contract/contractor monitoring. 

Other efforts in 2008 and 2009 helped identify and address risks related 

to the rapid increase in single-family business volume: 

 As noted previously, in 2008 FHA hired a consultant to examine 

technology and process constraints and identify the risks related to 

Single Family Housing’s capacity to process increasing workloads 

(that is, the increased number of insurance endorsements and lenders 

applying to participate in the program) as the program grew 

dramatically.25

 

24See Department of Housing and Urban Development, Office of the Inspector General,

HUD’s Office of Single Family Housing Had Not Fully Implemented an Internal Control 

Structure in Accordance with Requirements, Audit Report 2008-KC-0006 (Washington, 

D.C.: Sept. 8, 2008); GAO/AIMD-00-21.3.1; and Department of Housing and Urban 

Development, Office of the Chief Financial Officer, Departmental Management Control 

Program, Handbook 1840.1 Rev-3 (Washington, D.C.: 1999). 

25Risk Capacity Study, Single Family Housing Application and Endorsement Processes. 

Page 21 GAO-12-15 FHA Oversight Capacity
 

 Single Family Housing requested that HUD conduct a REAP study, 

which was completed in 2009, because of unprecedented increases in 

workload and the need to assess the resources needed to address 

the sharp increase in business volume.26 The purpose of HUD’s 

REAP studies is to help determine proper staffing levels within each 

HUD program office. 

 Also in 2009, FHA conducted an internal study that assessed its 

information technology weaknesses and proposed an approach to 

address its information system constraints.27

(We discuss the results of these reports in more detail later in this report.) 

These reports, along with the consultant’s 2010 report on ORM, identified 

specific credit and operational risks for the single-family insurance 

programs (see table 4). 

Table 4: Credit and Operational Risks That FHA Identified in Its Single-Family 

Insurance Programs 

Credit risk 

Subcategory Description 

Borrower default risk Risks related to rising delinquencies and defaults and the 

need to respond with aggressive loss mitigation 

interventions 

Counterparty risk Risks associated with lenders and appraisers related to 

deficient lender practices and the quality and uncertainty 

of appraisals 

Operational risk 

Subcategory Description 

Human capital risk Risks related to staffing and contractor capacity to 

process increasing workloads 

Information technology risk Risks related to FHA’s aging and outdated information 

technology 

Source: GAO analysis of the ORM consultant’s report, 2009 risk capacity study, 2009 REAP study, and 2009 information technology

improvement plan. 

 26Department of Housing and Urban Development, Resource Estimation and Allocation 

Process (REAP), Office of Housing, DAS for Single Family Housing, Study #1: Office of 

Single Family Housing–Field (Washington, D.C.: September 2009). 

27Department of Housing and Urban Development, FHA Office of Housing Information 

Technology Strategy and Improvement Plan (Washington, D.C.: Aug. 13, 2009). 

Page 22 GAO-12-15 FHA Oversight Capacity
 

FHA’s current risk assessment strategy is not comprehensive because it 

is not integrated throughout the organization, certain aspects are not 

updated annually as required, and it lacks specific mechanisms—such as 

a reporting process for identifying emerging risks—to anticipate risk 

presented by changing conditions. According to our internal control 

guidance, an agency should have an integrated management strategy 

and risk assessment plan that considers the entitywide objectives and 

relevant sources of risk from internal management factors and external 

sources, and establishes a control structure to address those risks.28

However, while the ORM consultant has recommended that FHA 

integrate risk assessment and reporting throughout the organization, 

currently Single Family Housing’s quality control activities and ORM’s 

activities remain two separate efforts. For instance, the results of the 

quarterly quality control activities are not shared outside the Office of 

Single Family Housing. Although homeownership center officials may 

have raised some of the issues from the quarterly reports in their regular 

conferences with the single-family program offices in headquarters, the 

quarterly reports are not sent to any office outside of Single Family 

Housing, such as ORM. Further, what actions headquarters has taken 

based on the risk assessments is not clear. Officials at all four 

homeownership centers told us that they had not received any feedback 

from headquarters about their quarterly reports. According to ORM 

officials, FHA intends to integrate the internal quality control initiative 

implemented by Single Family Housing into ORM’s new strategy. The 

ORM consultant’s report recommended ORM involvement in the 

monitoring and improvement of internal quality efforts by reviewing and 

making recommendations related to policy development and the selection 

of corrective actions. It also recommended that ORM conduct reviews of 

the program offices’ internal quality control efforts. ORM officials told us 

that the recently hired operational risk officer would review how the quality 

control initiative should be integrated into ORM’s management of 

operational risk and make recommendations to ORM management. 

However, FHA officials noted that until ORM set up a governance 

process, the integration suggested by the consultant would not be 

possible. In the meantime, they stated that every effort was being made 

to ensure that ORM’s activities were complementary to those of the 

program offices, including Single Family Housing. 

FHA’s Current Strategy Is 

Not Integrated across the 

Agency and Lacks Annual 

Assessments and 

Mechanisms to Anticipate 

Changing Conditions 

 28GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G (Washington, 

D.C.: August 2001). 

Page 23 GAO-12-15 FHA Oversight Capacity
 

In addition, contrary to HUD guidance, Single Family Housing has not 

conducted an annual, systematic review of risks to its program and 

administrative functions. HUD Handbook 1840.1 requires that agencies 

perform an annual risk assessment of their programs or administrative 

functions using the HUD risk assessment worksheet. The internal quality 

control initiative coordinator in the Office of Single Family Housing told us 

that while headquarters and the field have continued to perform quarterly 

reviews of their programs to identify and mitigate risks, they had not 

conducted an annual risk assessment using the HUD worksheet since the 

initiative was first implemented in 2009. However, the coordinator noted 

that they were currently in the process of reassessing risks using this 

worksheet. The coordinator also told us that although management 

intended to conduct an annual assessment, the dates had slipped 

because of changes in senior leadership within Single Family Housing, 

loss of staff who previously performed the assessments, and additional 

demands on staff—who would otherwise conduct the assessment—from 

the increased business volume. 

Finally, Single Family Housing’s current risk assessment efforts do not 

include procedures for anticipating potential risks presented by changing 

conditions. Our internal control standards and HUD Handbook 1840.1 

require agencies to have mechanisms to identify and address any special 

risks prompted by changing conditions, such as those presented by rapid 

growth or downsizing. The internal quality control initiative coordinator 

told us that the initiative was not designed to include such mechanisms, 

although the program offices may discuss emerging risks during 

management meetings and periodic meetings with field staff. The official 

also stated that the HUD handbook does not provide detailed instructions 

on what mechanisms should be used. Further, while the consultant’s 

report recommends that ORM conduct analyses related to “enterpriselevel risk identification and monitoring,” it does not explicitly identify the 

mechanisms to be used to identify special risks, such as those that might 

be caused by changing conditions.29 However, the report proposes a 

reporting process and formats for identifying emerging risks. It provides 

specific examples of monthly reports that include a template for reporting 

on the severity and likelihood of risks and on plans and actions to address 

major emerging risks. ORM officials told us that the exact design and 

 29The ORM consultant’s study relied on ad hoc Commissioner’s retreats to identify the 

greatest risks to each program area. 

Page 24 GAO-12-15 FHA Oversight Capacity
 

content of the report formats and templates eventually would be 

determined by the risk committees, once they have been established and 

are operational. 

Moreover, implementation and integration of the new risk assessment 

strategy and planned tools has been slow because of delays in defining 

ORM’s authority, difficulty filling new staff positions in ORM, and changes 

in FHA leadership. 

 According to an ORM official, delegations of authority from other 

offices within FHA are needed before ORM can become fully 

operational. After the consultant made its recommendations, ORM 

drafted and revised the delegations. As of the end of September 

2011, the delegation proposal was still under review. Until the various 

program offices within the Office of Housing have delegated the 

necessary authority to ORM, it cannot establish its operational 

procedures or form the risk committees to formally carry out its risk 

management function. In the interim, ORM officials stated they have 

been meeting informally with program staff to discuss risks. 

 According to FHA officials, implementation of ORM strategies has 

been constrained largely as a result of difficulties in hiring qualified 

staff and matching industry salaries. 

 Finally, the recent departures of FHA’s top leadership have made 

obtaining management “buy-in” to establish operational authorities 

and procedures difficult for ORM, which has delayed implementation 

of the new risk assessment strategy. In 2011, both the Assistant 

Secretary for Housing-Federal Housing Commissioner and the Deputy 

Assistant Secretary for Single Family Housing left FHA, and the 

Deputy Assistant Secretary for Risk Management and Regulatory 

Affairs became the acting FHA Commissioner (see table 5). More 

recently, the acting FHA Commissioner left FHA to become an adviser 

to the Secretary of HUD, and the former Deputy Assistant Secretary 

for Multifamily Housing became the acting FHA Commissioner. Also, 

the Office of Single Family Housing is headed by an Acting Deputy 

Assistant Secretary. According to ORM officials, management 

decisions are required to implement many of the key changes, and 

having frequent changes and temporary incumbents in leadership 

positions hampers FHA’s progress. 

Page 25 GAO-12-15 FHA Oversight Capacity
 

Table 5: Status of Key Leadership Positions Involved in Implementing FHA’s New 

Risk Assessment Strategy, as of September 2011 

Position Status 

Assistant Secretary for Housing-Federal Housing Commissioner Acting 

Deputy Assistant Secretary for Risk Management and Regulatory Affairs Acting 

Deputy Assistant Secretary for Single Family Housing Acting 

Deputy Assistant Secretary for Multifamily Housing Acting 

Deputy Assistant Secretary for Healthcare Programs Permanent 

Source: FHA organizational chart and officials. 

All of these factors limit FHA’s effectiveness in identifying, planning for, 

and addressing risk. More specifically, 

 without an integrated risk assessment strategy, certain risks may not 

be fully addressed at the operational level in a way that minimizes risk 

to the insurance programs; 

 without annual reassessments of its risks, Single Family Housing lacks 

assurance that its quality control efforts are addressing all of its risks; and 

 without ongoing mechanisms in place to anticipate and address new 

or emerging risks, FHA lacks a systematic approach to help the 

agency identify, analyze, and formulate timely plans to respond most 

effectively to changed conditions and risks. 

FHA has taken steps to address risks to its single-family programs, such 

as credit risk and risks associated with lenders and appraisers. It also has 

made plans to address risks related to its information technology. 

However, it does not have a strategic process for determining its future 

workforce needs, including succession planning. 

Although FHA Has 

Enhanced Risk 

Management and 

Plans to Modernize 

Information 

Technology, Human 

Capital Challenges 

Remain 

Page 26 GAO-12-15 FHA Oversight Capacity
 

As we previously reported, to help improve the financial condition of the 

Fund (which is supported by borrower premiums), FHA raised premiums 

and made or proposed policy or underwriting changes to address credit 

risk.30 For example, in April 2011 FHA increased its annual insurance 

premiums from 0.85 percent to 1.10 percent for borrowers with 30-year 

loans with initial LTV ratios of 95 percent or less and from 0.90 percent to 

1.15 percent for borrowers with 30-year loans with initial LTV ratios 

greater than 95 percent. Additionally, FHA increased down payment 

requirements for borrowers with lower credit scores. More specifically, the 

agency required a down payment of at least 10 percent for borrowers with 

credit scores of 500-579, and made anyone whose credit score was 

below 500 ineligible for FHA-insured loans.31 FHA also has proposed 

reducing allowable seller contributions at closing, thereby helping to 

ensure that buyers put more of their own funds into the home purchase. 

In addition, FHA is in the process of revising its mortgage scorecard 

algorithm, known as the Technology Open to Approved Lenders (TOTAL) 

to recognize the effect of various risk elements not currently discerned by 

the scorecard and determine what cases warrant manual underwriting.32

According to FHA, these revisions are in the early stages, and no 

completion date has been set. 

FHA Has Made or 

Proposed Enhancements 

to Address Credit and 

Counterparty Risk 

FHA also has made recent changes to address risks posed by its 

counterparties (for example, lenders and appraisers) that have 

advantages and disadvantages for FHA, lenders, or consumers. For 

example, on May 20, 2010, FHA stopped approving new loan 

 30GAO-10-827R. 

31Credit scores, which assign a numeric value to a borrower’s credit history, have become 

a popular tool in assessing applications for loans. They are often called FICO scores 

because most scores are produced with software developed by the Fair Isaac 

Corporation. FICO scores generally range from 300 to 850, with higher scores indicating 

better credit history. The lower the credit score, the more compensating factors lenders 

might require to approve a loan, such as a higher down payment or greater borrower 

reserves. 

32The purpose of TOTAL is to objectively measure the borrower’s risk of default quickly 

and efficiently by examining the data the borrower provides on the loan application and 

the borrower’s credit score. 

Page 27 GAO-12-15 FHA Oversight Capacity
 

correspondents to participate in FHA programs.33 As of January 1, 2011, 

existing loan correspondents could no longer participate in FHA 

programs. Former loan correspondents can now participate in FHA 

programs only as third-party originators through sponsorship by FHAapproved lenders. According to FHA officials, one advantage of this rule 

change is that it reduces FHA’s workload because the agency no longer 

has to approve and oversee loan correspondents. Prior to January 1, 

2011, FHA had around 9,000 loan correspondents; thus, FHA drastically 

reduced the number of lenders it was responsible for overseeing. With 

this change, FHA can focus its resources on oversight of lenders that 

make underwriting decisions. These lenders make decisions on whether 

or not borrowers qualify for FHA-insured loans; thus, they potentially 

place FHA at higher risk if they do not properly underwrite these loans. 

However, this rule change could expose FHA to greater risk if sponsoring 

lenders do not adequately oversee third-party originators. Therefore, 

following through and rigorously assessing lenders’ monitoring of third 

parties is important. In January 2011, FHA specified in a mortgagee letter 

(a written instruction to FHA-approved lenders) that it required sponsoring 

lenders to take steps to ensure they provide adequate oversight of thirdparty originators. Specifically, the sponsoring lenders are required to 

develop a quality control plan that includes procedures for reviewing and 

monitoring their third-party originators; this plan must be approved by 

FHA. In addition, FHA has drafted updated guidance for QAD staff on 

conducting lender reviews to incorporate the evaluation of a sponsoring 

lender’s oversight of its third-party originators. FHA expects the 

homeownership centers to start implementing the updated guidance by 

December 2011. 

Furthermore, the agency has increased the net worth requirement for 

approved lenders. On May 20, 2010, FHA increased the net worth 

requirement for its new lenders from $250,000 to $1 million. On May 20, 

2011, FHA increased the net worth requirement for its existing lenders to 

$1 million, except for lenders classified as small under the Small Business 

Administration’s size standards (their requirement increased to 

 33Loan correspondents were categorized as supervised and nonsupervised 

correspondents. Supervised loan correspondents were entities such as banks and credit 

unions that had to have one or more sponsors who underwrote the mortgages. 

Nonsupervised loan correspondents were nondepository financial entities that had as their 

principal activity the origination of FHA-insured mortgages for sale or transfer to one or 

more sponsors who underwrote the mortgages. Sponsors had to be direct endorsement 

lenders. 

Page 28 GAO-12-15 FHA Oversight Capacity
 

$500,000). As of May 20, 2013, FHA will require a net worth of $1 million 

irrespective of the size of the lender, plus 1 percent of the total loan 

volume in excess of $25 million, up to a maximum required net worth of 

$2.5 million.34 This change is intended to help ensure that FHA-approved 

lenders are sufficiently capitalized to meet the potential needs associated 

with the financial services they provide. However, the rule change could 

disadvantage some program participants or borrowers. First, increasing 

the net worth requirement to $2.5 million could favor large lenders over 

smaller ones, including credit unions. According to Independent 

Community Bankers of America officials, one provision of the rule change 

requires all lenders to have audited financial statements. These officials 

stated that the audits are relatively expensive, and it may not make 

financial sense for small lenders that do not process many FHA loans to 

continue participating in the program. FHA has partially addressed this 

concern by issuing a 1-year waiver of the requirement to submit audited 

financial statements for supervised lenders with less than $500 million in 

assets.35 Instead, these lenders must submit an unaudited regulatory 

report on their financial condition, known as a Report of Condition and 

Income (or Call Report), that they currently submit to their regulators. 

However, these lenders are still required to submit an independent 

auditor’s opinion of internal control and compliance with HUD programs. 

Second, some small lenders have raised concerns that higher 

requirements would result in lenders passing higher costs on to 

borrowers, thereby limiting the availability of mortgage credit in small 

communities and rural areas. When FHA finalized the revised net worth 

requirements, it stated that the changes were designed to ensure that 

FHA remains financially stable and strong. 

FHA also has made changes to several processes intended to help 

ensure that lenders and appraisers follow its policies and procedures. For 

example, FHA enhanced the criteria it uses to select loans for PETRs. 

Specifically, since May 3, 2010, the agency has considered high-risk loan 

or borrower characteristics, such as certain types of refinanced loans and 

loans to borrowers with low credit scores. Additionally, the current 

 34Loan volume is defined as FHA single-family insured mortgages originated, 

underwritten, purchased, or serviced during the prior fiscal year. 

35Supervised lenders are those institutions that are regulated by entities such as the 

Federal Deposit Insurance Corporation or the National Credit Union Administration. This 

waiver will expire on April 7, 2012, but FHA officials stated that they are taking steps to 

make this waiver permanent. 

Page 29 GAO-12-15 FHA Oversight Capacity
 

selection criteria are heavily weighted toward early payment defaults 

(loans at least 60 days delinquent in the first six payments). The previous 

standard for selecting loans subject to PETRs related to lender volume 

and the goal of reviewing 5–10 percent of FHA’s loan volume, according 

to an FHA official. The agency also introduced a new approach on 

October 1, 2010, that requires FHA staff to use detailed review sheets to 

promote more thorough and analytical reviews by FHA underwriters and 

appraisers. Advantages of the revised approach include that the riskbased selection has resulted in fewer cases for FHA to review, thus 

decreasing staff workload. As of March 31, 2011, FHA had reviewed 1.4 

percent of the loans endorsed during the first 6 months of 2011. However, 

although FHA has been reviewing fewer loans, FHA officials told us that 

the loans selected have required in-depth scrutiny because they have one 

or more issues. In addition, as a result of identifying more problematic 

loans, staff have been referring a greater proportion of loans to QAD for 

indemnification. 

FHA has made several changes to its approach for conducting lender 

reviews. First, for 2011, the agency removed originating lenders as a 

review category, to account for the elimination of loan correspondents 

effective January 1, 2011. Second, FHA instituted a new methodology 

that increased the number of risk factors used to target lenders for review. 

The risk factors included loan volume, product type, process (for 

example, direct endorsement or lender insurance), performance, and 

peer group performance. This approach allows FHA to focus its limited 

resources on lenders posing the highest risk to the program. For 2011, 

FHA lowered its goal for lender reviews from 300 to 250 lenders. The goal 

had been 300 for 2008–2010. 

Finally, FHA has revised its approach for overseeing appraisers. First, as 

of March 2010, appraisers were targeted using an algorithm based on 

nine criteria, which considered factors such as the appraiser’s volume 

and past sanctions, as well as the type of property being appraised. 

According to FHA officials, the new algorithm has allowed FHA to improve 

its targeting of potential problem appraisers. Second, once an appraiser 

has been targeted for review, the targeting program identifies three 

appraisals to be pulled for review by the homeownership centers. In the 

past, the program targeted a higher number of appraisals per appraiser. 

Reducing the number of appraisals per appraiser allowed the agency to 

review a greater percentage of appraisers as the number of appraisers in 

the program grew (see fig. 8). 

Page 30 GAO-12-15 FHA Oversight Capacity
 

Figure 8: Average Number of Appraisals Reviewed per Appraiser and Percentage of 

Appraisers Reviewed, 2006–2010 

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009 2010

0

1

2

3

4

5

6

Fiscal year

Source: GAO analysis of FHA data.

Average number of appraisals 

reviewed per appraiser

Percentage of

appraisers reviewed

Average number of appraisals reviewed per appraiser

Percentage of appraisers reviewed

FHA Recently Started 

Modernizing Its 

Information Technology 

Systems 

More than 40 information technology (IT) systems support FHA’s singlefamily insurance programs. The systems are critical to FHA’s mission and 

are used to process loans; monitor lenders and appraisers; manage 

mortgage billing, collection, and claims services; and report on financial 

and performance indicators. However, these systems are antiquated and 

have constraints that make it difficult for the agency to adjust to its current 

high-volume lending environment. FHA has reported that the IT systems 

its single-family programs use are outdated, unable to sustain the 

increasing volume of insurance applications, and costly to maintain. In 

addition, the agency, HUD’s IG, and others have identified several 

problems with these systems. Specifically, 

 major systems operate on mainframe computers that cannot be 

scaled up easily to meet the performance requirements resulting from 

FHA’s increasing volume of applications; 

Page 31 GAO-12-15 FHA Oversight Capacity
 

 system software is antiquated and consequently not easy to upgrade 

to meet new legislative requirements without significant cost; 

 the large number of systems has resulted in hundreds of interfaces—

thus, a change in one system requires an extensive effort to ensure 

that interfaces can be appropriately maintained across systems; 

 the multiple systems and interfaces present challenges for 

maintaining appropriate accessibility levels, security controls, and 

privacy standards; 

 managers do not have the real-time information needed to monitor 

operational performance, balance workloads, redistribute resources, 

or evaluate risks; and 

 homeownership center staff have had to create manual and offline 

processes for analysis and reporting and these processes are not 

necessarily consistent among the centers. 

Further, the recent increase in FHA’s business volume has exacerbated 

its IT constraints. For example, the 2009 Risk Capacity Study reported 

that critical elements of FHA’s IT infrastructure were at capacity, causing 

work slowdowns and poor customer service.36 This study highlighted 

significant performance issues such as network overloads that slowed 

systems in the afternoon, when work hours overlapped at the 

homeownership centers (which are in different time zones). To partially 

address these issues, HUD’s Office of the Chief Information Officer 

upgraded the mainframe’s system capacity and made changes to certain 

applications to improve response time and return the system to 

acceptable performance levels. Nevertheless, FHA had reached the limit 

of hardware and software capacity on those systems during a period in 

which transaction levels continued to increase. 

To address system constraints, in August 2009 FHA completed a study of 

strategic IT investments needed to address the agency’s business needs 

and identified five critical initiatives for its single-family insurance 

programs (see table 6). 

 36Risk Capacity Study, Single Family Housing Application and Endorsement Processes. 

Page 32 GAO-12-15 FHA Oversight Capacity
 

Table 6: Five Most Critical Information Technology Initiatives for FHA’s SingleFamily Insurance Programs 

Initiative Description 

Automated underwriting systema Implementation of a standard automated 

underwriting system to evaluate loan applications 

and associated risk data to determine eligibility 

for insurance 

Automated valuation model Acquisition of a mathematical model and 

database that provides automated property 

valuations to provide more timely and accurate 

property valuations 

Electronic application submission Ability to electronically generate, transfer, sign, 

and store documents associated with the 

mortgage insurance process 

Fraud detection and prevention Acquisition of specialized business intelligence 

analytics software that would help the agency 

evaluate whether loan application data included 

errors or misrepresentation, or might indicate 

fraud 

New infrastructure/replace the 

Computerized Home Underwriting 

Management System (CHUMS) 

Replace FHA’s major underwriting system 

(CHUMS) with an off-the-shelf system that would 

enable the agency to decrease its processing 

times, increase data accuracy, and provide better 

service to its customers 

Source: FHA’s Information Technology Strategy and Improvement Plan. 

a

An automated underwriting system allows lenders to enter information on potential borrowers into 

electronic systems that contain an evaluative formula, or algorithm, called a scorecard. The scorecard 

uses a variety of variables that include the borrower’s characteristics (credit score and cash reserves, for 

example) and loan characteristics to calculate the applicant’s creditworthiness. FHA-approved lenders 

use automated underwriting systems in conjunction with TOTAL to underwrite FHA-insured loans. 

In January 2010, FHA began planning and implementing key aspects of 

the identified initiatives as part of its FHA Transformation efforts, which 

HUD initially estimated would cost $281 million over the next 5 years.37

Specifically, FHA began efforts to detect and prevent fraud, known as the 

Risk and Fraud Initiative. Under this initiative, FHA will award contracts to 

(1) install and use business intelligence software to assess counterparty 

risks; (2) acquire existing analytical tools for collateral risk management, 

 37We recently reviewed HUD’s IT expenditure plan, which includes information on FHA’s 

Transformation Initiative. See GAO, Information Technology: HUD’s Expenditure Plan 

Satisfies Statutory Conditions, and Implementation of Management Controls Is Under 

Way, GAO-11-762 (Washington, D.C.: Sept. 7, 2011). The report included a 

recommendation related to HUD’s enterprise architecture.

Page 33 GAO-12-15 FHA Oversight Capacity
 

borrower verification, and fraud detection; and (3) review and assess the 

revised PETR loan selection criteria. 

In addition, the agency began its Infrastructure Transformation Initiative, 

which is intended to replace CHUMS, the core case management system. 

In its place, the agency will use the Financial Industry Standard Platform, 

an off-the-shelf system. The system will allow FHA to implement a “case 

management” approach for monitoring a loan throughout its life cycle 

(e.g., initial data submission and approval and servicing of the loan) and 

utilize risk-related tools to help better understand market trends. 

Additionally, the system will allow FHA to leverage risk and fraud tools 

and capture critical data points at the front end of the loan process to help 

detect risk and prevent fraud. 

In February 2011, FHA established milestones of April 2011, October 

2011, and April 2012 for various deliverables under the FHA 

Transformation Initiative. According to project officials, FHA met the 

deadline for all April 2011 deliverables. Specifically, the agency 

 incorporated the initial components of the Financial Industry Services 

Platform into HUD’s IT environment; 

 developed an environment in the Financial Industry Services Platform 

that allows FHA to pilot applications before fully implementing them in 

the new infrastructure; 

 documented requirements via a pilot process for the Financial 

Industry Services Platform, including future goals and what 

components would be needed to achieve FHA’s business objective; 

 acquired the means to migrate existing applications in CHUMS to the 

Financial Industry Services Platform; and 

 enhanced the capability to identify loans for PETR selection and 

prepare better secondary reviews. 

Work continues on deliverables due in October 2011 and April 2012. The 

deliverables for October 2011 are (1) implementing counterparty risk 

management solutions in the Financial Industry Services Platform, 

including a tool to automate lender approval for single-family insurance 

programs and requirements for the annual recertification of approved 

lenders; (2) developing a plan for incorporating risk and fraud tools in the 

Financial Industry Services Platform; and (3) completing migration of one 

Page 34 GAO-12-15 FHA Oversight Capacity
 

CHUMS application to the Financial Industry Services Platform. By April 

2012, FHA plans to (1) develop portfolio modeling and scenario analysis 

and (2) increase business control over operational risk and fraud in the 

pre-endorsement and endorsement processes. As of September 22, 

2011, project officials said that FHA is on track to meet these milestones. 

FHA has major components to complete. As indicated earlier, one goal of 

the initiative is to replace CHUMS with the Financial Industry Standard 

Platform. To meet this goal, FHA will need to migrate functions and 

applications associated with loan origination and underwriting, business 

partner (for example, lender) approval and monitoring, and components 

of loan account servicing and administration. As noted above, FHA 

expects to have one application in one CHUMS area operating from the 

new platform by April 2012. To illustrate the amount of work remaining, 5 

functional areas and more than 30 subareas under loan origination and 

underwriting eventually will need to be migrated. In addition to these 

CHUMS components, several other IT systems will need to move to the 

new platform. FHA has been defining the steps it plans to take beyond 

April 2012 to complete its IT modernization and fully realize the benefits 

of these initiatives. 

Although FHA Has 

Addressed Some Staffing 

Issues, It Lacks Strategic 

Workforce and Succession 

Planning 

FHA has taken steps to address staffing challenges associated with the 

increase in its business volume and workload, but lacks strategic 

workforce and succession plans. 

To handle the increased business volume, the homeownership centers 

hired more contractors, increased overtime, shared resources, and 

changed work processes. For example, to respond to dramatic increases 

in the number of FHA-insured loans and the inventory of foreclosed 

properties to be managed, the homeownership centers expanded their 

use of contractors hired to perform key functions in PUD and REO (see 

fig. 9). These contracts provided the homeownership centers with 

flexibility and the capability to respond to spikes in volume. 

FHA Took Some Steps to 

Manage the Increased Business 

Volume 

Page 35 GAO-12-15 FHA Oversight Capacity
 

Figure 9: Selected FHA Single-Family Contractors, 2006–2010 

Source: GAO analysis of FHA data.

Number of contractor FTEs

0

200

400

600

800

1,000

1,200

1,400

2006 2007 2008 2009 2010

Fiscal year

Total contractors

PUD contractors

REO contractors

Note: The contractor FTE data provided by FHA were a head count of contractor employees for 2010 

and estimates for 2006–2009 (based on the 2010 data). 

In addition to relying on contractors to address the increased workload 

caused by FHA’s large increase in business volume, the homeownership 

centers also used more overtime, although the use of overtime varied by 

center. As figure 10 shows, the Atlanta and Santa Ana homeownership 

centers used the vast majority of overtime, while the Denver and 

Philadelphia homeownership centers relied on overtime to a much lesser 

extent. During our visit to the Philadelphia center, FHA officials told us 

that they discouraged the use of overtime. Atlanta officials told us that 

they needed to use overtime to keep up with the increased workload. 

Page 36 GAO-12-15 FHA Oversight Capacity
 

Figure 10: FHA Single-Family Overtime Expenditures, 2006–2010 

Source: GAO analysis of FHA data.

Dollars in thousands

0

200

400

600

800

1,000

1,200

1,400

1,600

2006 2007 2008 2009 2010

Fiscal year

Single-family total

Denver homeownership center

Philadelphia homeownership center

Single-family headquarters

Santa Ana homeownership center

Atlanta homeownership center

Additionally, the homeownership centers shared resources to handle the 

increased workload. At some centers, staff from one division helped other 

divisions. For example, at the Denver homeownership center, PSD staff 

assisted REO with payments related to foreclosed properties. Some 

homeownership centers with available staff picked up overflow work from 

other centers. For example, Santa Ana took responsibility for two REO 

contracts from Denver; however, once Santa Ana’s workload increased, it 

could no longer support these contracts. Finally, the Philadelphia 

homeownership center took the lead on condominium recertification 

Page 37 GAO-12-15 FHA Oversight Capacity
 

processing for all of the homeownership centers, allowing staff in these 

centers to focus on other workload items.38

Finally, as previously noted, FHA revised some of its business processes. 

For example, it revised its method for targeting loans for PETRs, which 

reduced the percentage of loans reviewed. It also reduced the number of 

appraisals that were reviewed for each appraiser targeted for review from 

10 to 3. 

Although FHA has addressed staffing and training needs and succession 

planning to some extent, it lacks plans that strategically address future 

workforce needs, including the need to replace retiring staff. HUD 

guidance requires workforce planning that identifies the workforce needed 

to meet future challenges.39 Moreover, our internal control standards 

require that management take steps to ensure that skill needs are 

continually assessed and that the organization is able to obtain a 

workforce that has the required skills that match those necessary to 

achieve organizational goals.40 We have also reported that workforce 

planning practices used by leading organizations include a process to (1) 

define the critical skills and competencies that will be needed to achieve 

current and future programmatic results (including critical skill gaps) and 

(2) develop strategies tailored to address gaps in the number, skills, and 

competencies of staff.41 In addition, internal control standards require that 

agencies, as part of their human capital planning, consider how best to 

retain valuable employees, plan for their eventual succession, and ensure 

continuity of needed skills and abilities. We have also reported that 

leading public organizations have adopted practices such as linking 

succession planning to strategic planning; emphasizing developmental 

assignments in addition to formal training; and addressing specific human 

FHA Lacks Strategic Workforce 

and Succession Plans 

 38The Housing and Economic Recovery Act of 2008 required FHA to implement a new 

approval process for condominium projects and insurance requirements for mortgages on 

individual units. 

39Department of Housing and Urban Development, Strategic Human Capital 

Management: Revised Human Capital Plan, FY 2008–FY 2009 (Washington, D.C.: March 

2008). HUD has been revising this plan. 

40GAO/AIMD-00-21.3.1. 

41GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003). 

Page 38 GAO-12-15 FHA Oversight Capacity
 

capital challenges, such as diversity, leadership capacity, and retention.42

Further, HUD guidance calls for a succession plan that includes, among 

other things, projections for retirements in mission-critical positions. 

Although workforce planning practices used by leading organizations 

include defining critical skills and skill gaps, FHA’s current approach to 

workforce planning does not have mechanisms for doing so. For the 4-

year period from 2004 to 2008, FHA had a workforce plan that identified 

the critical competencies needed by employees over that period; 

analyzed skills and competencies, including gaps; and proposed 

comprehensive strategies to address these gaps.43 Specifically, the plan 

described the most critical competencies for staff and included 

calculations of the gap for each competency (that is, the shortfall or deficit 

that results when the supply of staff proficient in a competency is less 

than the demand for that competency). 

However, FHA has not created a multiyear workforce plan since then. 

Instead, it has relied on occasional REAP studies and annual managerial 

assessments of staffing and training needs. The most recent REAP study, 

completed in 2009, did not identify critical skills needed or strategies to 

address skill gaps. Rather, its purpose was to determine the proper staffing 

level for the four homeownership centers and the National Servicing 

Center.44 In addition, FHA asks each program office to annually identify 

mission-critical positions that need to be filled. As part of identifying these 

positions, managers are to take into account upcoming initiatives that may 

require new or increase existing positions, and current goals, workload, 

vacancies, and expected attrition. FHA officials told us that they also used 

the results of the most recent REAP study in determining staffing needs. 

The result of the process is a spreadsheet listing positions they would like 

to fill that year. In addition, FHA’s program offices produce similar 

 42GAO, Human Capital: Insights for U.S. Agencies from Other Countries’ Succession 

Planning and Management Initiatives, GAO-03-914 (Washington, D.C.: Sept. 15, 2003). 

43Department of Housing and Urban Development, Strategic Workforce Plan, FY04 to 

FY08, Office of Housing, (Washington, D.C.: July 2004). 

44The 2009 REAP study found that these centers were understaffed by about 175 FTEs. 

However, agency officials told us that the Office of Single Family Housing has not been 

able to reach the staffing levels recommended in the REAP study because of budgetary 

constraints. As of May 2011, the homeownership centers and the National Servicing 

Center had 811 staff, as opposed to the 1,000 staff recommended in the REAP study and 

the 823 staff they had when the REAP was conducted in 2009. 

Page 39 GAO-12-15 FHA Oversight Capacity
 

spreadsheets annually for training needs. The training needs identified are 

based on managers’ assessments of staff skill gaps, performance, and 

employee interest. The spreadsheet links requests for training from the 

program offices and the homeownership centers to a list of general and 

technical competencies that FHA officials told us were pulled from the 

Office of Personnel Management website in 2005. 

FHA also does not currently have a succession plan as it has had in the 

past. In 2006, HUD developed a succession plan for 2006–2009 that 

covered various offices, including FHA. The plan 

 identified all of the positions the program office deemed critical to 

meeting the goals and the objectives of its programs, 

 analyzed whether existing staff in the positions had the required 

competencies to perform the jobs, 

 assessed the number of retirement-eligible employees in critical and 

noncritical positions, and 

 determined the probability of retirements over the next 3 years.45

Succession planning is particularly important because the Office of Single 

Family Housing could face numerous retirements. Almost 50 percent of 

Single Family Housing headquarters staff are eligible to retire within the 

next 3 years (see table 7). The percentage of staff eligible to retire at the 

homeownership centers is even higher. For example, 63 percent of 

homeownership center staff are eligible to retire within the next 3 years. For 

the three divisions (PUD, QAD, and REO) in the homeownership centers 

that conduct key workload items, 51, 65, and 60 percent, respectively, can 

retire in the next 3 years. During our visits to three of the four 

homeownership centers, officials consistently told us of the risk they faced 

with losing experienced staff to retirement. At one homeownership center, 

the PUD director told us that 80 percent of his staff were 45 or older. 

 45Department of Housing and Urban Development, Succession Management Plan, Fiscal 

Year 2006-2009, (Washington, D.C.: September 2006). 

Page 40 GAO-12-15 FHA Oversight Capacity
 

Table 7: Percentage of FHA Staff Eligible to Retire within the Next 1, 2, and 3 Years, 

as of July 2011 

Entity 

Eligible to retire 

within 1 year

Eligible to retire 

within 2 years 

Eligible to retire 

within 3 years

Single-family 

headquarters staff 

39 45 47

Homeownership centers 54 58 63

PUD 40 43 51

QAD 57 62 65

REO 47 53 60

Source: GAO analysis of FHA data. 

While FHA has taken some steps to address succession planning, they 

have been limited. In recognition of the high percentage of staff eligible to 

retire, FHA implemented two initiatives focused on succession planning. 

The first initiative, known as the “three-deep” structure, was put in place in 

2010. It is intended to help ensure that, at any given time, at least two 

additional supervisors, managers, or executives can perform the work of 

each supervisor, manager, or executive. However, this three-deep 

structure does not apply to other staff positions beyond management. The 

second initiative, the Foundation Leadership Program, also began in 2010. 

Its goal is to train and develop staff through a number of programs. They 

include the Student Intern Program, which exposes interns to the 

programmatic activities of the Office of Housing, and the Upward Mobility 

Program, which provides participants with a curriculum intended to expand 

their knowledge of the housing industry and enhance professional, 

analytical, and reasoning skills. Also included are the Management 

Development Program, which focuses on creating future leaders by 

providing targeted staff with essential leadership and management skills, 

and the Executive Development Program, which trains new supervisors 

and offers refresher courses and follow-on facilitative training to enhance 

leadership development of current managers. Neither initiative assesses 

the number of retirement-eligible employees in critical positions as required 

by HUD guidance. According to FHA officials, as resources have dwindled 

they have considered all of their positions to be critical. 

According to FHA officials, plans to update their workforce and 

succession plans were suspended. In 2007–2009, FHA had a workforce 

planning process that was designed to identify critical skill gaps and a 

strategy for addressing these gaps. They stated that a contractor was 

hired to develop a database to store data collected on competencies and 

Page 41 GAO-12-15 FHA Oversight Capacity
 

skill gaps. The intent was to use this information to identify training needs 

and conduct workforce and succession planning. According to the 

officials, HUD told FHA to stop this initiative in 2009 because HUD was 

going to implement the Learning Management System, which would be a 

workforce planning process for the entire department. However, this 

system never came to fruition because of funding shortages. The FHA 

officials told us that they were not aware of any efforts to reinstate the 

workforce planning process in place from 2007 to 2009. Without a more 

comprehensive workforce planning process that includes succession 

planning, FHA’s ability to systematically identify the workforce needed for 

the future and plan for upcoming retirements is limited. 

Through its single-family mortgage insurance programs, FHA has helped 

millions of families purchase homes. But the recent increased reliance on 

FHA mortgage insurance highlights the need for FHA to better ensure 

that it has the proper controls in place to minimize financial risks while 

meeting the housing needs of borrowers. Additionally, although FHA’s 

single-family insurance programs historically have produced budgetary 

receipts for the federal government, a weakening in the performance of 

FHA-insured loans could increase the possibility that FHA will require 

additional funds to help cover its costs on insurance issued to date. Key 

factors in improving accountability and minimizing operational problems 

are implementing appropriate internal controls, regularly assessing them 

for effectiveness, and updating them as conditions change. Therefore, the 

need for a comprehensive risk assessment strategy, including quality 

control functions, has become more urgent as FHA’s market role, 

business volume, and corresponding workload dramatically increased 

and staffing levels remained relatively constant. FHA has taken important 

steps toward developing a comprehensive risk assessment approach, 

including establishing an office of risk management, implementing a new 

system of management control in Single Family Housing, and identifying 

and addressing risks related to the rapid increase in business volume. 

However, key elements—such as the integration of separate risk 

assessment efforts, annual assessments of the risks from internal and 

external sources, and mechanisms to identify and address risks related to 

changing conditions—currently are missing from FHA’s approach. For 

instance, one mechanism for identifying risks related to changing 

conditions could be to implement the template for reporting on major 

emerging risks that was recommended in the consultant’s report 

commissioned by FHA. By incorporating these key elements, FHA could 

more effectively identify, plan for, and address risk. 

Conclusions 

Page 42 GAO-12-15 FHA Oversight Capacity
 

Additionally, FHA’s continued prominence in the mortgage market 

highlights the importance of helping to ensure that the agency has 

adequate staff to effectively oversee key program participants, such as 

lenders and appraisers. However, the high percentage of staff eligible to 

retire within the next 3 years presents workforce and succession planning 

challenges. Although workforce planning practices used by leading 

organizations include defining critical skills and skill gaps, FHA’s current 

approach to workforce planning does not have mechanisms for doing so. 

And although the agency has taken some steps to address succession 

planning, it lacks a succession plan that covers managers and staff and 

highlights projected shortfalls in critical positions. Strategic workforce and 

succession planning efforts can provide a structure to address these 

issues. A more structured approach could enhance FHA’s ability to 

identify critical skills and gaps, plan for upcoming retirements, and meet 

future demands of the program. 

As FHA continues to implement its new risk assessment strategy, the 

Secretary of HUD should direct the Acting Assistant Secretary for 

Housing-Federal Housing Commissioner to take the following steps to 

comply with our internal control standards and HUD Handbook 1840.1: 

Recommendations for 

Executive Action 

 integrate the internal quality control initiative of the Office of Single 

Family Housing into the operational risk processes of the Office of 

Risk Management; 

 conduct an annual risk assessment; and 

 establish ongoing mechanisms—such as use of the report templates 

from the 2010 consultant’s report—to anticipate and address risks that 

might be caused by changing conditions, including risks related to the 

rapid increase in single-family business volume. 

Further, to help ensure that FHA has sufficient staff in place with the 

appropriate skills to oversee single-family insurance programs during a 

period of continued program demand, the Secretary of HUD should direct 

the Acting Assistant Secretary for Housing-Federal Housing 

Commissioner to develop 

 a workforce plan for the Office of Single Family Housing that identifies 

the critical skills and competencies the agency will need to meet its 

future program goals, defines skill gaps, and includes a process to 

develop strategies to address gaps in the number, skills, and 

competencies of staff; and 

Page 43 GAO-12-15 FHA Oversight Capacity
 

Page 44 GAO-12-15 FHA Oversight Capacity 

 a succession plan that outlines steps to help ensure that qualified 

employees succeed members of the workforce expected to retire over 

the next several years. 

We provided a draft of this report to HUD. The Acting Assistant Secretary for 

Housing-Federal Housing Commissioner provided written comments, which 

are reprinted in appendix II. The agency agreed with our recommendations 

and stated that it either was working toward achieving the recommendations 

or had plans to do so in the very near future. For example, FHA said it would 

leverage or integrate existing risk management efforts as soon as ORM’s 

final governance structure and risk management strategies were in place. 

The agency also stated that ORM would conduct an annual risk assessment 

as a component of its overall risk management strategy. It stressed that 

ongoing mechanisms to anticipate and address risks related to changing 

conditions would be part of ORM’s strategy. Finally, it noted that it would 

develop a formal workforce plan and had efforts underway to develop a 

succession plan. FHA also provided technical comments, which we 

incorporated into the report where appropriate. 

We will provide copies of this report to the Chairman and Ranking 

Member of the House Financial Services Committee and other interested 

congressional committees and to the Secretary of HUD. We also will 

make this report available at no charge on the GAO website at 

http://www.gao.gov. If you or your office have any questions about this 

report, please contact me at (202) 512-8678 or sciremj@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this report. Key contributors to this report are 

listed in appendix III. 

Mathew Scirè 

Director, Financial Markets and 

 Community Investment 

Agency Comments 

and Our Evaluation 
Appendix I: Objectives, Scope, and 

Methodology 

Page 45 GAO-12-15 

Appendix I: Objectives, Scope, and 

Methodology 

We examined the Federal Housing Administration’s (FHA) oversight 

capacity in light of the recent expansion in its single-family mortgage 

insurance programs. Specifically, we (1) identified recent changes in 

FHA’s volume, workload, and resources; (2) evaluated FHA’s risk 

assessment strategy, including the extent to which it is consistent with 

Department of Housing and Urban Development (HUD) and GAO internal 

control standards; and (3) assessed the steps FHA has taken to manage 

the risks in its single-family mortgage insurance programs. 

To determine changes in the volume of FHA’s single-family business 

since 2006, we collected data on loan volume from FHA’s quarterly 

reports to Congress on the Mutual Mortgage Insurance Fund and data on 

FHA’s market share from HUD’s quarterly reports on U.S. housing market 

conditions. To determine how FHA’s workload has changed since 2006, 

we collected data for fiscal years 2006–2010 from the following systems: 

 Computerized Homes Underwriting Management System—data on 

post-endorsement technical reviews, appraiser reviews, and appraiser 

sanctions; 

 Approval Review and Recertification Tracking System—data on 

lender applications and lender reviews; 

 Single Family Acquired Asset Management System—information on 

FHA’s real estate-owned properties; 

 HUD’s Central Accounting and Program System—overtime 

expenditures; and 

 Single Family Housing Data Enterprise Warehouse—data on loss 

mitigation actions. 

We also reviewed FHA management reports to determine annual 

workload goals and compared actual work completed with stated goals. 

To determine resource changes since 2006, we analyzed data on staff 

assigned to the Office of Single Family Housing in fiscal years 2006–2010 

and contractor staff hired to perform selected functions in the same 

period. The Office of Single Family Housing provided headquarters 

staffing levels from the National Finance Center payroll database. Each 

homeownership center provided its staffing levels in the form of monthly 

management reports. FHA provided estimates of contractor full-time 

equivalent levels based on current contractor levels and past workload. 

To assess the reliability of these data, we reviewed documentation from 

FHA Oversight Capacity 
Appendix I: Objectives, Scope, and 

Methodology 

FHA on internal controls, interviewed FHA officials who administer these 

systems and officials who routinely use the systems for workload 

management, and verified selected data across multiple sources 

(including annual FHA management reports). We determined that the 

data were sufficiently reliable for our purposes. 

To evaluate the extent to which FHA’s risk assessment strategy is 

consistent with our and HUD’s risk assessment requirements and 

guidelines, we reviewed (1) the Federal Managers’ Financial Integrity Act 

requirements, (2) our internal control standards and evaluation tool, (3) 

HUD’s management control handbook, and (4) Office of Management and 

Budget Circular No. A-123 requirements relating to an internal control 

structure for risk assessment.1 To identify FHA’s risk assessment strategy, 

we reviewed HUD Inspector General audit reports, including a 2008 report 

on Single Family Housing’s failure to fully implement an internal control 

structure in accordance with requirements.2 And we reviewed the 

independent auditor’s report (which accompanied the audit of FHA financial 

statements for 2008–2010) on the agency’s internal control deficiencies.3

Further, we reviewed (1) Single Family Housing’s management plans for 

the quality control initiative and examples of risk assessment worksheets, 

quarterly status reports, and other documentation related to the quality 

control initiative, and (2) a consultant’s report on options and 

recommendations for the proposed structure and functions of the Office of 

FHA Oversight Capacity

 1

See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999); GAO, Internal Control 

Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001); and 

Department of Housing and Urban Development, Office of the Chief Financial Officer, 

Departmental Management Control Program, Handbook 1840.1 Rev-3 (Washington, 

D.C.: 1999). 

2

Department of Housing and Urban Development, Office of the Inspector General, HUD’s 

Office of Single Family Housing Had Not Fully Implemented an Internal Control Structure 

in Accordance with Requirements, Audit Report 2008-KC-0006 (Washington, D.C.: 

Sept. 8, 2008).

3

See Department of Housing and Urban Development, Office of the Inspector General, 

Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2010 

and 2009, Audit Report 2011-FO-0002 (Washington, D.C.: Nov. 5, 2010); Department of 

Housing and Urban Development, Office of the Inspector General, Audit of the Federal 

Housing Administration’s Financial Statements for Fiscal Years 2009 and 2008, Audit 

Report 2010-FO-0002 (Washington, D.C.: Nov. 13, 2009); and Department of Housing 

and Urban Development, Office of the Inspector General, Audit of the Federal Housing 

Administration’s Financial Statements for Fiscal Years 2008 and 2007, Audit Report 2009-

FO-0002 (Washington, D.C.: Nov. 7, 2008). 

Page 46 GAO-12-15 
Appendix I: Objectives, Scope, and 

Methodology 

Risk Management in the Office of Risk Management and Regulatory 

Affairs.4 We interviewed single-family staff in headquarters, the quality 

control coordinators and other staff at the homeownership centers, and 

Office of Risk Management and Regulatory Affairs staff. We then 

compared FHA’s existing and proposed risk assessment strategy with our 

internal control standards and the HUD handbook. 

To describe the steps FHA took to manage the risks it identified in the 

single-family insurance programs, we focused on efforts related to credit 

and counterparty risk, information technology, and human capital. 

To determine the steps FHA took to address credit risk, we summarized 

enhancements the agency made or intends to make (as described in our 

prior report on the financial condition of the Mutual Mortgage Insurance 

Fund).5 We reviewed FHA program changes to account for any updates 

since we issued that report. We also reviewed information from the Office 

of Risk Management and Regulatory Affairs on more recent changes FHA 

made to address credit risk, such as those associated with FHA’s 

Technology Open to Approved Lenders scorecard, which is used to 

assess a borrower’s risk of default quickly and efficiently by examining the 

data the borrower provides on the loan application and the borrower’s 

credit score. 

Credit and Counterparty Risk 

To identify the steps FHA took to address counterparty risk—that is, risks 

posed by lenders and appraisers—we reviewed changes to FHA’s final 

rule related to prohibiting loan correspondents from directly participating 

in the single-family insurance programs and increasing the net worth 

requirement for FHA-approved lenders.6 The final rule included 

information on FHA’s rationale for the changes and concerns program 

stakeholders raised. We also reviewed HUD mortgagee letters (written 

instructions to FHA-approved lenders) related to the rule changes. To 

determine how FHA changed its oversight of lenders and appraisers, we 

reviewed FHA’s revised guidance on the post-endorsement technical 

 4

McKinsey & Company, Building the ORM Organization, Close-out Materials, a report 

prepared at the request of the Department of Housing and Urban Development, 

December 2010. 

5

GAO, Mortgage Financing: Opportunities to Enhance Management and Oversight of 

FHA’s Financial Condition, GAO-10-827R (Washington, D.C.: Sept. 14, 2010). 

6

75 Fed. Reg. 20718 (Apr. 20, 2010). 

Page 47 GAO-12-15 FHA Oversight Capacity
Appendix I: Objectives, Scope, and 

Methodology 

review process and documentation on changes to the risk-based criteria 

used to identify lenders and appraisers for review. We also interviewed 

FHA officials at headquarters and the four homeownership centers for 

more information. To describe the advantages and disadvantages of the 

changes FHA made, we interviewed FHA officials at headquarters and 

the homeownership centers and officials at the Mortgage Bankers 

Association and the Independent Community Bankers of America. 

To determine the steps FHA took to manage the risks associated with its 

information systems, we reviewed documentation on challenges that FHA 

and the independent auditor identified in relation to major systems 

supporting the single-family programs. These include FHA’s 2009 

Information Technology Strategy and Improvement Plan and 

Infrastructure Transformation Initiative Concept of Operations, and 

reports from the independent auditor for 2008–2010.7 To obtain 

information on the challenges rapid growth in business volume posed for 

FHA’s information systems, we reviewed a consultant’s 2009 Risk 

Capacity Study on the single-family program and the 2009 Resource 

Estimation and Allocation Process (REAP) study.8 We interviewed Single 

Family Housing headquarters staff and staff at the four homeownership 

centers about how the information systems performed during the initial 

period of rapid growth and subsequently. To determine the steps FHA 

took to modernize its information systems, we reviewed numerous 

documents related to its Infrastructure Transformation Initiative, including 

the Concept of Operations and the Project Management Plan and our 

Information Technology Risk 

FHA Oversight Capacity

 7

Department of Housing and Urban Development, FHA Office of Housing Information 

Technology Strategy and Improvement Plan (Washington, D.C.: Aug. 13, 2009), and 

Department of Housing and Urban Development, Infrastructure Transformation Initiative: 

Infrastructure for Transformed Operations Concept of Operations Version 2.0

(Washington, D.C.: September 2010). 

8

G&B Solutions and KPMG, Risk Capacity Study, Single Family Housing Application and 

Endorsement Processes, a report prepared at the request of the Department of Housing 

and Urban Development, Feb. 2, 2009, and Department of Housing and Urban 

Development, Resource Estimation and Allocation Process (REAP), Office of Housing, 

DAS for Single Family Housing, Study #1: Office of Single Family Housing–Field

(Washington, D.C.: September 2009). 

Page 48 GAO-12-15 
Appendix I: Objectives, Scope, and 

Methodology 

prior work on HUD’s information systems.9 We met with FHA and HUD 

officials responsible for various aspects of the initiative to learn more 

about it, the deliverables for the first 18 months of the project, and any 

issues faced. To determine the steps FHA took to address risks and fraud 

related to use of information systems, we reviewed the request for 

proposals for the Risk and Fraud Initiative and task orders for some 

associated projects. To determine the status of FHA efforts for the 

initiative, we reviewed documents describing deliverables for the first 18 

months of the project and interviewed FHA officials, including the FHA 

Transformation Initiative program manager.10

To assess the steps FHA took to address its staffing needs, we reviewed 

FHA guidance on factors managers should take into account when 

assessing annual staffing needs. We also reviewed the 2009 REAP study 

to find out recommended staffing levels for the Office of Single Family 

Housing. To determine the number of staff in the Office of Single Family 

Housing eligible to retire in the next 3 years, we analyzed National 

Finance Center data provided by FHA. To determine what initiatives FHA 

had in place to address succession planning, we reviewed documents 

from FHA that described its “three-deep” initiative and Foundation 

Leadership Program. We also interviewed officials from FHA’s Office of 

Operations to learn more about workforce and succession planning. As 

part of these interviews, we obtained information on the workforce 

planning initiative FHA had in place during 2007–2009. To determine the 

extent to which FHA’s current workforce and succession planning efforts 

were consistent with GAO and HUD human capital criteria, we reviewed 

our internal control standards related to workforce and succession 

planning, a GAO report on key principles for strategic workforce planning, 

Human Capital Risk 

 9

Department of Housing and Urban Development, Project Management Plan: 

Transformation Initiative (Washington, D.C.: Aug. 17, 2011); GAO, Information 

Technology: HUD Needs to Better Define Commitments and Disclose Risks for 

Modernization Projects in Future Expenditure Plans, GAO-11-72 (Washington, D.C.: Nov. 

23, 2011); and GAO, Information Technology: HUD’s Expenditure Plan Satisfies Statutory 

Conditions, and Implementation of Management Controls Is Under Way, GAO-11-762 

(Washington, D.C.: Sept. 7, 2011). 

10Department of Housing and Urban Development, Appendix C: FHA Transformation 

(Washington, D.C.: February 2011). 

Page 49 GAO-12-15 FHA Oversight Capacity
Appendix I: Objectives, Scope, and 

Methodology 

and HUD’s Strategic Human Capital Plan.11 We also reviewed prior HUD 

workforce and succession planning reports.12

We conducted this performance audit from October 2010 to November 

2011 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 objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

 11GAO/AIMD-00-21.3.1; GAO, Human Capital: Key Principles for Effective Strategic 

Workforce Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003); and Department of 

Housing and Urban Development, Strategic Human Capital Management: Revised Human 

Capital Plan, FY 2008–FY 2009 (Washington, D.C.: March 2008). 

12Department of Housing and Urban Development, Strategic Workforce Plan: FY04 to 

FY08 (Washington, D.C.: July 2004), and Department of Housing and Urban 

Development, Succession Management Plan: Fiscal Year 2006–2009 (Washington, D.C.: 

September 2006). 

Page 50 GAO-12-15 FHA Oversight Capacity
Appendix II: Comments from the Department Appendix II: Comments from the Department of Housing and Urban Development 

of Housing and Urban Development 

Page 51 GAO-12-15 FHA Oversight Capacity 
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 52 GAO-12-15 FHA Oversight Capacity
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 53 GAO-12-15 FHA Oversight Capacity
A

A

ppendix III: GAO Contact and Staff 

cknowledgments

Page 54 GAO-12-15 

Appendix III: GAO Contact and Staff 

Acknowledgments 

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov

In addition to the contact named above, Paige Smith (Assistant Director), 

Dan Alspaugh, Rudy Chatlos, John McGrail, Marc Molino, Teresa Neven, 

José R. Peña, Beth Reed Fritts, and Barbara Roesmann made key 

contributions to this report. 

FHA Oversight Capacity 

GAO Contact 

Staff 

Acknowledgments 

(250573)
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