RECOVERY ACT

Tax Debtors Have 

Received FHA 

Mortgage Insurance 

and First-Time 

Homebuyer Credits

Report to Congressional Requesters

May 2012

GAO-12-592

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-592, a report to 

congressional requesters

May 2012

RECOVERY ACT

Tax Debtors Have Received FHA Mortgage Insurance 

and First-Time Homebuyer Credits

Why GAO Did This Study

Under a Recovery Act provision that 

increased mortgage insurance loan 

limits, FHA insured $20 billion in 

mortgages for 87,000 homeowners. 

The Recovery Act also provided for the 

awarding of an estimated $12 billion of 

FTHBCs to 1.7 million individuals. 

GAO was asked to determine the (1) 

extent to which tax debtors benefited 

from the Recovery Act’s provisions for 

increased FHA loan limits and the 

FTHBC, and (2) challenges, if any, 

FHA faces in preventing ineligible tax 

debtors from receiving mortgage 

insurance. Using IRS and FHA data, 

GAO identified Recovery Act recipients 

and compared them to federal tax 

debtors as of June 30, 2010. GAO 

reviewed relevant policies and 

interviewed agency officials and 

lenders. GAO also reviewed detailed 

IRS and FHA documents for a 

nonrepresentative selection of 18

individuals who received FHA 

mortgage insurance. These were 

selected based on a combination of 

factors, such as amount of taxes owed 

and number of delinquent tax periods. 

Due to data availability and other 

factors, GAO was able to completely 

evaluate only 8 of 18 individuals on 

their eligibility for FHA mortgage 

insurance. These cases cannot be 

generalized beyond those presented.

What GAO Recommends

HUD should (1) consult with IRS to 

require lenders to collect more reliable 

tax debt information from applicants 

and (2) provide lenders with revised 

policies or guidance, including the 

consideration of tax liens, for approving 

FHA mortgage insurance. HUD 

agreed with the recommendations.

What GAO Found

The Federal Housing Administration (FHA) insured over $1.44 billion in 

mortgages for 6,327 borrowers with $77.6 million in federal tax debt who 

benefited from the 2009 American Recovery and Reinvestment Act. Of these 

borrowers, 3,815 individuals claimed and received $27.4 million in Recovery Act 

First-Time Homebuyer Credits (FTHBC). This analysis includes tax debtors who 

(1) benefited from FHA’s increased loan limits, or (2) claimed the FTHBCs and 

received FHA mortgage insurance of any value. Federal policy makes delinquent 

tax debtors ineligible for FHA mortgage insurance unless they repay their debt or 

are in a valid repayment agreement with the Internal Revenue Service (IRS), but 

the FTHBC, like all tax credits, was available to those who qualified, regardless 

of their tax debt. GAO could not determine the proportion of borrowers who were 

ineligible for FHA insurance because GAO could not systematically identify which 

of the 6,327 borrowers were in valid repayment agreements using the data GAO

received from IRS. However, GAO did find that 5 of the 8 borrowers completely 

evaluated were ineligible because they were not in valid repayment agreements 

at the time they obtained FHA mortgage insurance. In addition, GAO found that 

Recovery Act borrowers with unpaid taxes had foreclosure rates two to three 

times greater than borrowers without unpaid taxes, which potentially represents 

an increased risk to FHA.

Some ineligible tax debtors received FHA mortgage insurance, in part, due to 

shortcomings in the capacity of FHA-required documentation to identify tax 

debts, and shortcomings in other policies that lenders may misinterpret. Lenders 

must perform steps to identify an applicant’s federal debt status, but sources 

commonly used, such as the loan application and credit report, do not reliably 

indicate an applicant’s tax debt. Statutory restrictions generally prohibit the

disclosure of taxpayer information, such as tax debt, without the taxpayer’s

consent. Lenders are already required to obtain such consent through an IRS 

form they use to validate the income of some applicants. This same form could 

also be used to obtain permission from applicants to obtain reliable tax-debt 

information directly from IRS, but doing so is not addressed in FHA policies. 

Requiring lenders to collect more reliable information on tax debts could better 

prevent ineligible tax debtors from obtaining FHA mortgage insurance. Further, 

FHA’s policies requiring lenders to investigate whether tax liens indicate 

unresolved tax debt are unclear and may be misinterpreted. The lenders GAO 

spoke with believed they were in compliance with FHA’s policies when they 

provided FHA-insured loans to applicants with tax liens and no repayment 

agreements, but FHA officials indicated otherwise. As a result of these 

shortcomings, lenders may approve federally insured mortgages for ineligible 

applicants with delinquent tax debt in violation of federal policies. 

View GAO-12-592. For more information, 

contact Greg Kutz at (202) 512-6722 or 

kutzg@gao.gov.
Page i GAO-12-592 Recovery Act

Letter 1 

Background 5

FHA Insured over $1.44 Billion in Mortgages for Thousands of 

Recovery Act Beneficiaries with Federal Tax Debt 12

Shortcomings in the Capacity of FHA-Required Documentation to 

Identify Tax Debts and in Certain Policies Allow Tax Debtors to 

Obtain Mortgage Insurance 19

Conclusion 26

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 27

Appendix I Objectives, Scope, and Methodology 30

Appendix II Excerpts of the Uniform Residential Loan Application 36

Appendix III Comments from the Federal Housing Administration 39

Appendix IV GAO Contact and Staff Acknowledgments 41

Figures

Figure 1: Tax Debtors who Benefitted from the Recovery Act 

Obtained $1.44 Billion in FHA Mortgage Insurance and 

$27.4 Million in FTHBCs 14

Figure 2: Serious Delinquency and Foreclosure Rates for 

Borrowers Who Received Increased FHA Mortgage 

Insurance under the Recovery Act with Tax Debt 

Compared to Borrowers without Tax Debt 16

Figure 3: Serious Delinquency and Foreclosure Rates for 

Borrowers with Tax Debt Who Claimed the FTHBC under 

The Recovery Act Compared to Borrowers without Tax 

Debt 18

Figure 4: Excerpt of IRS Form 4506-T 23

Figure 5: FHA Policy Excerpts on Tax Debt That Some Lenders 

Misinterpret 25

Contents
Page ii GAO-12-592 Recovery Act

Figure 6: Liabilities Section of the Uniform Residential Loan 

Application 36

Figure 7: Declarations Section of the Uniform Residential Loan 

Application 37

Figure 8: Line on the Uniform Residential Loan Application 

Showing the Consequences of Making a False Statement 38

Abbreviations 

CAIVRS Credit Alert Interactive Voice Response System

CBO Congressional Budget Office

ESA Economic Stimulus Act

FHA Federal Housing Administration 

FTHBC First-Time Homebuyer Credit

HAIA Homebuyer Assistance and Improvement Act

HERA Housing and Economic Recovery Act

HUD Department of Housing and Urban Development 

IRS Internal Revenue Service

IVES Income Verification Express Service

LI Lender Insurance

MMIF Mutual Mortgage Insurance Fund

OMB Office of Management and Budget

SFDW Single Family Data Warehouse

SSN Social Security number

TIN Taxpayer Identification Number

TOTAL Technology Open to Approved Lenders 

URLA Uniform Residential Loan Application

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-12-592 Recovery Act

United States Government Accountability Office

Washington, DC 20548

May 29, 2012

Congressional Requesters

As of September 30, 2011, individuals, businesses, and other entities 

owed the U.S. government over $350 billion in known unpaid taxes, 

including interest and penalties, according to the Internal Revenue 

Service (IRS).1 Beyond this amount of known tax debt, the amount of 

unknown tax debts is substantial. This is because the inventory of tax 

debts excludes underreported amounts filed by taxpayers and taxes owed 

by taxpayers who do not file tax returns.2 Given the many challenges that 

IRS faces, the enforcement of the tax laws continues to be on our list of 

high-risk areas.3 We have previously reported that many individuals with 

tax debt take advantage of government programs, such as federal loan 

insurance, thereby reaping benefits from these programs while failing to 

pay their own taxes.4

The American Recovery and Reinvestment Act of 2009 included 

numerous provisions aimed at spurring economic activity and shoring up 

the declining housing market. Under a provision that increased the 

maximum loan limits for mortgage insurance in 2009, the Federal 

Housing Administration (FHA), part of the Department of Housing and 

Urban Development (HUD), insured more than $20 billion in mortgages 

 

1

This figure includes (1) taxes receivable of $147 billion, (2) compliance assessments—

amounts that have not been agreed to by either the taxpayer or a court—of $103 billion, 

and (3) write-offs of $106 billion.

2

In addition to known unpaid taxes, the net tax gap, estimated to be about $385 billion for 

tax year 2006 (the most recent estimate made), represents the net amount of 

noncompliance with the tax laws (after enforcement and late payments). According to IRS, 

underreporting of tax liability accounts for 84 percent of the gross gap, and nonfiling and 

underpayment of taxes comprised the rest of the gross tax gap. Tax gap estimates do not 

include all areas of the economy, such as illegal activity.

3

GAO, 2011 High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 

2011).

4

GAO, Debt Collection: Barring Delinquent Taxpayers From Receiving Federal Contracts 

and Loan Assistance, GAO/T-GGD/AIMD-00-167 (Washington D.C.: May 9, 2000); and

Management Report: Improvements Are Needed to Enhance the Internal Revenue 

Service’s Internal Controls and Operating Effectiveness, GAO-11-494R (Washington, 

D.C.: June 21, 2011).

 
 

Page 2 GAO-12-592 Recovery Act

for 87,000 borrowers.5 In addition, as of July 3, 2010, over 1.7 million 

individuals were awarded over $12 billion in First-Time Homebuyer 

Credits (FTHBC) under the Recovery Act for homes purchased in 2009, 

according to IRS.6,7

Federal policy makes delinquent tax debtors ineligible for FHA mortgage 

insurance at the time of application, unless they repaid the debt or were in 

a valid repayment agreement with IRS, while the FTHBC, like all tax 

credits, was available to those who qualified regardless of their tax debt. 

The Recovery Act made no exceptions to these federal policies. You 

asked us to review several issues concerning individuals with unpaid 

federal taxes who benefited from the Recovery Act. This is the second in 

a series of reports that respond to your request. In the first report, we 

identified thousands of Recovery Act contract and grant recipients that 

owed hundreds of millions of dollars in federal taxes.

In this report, we refer to individuals who received 

either increased limits on their FHA mortgage insurance or the FTHBC in 

2009 as Recovery Act beneficiaries. 

8

To determine the extent to which Recovery Act beneficiaries with unpaid 

tax debt benefitted from the increased loan limits for FHA mortgage 

insurance or were awarded the FTHBC, we obtained and analyzed FHA 

mortgage insurance data as of September 2011, IRS data on FTHBC 

transactions as of July 2010,

In this report, we 

determined the (1) extent to which tax debtors benefited from the 

Recovery Act’s provisions for increased FHA loan limits and the FTHBC, 

and (2) challenges, if any, FHA faces in preventing ineligible tax debtors 

from receiving mortgage insurance.

9

 

5

We refer to individuals who received FHA mortgage insurance as borrowers.

and IRS data on unpaid federal tax debts 

6

The Recovery Act FTHBC only covered home purchases from January 1 through 

November 30, 2009.

7

GAO, Tax Administration: Usage and Selected Analyses of the First-Time Homebuyer 

Credit, GAO-10-1025R (Washington, D.C.: Sept. 2, 2010).

8

GAO, Recovery Act: Thousands of Recovery Act Contract and Grant Recipients Owe 

Hundreds of Millions in Federal Taxes, GAO-11-485 (Washington, D.C.: Apr. 28, 2011).

9

The FTHBC under the Recovery Act had to be claimed on either a 2008 or 2009 tax 

return. Because returns for the 2009 tax year were due by April 15, 2010, all claims filed 

on time without an extension would be accounted for in the July 2010 data.
 

Page 3 GAO-12-592 Recovery Act

as of June 2010.10 The FHA data allowed us to identify all those who 

received FHA insurance under the Recovery Act’s increased loan limits. 

However, limitations in the FTHBC data we received from IRS did not 

allow us to isolate all individuals who benefited from the FTHBC under the 

Recovery Act.11

1. individuals who received FHA mortgage insurance under the higher 

limits authorized under the Recovery Act, and

To address this limitation, we used the FHA data to assist 

us in isolating FTHBCs awarded under the Recovery Act. As a result, we 

were unable to analyze any credits for individuals who did not use FHA 

mortgage insurance in the financing of their home, and therefore we 

estimate that our analysis included 43 percent of all FTHBCs awarded 

under the Recovery Act. Our analysis includes two groups:

2. individuals who received the FTHBC under the Recovery Act and 

obtained FHA mortgage insurance of any value.

We electronically matched IRS tax debt data to these groups using Social 

Security numbers (SSN) as unique identifiers. We included only those 

individuals with tax debts of $100 or more from tax years 2008 and earlier 

to eliminate small tax debts and debts that may involve matters that are 

routinely resolved between the taxpayers and IRS, with the taxes paid or 

abated within a short time. We excluded any debts that were assessed by 

IRS after the mortgage insurance was received because those debts 

would not have been included in IRS records at the time the mortgage 

insurance was issued. We determined that the data were sufficiently 

reliable to address the report’s objectives by performing electronic testing 

 

10For this analysis we used known federal tax debts. Under federal accounting standards, 

unpaid tax assessments require agreement from either the taxpayer or the court to be 

considered federal taxes receivable. Compliance assessments and memo accounts are 

not considered federal taxes receivable because they are not agreed to by taxpayers or 

the courts. 

11IRS’s FTHBC data do not contain home purchase dates, which were needed to 

associate the credit with its enacting legislation. The Recovery Act applied to only 1 of the 

3 years for which the FTHBC was available. To obtain the needed dates, we used the 

Social Security number from the IRS FTHBC data as a unique identifier, and we 

electronically matched them to Social Security numbers found in the FHA data, which 

contained home purchase dates. Using this method, we estimate that our analysis 

included 43 percent of all FTHBCs awarded under the Recovery Act because we were 

unable to analyze any credits for individuals who did not use FHA mortgage insurance in 

the financing of their home. Such individuals may have financed their home purchases 

through conventional loans or other government loan programs, such as those available 

through the Department of Veterans Affairs. 
 

Page 4 GAO-12-592 Recovery Act

on the data, speaking with agency officials, and reconciling data to 

published figures and source documents.

To determine if FHA mortgage insurance was provided to ineligible 

individuals with unpaid federal tax debt, we identified a nonrepresentative 

selection of 18 individuals from the above analyses, who had federal tax 

debt and benefitted from the Recovery Act, for detailed reviews. We 

selected these individuals based on a combination of (1) high amounts of 

unpaid federal taxes, (2) at least three delinquent tax periods,12 (3) an 

insured mortgage of at least $200,000, and (4) indications of IRS 

penalties or home foreclosures.13 We requested IRS notes, detailed 

account transcripts, and other records from IRS as well as mortgage files 

from FHA for these 18 individuals. Of these requested cases, FHA

provided us information that allowed us to fully analyze 8.14,15 Although 

we did not receive complete information necessary to fully analyze the 

remaining cases, we were able to assess all 18 for limited purposes (e.g., 

nonfiling of tax returns). We also selected 9 additional cases of FTHBC 

recipients who received tax refunds to determine how they were able to 

receive federal tax refunds while having unpaid federal taxes.16,17

 

12The length of a delinquent tax period is dependent on the type of tax owed. For 

instance, income taxes are assessed annually; payroll taxes are assessed quarterly. 

These

13The value of mortgage insurance was not a criterion in selecting cases for borrowers 

who obtained FHA mortgage insurance under the Recovery Act because all of these 

mortgages resulted from increased FHA loan limits in high-cost areas. For each of the two 

groups included in our analysis, we selected two cases with IRS civil penalties for 

noncompliance and two cases in which the home had been foreclosed.

14To mask the identities of the tax debtors included in our case studies, we requested 

additional files from FHA that were not tax debtors. 

15FHA and IRS provided us some information on an additional three cases; however, we 

found that two of these cases did not have outstanding debt at the time they obtained FHA 

mortgage insurance, because they were either deemed an innocent spouse (granted relief 

from a joint tax liability) or had satisfied the repayment portion on an offer in compromise 

(an agreement to settle the debt for less than the amount owed).The third case’s debt had 

been removed from IRS because it was beyond the 10-year statutory collection period at 

the time we received the IRS records, therefore we did not include them in our analysis. 

We did not receive FHA mortgage files from FHA for the remaining seven case because 

the lenders for these files had either gone out of business or were not otherwise required 

to provide the mortgage file, according to FHA officials.

16We did not request FHA mortgage files for these nine cases.

17Federal law typically requires that any federal tax refund be offset to pay down an 

individual’s unpaid taxes.
 

Page 5 GAO-12-592 Recovery Act

cases were selected to illustrate the sizeable amounts of taxes owed by 

some individuals who benefitted from the Recovery Act but cannot be 

generalized beyond the cases presented.

To understand how private lenders interpret and implement FHA’s 

guidelines for preventing individuals with delinquent federal tax debt from 

receiving mortgage insurance, we interviewed FHA officials and reviewed 

relevant federal laws and policies, FHA regulations, policy manuals, and 

other FHA documents related to mortgage insurance. We also 

interviewed officials from three large, private, FHA-approved lenders, 

which together endorsed 15 percent of all FHA mortgages for homes 

purchased in 2009, and reviewed and discussed their policies for 

determining FHA mortgage insurance applicants’ tax debt status and 

preventing ineligible tax debtors from obtaining FHA mortgage insurance. 

A more detailed description of the scope and methodology can be found 

in appendix I.

We conducted this performance audit from April 2011 through May 2012 

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 

audit 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.

The Recovery Act of 2009 was enacted in response to significant 

weakness in the economy to, among other things, help promote economic 

recovery and assist those most affected by the recession.18 The 

Congressional Budget Office (CBO) estimated the Recovery Act’s cost at 

$825 billion as of August 2011. The Recovery Act included provisions to 

help stimulate the housing market, including increasing loan limits for 

FHA-insured mortgages in 669 high-cost counties in calendar year 

2009.19

 

18Pub. L. No. 111-5 (Feb. 17, 2009). 

The provision allowed FHA to insure mortgages at a higher 

amount than would have been authorized without the Recovery Act. 

Under this provision, FHA insured over $20 billion in mortgages for 

87,000 homeowners who were approved for FHA mortgage insurance in 

2009. The Recovery Act also adapted and extended the FTHBC through 

19Section 1202 of Pub. L. No. 111-5. 

Background 
 

Page 6 GAO-12-592 Recovery Act

November 2009.20 Through July 3, 2010, IRS reported that about 1.7 

million individuals claimed more than $12 billion in FTHBCs under the 

Recovery Act for homes purchased in 2009.21 Office of Management and 

Budget (OMB) Circular A-129 states that delinquent tax debtors are 

ineligible for federal loan insurance, such as FHA mortgage insurance, 

unless they repaid the debt or were in a valid repayment agreement with 

IRS, but the FTHBC was available to those who qualified regardless of 

their tax debt.

FHA’s single-family programs insure private lenders against 100 percent 

of the value of the loan for foreclosures on mortgages that meet FHA 

criteria, including mortgages for initial home purchases, construction 

rehabilitation, and refinancing. As of September 2011, almost 3,700 

lenders were approved to participate in these programs.22 The insurance 

covers the principal, interest, and associated foreclosure costs, among 

other things.23

 

20The FTHBC was originally enacted by the Housing and Economic Recovery Act of 2008 

(HERA) as an interest free loan of up to $7,500 and was to expire on July 1, 2009. Pub. L. 

No. 110-289, § 3011 (July 30, 2008). The Recovery Act modified and extended the 

FTHBC by increasing the maximum refundable credit to $8,000 for homes purchases from 

January 1, 2009, through November 30, 2009, with no payback required unless the home 

ceases to be the taxpayer’s principal residence within 3 years of the purchase. Pub. L. No. 

111-5, § 1006 (Feb. 17, 2009).

Lenders usually require mortgage insurance when a home 

buyer makes a down payment of less than 20 percent of the value of the 

home. FHA mortgage insurance allows a home buyer to make a modest 

down payment—as low as 3.5 percent—and obtain a mortgage for the 

balance of the purchase price. As the recent housing and economic 

recession set in, FHA’s share of the market for home purchase 

mortgages grew sharply due to the contraction of other mortgage market 

segments—rising from about 5 percent in 2006 to nearly 30 percent in 

21Homes purchased in 2009 would have been claimed on tax returns filed in 2009 or 

2010.

22Prior 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 FHA-insured 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.

2324 C.F.R. § 203.402. 

FHA Mortgage Insurance
 

Page 7 GAO-12-592 Recovery Act

2009.24,25 FHA insured almost 2 million single-family mortgages valued at 

more than $300 billion in mortgage insurance in 2009.26 FHA generally is 

thought to promote stability in the market by ensuring the availability of 

mortgage credit in areas that may be underserved by the private sector or 

that are experiencing economic downturns. It has played a particularly 

large role among minority, lower-income, and first-time home buyers; 

almost 80 percent of FHA-insured home purchase loans in 2010 went to 

first-time home buyers.27,28

The FHA home mortgage insurance programs are funded by the FHA 

Mutual Mortgage Insurance Fund (MMIF), which is supported by 

insurance premiums charged to borrowers. The MMIF is used to cover 

claims on foreclosed mortgages, among other things. The Omnibus 

Budget Reconciliation Act of 1990 required the Secretary of HUD to take 

steps to ensure that the MMIF attained a capital ratio (i.e., economic 

value divided by the unamortized insurance-in-force) of at least 2 percent 

by November 2000 and maintain a 2 percent ratio at all times thereafter.29

 

24In fiscal year 2011, FHA’s share of the market for home purchases was about 24

percent.

The act also required an annual independent actuarial review of the 

economic net worth and soundness of the MMIF. The actuarial review 

estimates the economic value of the MMIF as well as the capital ratio to 

determine whether the MMIF has met the capital standards in the act. 

The capital ratio has dropped sharply in recent years due to declines in 

home prices and increases in seriously delinquent loans and 

foreclosures. The most recent actuarial study shows that the capital ratio

is currently below the statutorily mandated level, at 0.24 percent, 

representing $2.6 billion in estimated capital resources against an active 

25GAO, Mortgage Financing: Opportunities to Enhance Management and Oversight of 

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

26FHA, Annual Management Report Fiscal Year 2009 (Washington D.C.: 2009). 

27HUD generally defines a first-time homebuyer as an individual who has had no 

ownership in a principal residence during the 3-year period ending on the date of 

purchase of the property. 

28See GAO-10-827R. 

2912 U.S.C. § 1711.
 

Page 8 GAO-12-592 Recovery Act

portfolio of $1.08 trillion.30 The MMIF has historically been sufficient to 

fund the FHA home mortgage insurance programs without additional 

funding from the federal government, but if the reserve were to be 

depleted, FHA would need to draw on permanent and indefinite budget 

authority to cover additional increases in estimated losses. A weakening 

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

that FHA will require additional federal funds. Our work has previously 

shown that 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 to the federal government while meeting the 

housing needs of borrowers.31

Lenders are responsible for underwriting the loans to determine an 

applicant’s eligibility for FHA mortgage insurance in accordance with FHA 

policies. Underwriting is a risk analysis that uses information collected 

during the loan origination process to decide whether to approve a loan 

for FHA insurance. Lenders employ automated underwriting— the 

process by which lenders enter information on potential borrowers into 

electronic systems that contain an evaluative formula, or algorithm, 

known as a scorecard. The scorecard attempts to quickly and objectively 

measure the borrower’s risk of default by examining data such as 

application information and credit score.32

 

30HUD, Annual Report to Congress, Fiscal Year 2011 Financial Status, FHA Mutual 

Mortgage Insurance Fund (Nov. 15, 2011), p. 33, 

Since 2004, FHA has used its 

own scorecard called Technology Open to Approved Lenders (TOTAL). 

FHA lenders now use TOTAL in conjunction with automated underwriting 

systems to determine the likelihood of default. Although TOTAL can 

assess the credit risk of a borrower, it does not reject a loan outright. 

Rather, TOTAL will assign a risk assessment of either “accept” or “refer” 

for each borrower. FHA requires lenders to manually underwrite loans 

that are assessed as “refer” by TOTAL to give a final determination if the 

loan should be accepted or rejected. According to FHA policy, a lender 

http://portal.hud.gov/hudportal/documents/huddoc?id=FHAMMIFundAnnRptFY2011.pdf. 

31GAO, Federal Housing Administration: Improvements Needed in Risk Assessment and 

Human Capital Management, GAO-12-15 (Washington, D.C.: Nov. 7, 2011).

32Credit scores assign a numeric value generally ranging from 300-850 to a borrower’s 

credit history, with higher values signifying better credit. Per FHA policy, applicants with 

credit scores below 500 are not qualified for FHA mortgage insurance.
 

Page 9 GAO-12-592 Recovery Act

remains accountable for compliance with FHA eligibility requirements, 

regardless of the risk assessment provided by TOTAL.

Virtually all of the lenders that participate in FHA’s mortgage insurance 

programs for single-family homes have direct endorsement authority. 

These lenders can underwrite and close mortgage loans without FHA’s 

prior review or approval.33 FHA insures lenders against nearly all losses 

resulting from foreclosed loans and covers 100 percent of the value of the 

loan. In general, foreclosure may be initiated when three monthly 

installments are due and unpaid, and it must be initiated when six monthly 

installments are due and unpaid, except when prohibited by law.34 To 

minimize the number of FHA loans entering foreclosure, servicers are 

responsible for pursuing various loss mitigation strategies, including 

suspended payments, loan modification, reduced mortgage payments, 

and sale of the property by the borrower. If, despite these loss mitigation 

strategies, the lender forecloses on the loan, the lender can file an 

insurance claim with FHA for the unpaid balance of the loan and other 

costs.35

Congress, through legislation, sets limits on the size of loans that may be 

insured by FHA. These loan limits vary by county and can change from 

year to year. To mitigate the effects from the economic downturn and the 

sharp reduction of mortgage credit availability from private sources, 

However, FHA reviews a selection of insured loans, including 

early payment defaults (loans at least 60 days delinquent in the first six 

payments), in part to minimize potential FHA losses and ensure the 

underwriting for these mortgages met FHA guidelines. Reviews revealing 

serious deficiencies may result in FHA requiring the lenders to 

compensate the department for financial losses, known as 

indemnification, which requires the lender to repay FHA for any losses 

that it incurs after a loan has gone into default and the property has been 

sold.

 

33According to FHA officials, direct endorsement lenders who participate in FHA’s lender 

insurance (LI) program can underwrite, close, and insure loans while those lenders 

without LI can underwrite and close loans, but FHA is still responsible for insuring the 

loans.

3424 C.F.R. § 203.606. State law may prohibit the start of foreclosure proceedings within 

the time frame specified by HUD. Also, military service of the borrower may delay 

foreclosure proceedings (24 C.F.R. § 203.346). 

3524 C.F.R. § 203.401.
 

Page 10 GAO-12-592 Recovery Act

Congress increased FHA loan limits. The Economic Stimulus Act (ESA) 

enacted in February 2008 stipulated that FHA loan limits be set 

temporarily at 125 percent of the median house price in each area,36 with 

a maximum loan limit of $729,750 for a one-unit home.37 Immediately 

prior to ESA’s enactment, the limits had been set at 95 percent of area 

median house prices.38 In July 2008, 5 months after passing ESA, 

Congress passed the Housing and Economic Recovery Act (HERA), 

which established new statutory limits of 115 percent of area median 

home prices.39,40

Congress passed the FTHBC to assist the struggling real estate market 

and encourage individuals to purchase their first home.

Then, in February 2009, Congress passed the Recovery 

Act, which stipulated that FHA loan limits for 2009 be set in each county 

at the higher dollar amount when comparing loan limits established under 

2008 ESA requirements and limits for 2009 under HERA.

41

 

36Pub. L. No. 110-185, § 202 (Feb. 13, 2008).

The credit was 

initially enacted by HERA and later revised by the Recovery Act. The 

2008 HERA FTHBC provided taxpayers a credit of up to $7,500 to be 

paid back over 15 years, essentially serving as an interest-free loan. In 

2009, the Recovery Act was enacted and increased the maximum credit 

for the 2009 FTHBC to $8,000, with no payback required unless the home 

is sold or ceases to be the taxpayer’s principal residence within 3 years of 

37Loan limits for one- through four-unit homes under ESA were $729,750, $934,200, 

$1,129,250, and $1,403,400, respectively.

38In 2007, the loan limits were 95 percent of the local median home price, with a maximum 

loan limit of $362,790 for one-unit homes. Limits for one- through four-unit homes were 

$362,790, $464,449, $561,441, and $697,696, respectively.

39Pub. L. No. 110-289, § 2111 (July 30, 2008). Loan limits for one- through four-unit 

homes under HERA were $625,500, $800,775, $967,950, and $1,202,925, respectively.

40Although loan limits under HERA were to be effective in 2009, they were not fully 

implemented due to a series of temporary measures passed by Congress, including the 

Recovery Act, to ensure the higher limits were allowed to continue.

41Under 26 U.S.C. § 36, a first-time home buyer has not had an ownership interest in any 

principal residence during the 3-year period prior to the date of the purchase of the home 

eligible for the credit. No credit is allowed for property (1) located outside the United 

States, (2) inherited, (3) purchased from a close relative, or (4) purchased by a 

nonresident alien.

First-Time Homebuyer 

Credit 
 

Page 11 GAO-12-592 Recovery Act

the purchase.42,43 The credit of up to $8,000 was a refundable tax credit 

paid out to the claimant if there was no tax liability or the credit exceeded 

the amount of any federal tax due. In July 2010, the Homebuyer 

Assistance and Improvement Act (HAIA) of 2010 extended the date to 

close on a home purchase to September 30, 2010.44

To protect federal government assets and minimize unintended costs to 

the government, OMB Circular A-129 states that individuals with 

delinquent federal debts are ineligible for loan insurance and prohibits 

federal agencies from issuing loans to such applicants; however, OMB’s 

policy allows individuals with delinquent federal taxes or other federal 

debt to attain eligibility by repaying their debt in full or entering into a valid 

repayment plan with the agency they owe.45 The policy states that 

agencies should determine if the applicant is eligible by including a 

question on loan applications asking applicants if they have such 

delinquencies. The policy also (1) requires agencies and lenders to use 

credit bureaus as screening tools, because tax liens resulting from 

delinquent tax debt typically appear on credit reports, and (2) encourages 

agencies to use HUD’s Credit Alert Interactive Voice Response System 

(CAIVRS), a database of delinquent federal debtors. CAIVRS contains 

delinquent debt information for six federal agencies; however, it does not 

contain any tax debts from IRS.46

 

42The 2008 FTHBC applies to purchases made from April 9, 2008, through December 31, 

2008. The 2008 FTHBC was amended by the 2009 credit, and applies to purchases made 

from January 1, 2009, through November 30, 2009.

According to OMB policy, if delinquent 

federal debts are discovered, processing of applications must be 

suspended until the applicant attains eligibility.

43The recapture provision is limited to the amount of gain on the sale, meaning a taxpayer 

could sell within 3 years and still not be required to make any repayments if the house was 

not sold for a gain. 26 U.S.C. § 36(f)(3).

44Pub. L. No. 111-198 (July 2, 2010). The FTHBC has now expired.

45OMB Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables, 

Appendix A § III (A)(1)(b). 

46The six agencies that submit delinquent debt information to CAIVRS are: (1) Department 

of Agriculture, (2) Department of Education, (3) Department of Justice, (4) Department of 

Housing and Urban Development, (5) Department of Veterans Affairs, and (6) Small 

Business Administration.

Federal Policies on Tax 

Debtors Receiving Federal 

Loan Insurance
 

Page 12 GAO-12-592 Recovery Act

FHA’s policies for lenders dictate that an FHA mortgage insurance 

applicant must be rejected if he or she is delinquent on any federal debt, 

including tax debt, or has a lien placed against his or her property for a 

debt owed to the federal government.47 Like OMB’s policy, FHA policy 

states that an applicant with federal debt may become eligible for 

mortgage insurance by repaying the debt in full or by entering into a valid 

repayment agreement with the federal agency owed, which must be 

verified in writing. Such repayment plans include IRS-accepted 

installment agreements and offers in compromise.48 To identify individuals 

with tax debt, FHA requires mortgage insurance applicants to declare 

whether they are delinquent or in default on any federal debt on their 

insurance application, the Uniform Residential Loan Application (URLA). 

As printed on the application, knowingly making any false statement on 

the URLA is a federal crime punishable by fine or imprisonment.49 FHA 

also requires that lenders review credit reports for all applicants to identify 

tax liens and other potential derogatory credit information.

In 2009, FHA insured over $1.44 billion in mortgages for 6,327 borrowers 

who at the same time had delinquent tax debt and benefited from the 

Recovery Act. According to IRS records, these borrowers had an 

estimated $77.6 million in unpaid federal taxes as of June 30, 2010. As 

figure 1 illustrates, our analysis included tax debtors who either benefited 

from FHA’s increased loan limits or who claimed the FTHBC and received 

FHA mortgage insurance of any value.50

 

47HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage Insurance (March 

2011).

Although federal policies did not 

prohibit tax debtors from claiming the FTHBC, they were ineligible for 

FHA mortgage insurance unless their delinquent federal taxes and other 

federal debt had been fully repaid or otherwise addressed through a 

repayment agreement. We could not determine the proportion of 

48An offer in compromise is an agreement between a tax debtor and IRS that resolves the 

tax debtor’s tax debt by accepting less than full payment.

4918 U.S.C. § 1001.

50Limitations with the FTHBC data we obtained from IRS required that we analyze 

FTHBCs for home buyers who also obtained FHA mortgage insurance—or approximately 

43 percent of all Recovery Act FTHBCs. Therefore, we were unable to identify FTHBCs 

for those who purchased their homes using cash, conventional mortgages, or other 

means. See appendix I for additional details on this limitation.

FHA Insured over 

$1.44 Billion in 

Mortgages for 

Thousands of 

Recovery Act 

Beneficiaries with 

Federal Tax Debt
 

Page 13 GAO-12-592 Recovery Act

borrowers who were ineligible because we could not systematically 

identify which of the 6,327 borrowers had valid repayment agreements at 

the time of the mortgage approval using IRS’s data; however, we found 

that five of our eight selected borrowers were not in valid repayment 

agreements at the time they obtained FHA mortgage insurance. In 

addition, FHA records indicate that borrowers with tax debt had serious 

delinquency (in default for 90 days or more) and foreclosure rates two to 

three times greater than borrowers without tax debt, which potentially 

represents an increased risk to FHA.51

 

51A mortgage is considered delinquent any time a payment is due and not paid. Once the 

borrower is 30 days late in making a payment, FHA considers the mortgage to be in 

default. Once the mortgage has been in default for 90 days or more it is considered to be 

seriously delinquent.
 

Page 14 GAO-12-592 Recovery Act

Figure 1: Tax Debtors who Benefitted from the Recovery Act Obtained $1.44 Billion in FHA Mortgage Insurance and $27.4 

Million in FTHBCs

Note: We cannot determine the proportion of borrowers who were ineligible for mortgage insurance 

because we could not systematically identify which of the 6,327 borrowers had valid repayment 

agreements using the data we received from IRS.
 

Page 15 GAO-12-592 Recovery Act

In 2009, FHA insured $759.3 million in mortgages for 2,646 individuals 

who owed $35.5 million in unpaid federal taxes as of June 30, 2010, 

under the Recovery Act’s provision for increased loan limits.52 These 

borrowers and coborrowers obtained 1,913 insured mortgages with a 

median value of $352,309 and had a median tax debt of $6,290 per 

person.53

Using IRS data, we cannot systematically determine which of these 

individuals was in a valid repayment agreement at the time of the 

mortgage, and therefore cannot determine whether insuring each of these 

1,913 mortgages was improper, but it is possible that borrowers with tax 

debt represent a greater financial risk to the federal government.

Their mortgages accounted for 3.7 percent of the 52,006 

mortgages FHA insured under Recovery Act provisions for increased 

limits in 2009, which in turn represented 2.5 percent of all mortgages 

insured by FHA in 2009. Our analysis likely understates the amount of 

unpaid federal taxes because IRS data do not cover individuals who fail 

to file tax returns or who understate their income. Of the 18 selected 

individuals who benefitted from increased loan limits for FHA mortgage 

insurance or received the FTHBC under the Recovery Act, we found that 

11 had not filed all of their federal tax returns. 

54

 

52Our analysis of Recovery Act mortgage insurance borrowers with tax debt as of June 

30, 2010, excluded (1) tax debts that have not been agreed to by the tax debtor or 

affirmed by the court (i.e., tax debts that IRS classified as compliance assessments or 

memo accounts for financial reporting), (2) tax debts from calendar year 2009 and 2010 

tax periods, (3) tax debts that were assessed by IRS after the mortgage insurance was 

issued, and (4) tax debts of less than $100. Additionally, there is generally a 10-year 

statutory collection period beyond which IRS is prohibited from attempting to collect tax 

debt. 26 U.S.C. § 6502. Tax debts that are beyond this statutory period are not included in 

our analysis.

As 

illustrated in figure 2, serious delinquency and foreclosure rates among 

Recovery Act borrowers with unpaid federal taxes were at least twice as 

53FHA-insured mortgages may have one borrower and up to four coborrowers. We 

included the borrower and first coborrower in our analysis. We found instances in which 

the borrower and coborrower both had federal tax debt, thus, the number of borrowers is 

greater than the number of mortgages. For the purposes of this report, we refer to both 

borrowers and coborrowers as borrowers. 

54We are unable to systematically determine which individuals were in repayment 

agreements at the time of the mortgage due to timing differences in the data we used. The 

IRS data on unpaid federal tax debts are as of June 2010, while each of the borrowers 

included in our analysis received mortgage insurance in 2009. Therefore, we are unable to 

systematically determine whether each borrower was in a valid repayment agreement on 

the day the borrower received mortgage insurance.

FHA Insured $759.3 Million 

in Mortgages for Tax 

Debtors Benefitting from 

the Recovery Act’s 

Increased Loan Limits 
 

Page 16 GAO-12-592 Recovery Act

high as the rates for other borrowers. As of September 2011, 32 percent 

of the 1,913 mortgages made to borrowers with tax debt were seriously 

delinquent on their payments, compared with 15.4 percent of other FHAinsured mortgages. About 6.3 percent of the mortgages for borrowers 

with tax debt went into foreclosure since the home was purchased in 

2009, compared with 2.4 percent for others.55,56

Figure 2: Serious Delinquency and Foreclosure Rates for Borrowers Who Received Increased FHA Mortgage Insurance under 

the Recovery Act with Tax Debt Compared to Borrowers without Tax Debt

The homes foreclosed 

after they were purchased by tax debtors were insured for $44.9 million, 

potentially leaving FHA responsible for paying claims for the remaining 

loan balance and certain interest and foreclosure costs. FHA recovers 

some of these costs when it sells the property.

Finally, FHA’s increased exposure to risk from insuring tax debtors is 

unlikely to be limited to Recovery Act beneficiaries. Because FHA uses 

identical methods to insure non-Recovery Act mortgages, it is reasonable 

to assume that some portion of FHA borrowers for the remaining 97.5 

 

55In general, foreclosure may be initiated when three monthly installments are due and 

unpaid and must be initiated when six monthly installments are due and unpaid, except 

when prohibited by law.

56We could not assess the likelihood of serious delinquency and foreclosure based on 

other characteristics that may be associated with these events (e.g., credit score of the 

borrower, loan-to-value ratio of the mortgage, etc.) and therefore are not suggesting that 

tax debt is the only or strongest factor associated with serious delinquency or foreclosure.
 

Page 17 GAO-12-592 Recovery Act

percent of mortgages we did not analyze as part of this review are tax 

debtors.

In 2009, $717.2 million in FHA mortgage insurance and $27.4 million in 

Recovery Act FTHBCs were provided to 3,815 individuals who owed an 

estimated $43.5 million in unpaid federal taxes.57 These borrowers 

obtained 3,812 insured mortgages with a median value of $167,887 and 

had a median unpaid tax amount of $5,044 per person.58 Their mortgages 

represented 0.5 percent of the 700,003 mortgages insured by FHA for 

borrowers who claimed the FTHBC.59

As illustrated in figure 3, we found that serious delinquency and 

foreclosure rates for mortgages obtained by FHA borrowers with federal 

tax debts who received the FTHBC were two to three times higher than 

the rates for other borrowers. As of September 2011, 26.9 percent of the 

3,812 mortgages made to borrowers with unpaid tax debts were seriously 

delinquent on their payments, compared with 11.9 percent of borrowers 

without tax debt who received the FTHBC and FHA mortgage insurance. 

About 4.7 percent of the mortgages of borrowers with tax debt were 

foreclosed, compared with 1.4 percent for other borrowers. The 181 

As discussed above, we were 

unable to determine the proportion of the mortgage insurance that was 

provided to borrowers who were, in fact, eligible as a result of entering 

into a valid repayment agreement with IRS. We found that three of our 

eight selected borrowers were in valid repayment agreements at the time 

they obtained FHA mortgage insurance.

 

57Our analysis of Recovery Act mortgage insurance borrowers with tax debt as of June 

30, 2010, excluded (1) tax debts that have not been agreed to by the tax debtor or 

affirmed by the court, i.e., tax debts that IRS classified as compliance assessments or 

memo accounts for financial reporting; (2) tax debts from calendar years 2009 and 2010 

tax periods; (3) tax debts that were assessed by IRS after the mortgage insurance was 

issued; and (4) tax debts of less than $100. Additionally, there is generally a 10-year 

statutory collection period beyond which IRS is prohibited from attempting to collect tax 

debt.26 U.S.C. § 6502. Tax debts that are beyond this statutory period are not included in 

our analysis.

58We found instances in which the borrower and coborrower both had federal tax debt and 

claimed the FTHBC, thus, the number of borrowers is greater than the number of 

mortgages.

59Any Recovery Act FTHBC recipient whose credit value was greater than their 

outstanding tax liability would not be included in our IRS June 30, 2010, file because the 

refundable credit would have eliminated their outstanding tax liability.

$717.2 Million in FHA 

Mortgage Insurance Was 

Provided to Tax Debtors 

Who Claimed $27.4 Million 

in Recovery Act FTHBCs
 

Page 18 GAO-12-592 Recovery Act

foreclosed homes purchased by tax debtors had a total mortgage 

insurance value of $36.5 million, potentially resulting in a loss to the 

MMIF.

Figure 3: Serious Delinquency and Foreclosure Rates for Borrowers with Tax Debt Who Claimed the FTHBC under The 

Recovery Act Compared to Borrowers without Tax Debt

The FTHBC is a refundable credit, meaning taxpayers could receive 

payments in excess of their tax liability. Federal law typically requires that 

any federal tax refund be offset to pay down an individual’s unpaid 

taxes.60 Of the 3,815 borrowers we identified with tax debt, 233 received 

a federal tax refund after claiming the FTHBC. We selected 9 of these 

borrowers for a detailed review and found that all 9 were issued refunds 

in accordance with federal law. For example, three of these cases had 

filed bankruptcy prior to receiving the refund. Federal bankruptcy law 

prevents IRS from taking collections actions, such as offsetting 

postpetition refunds, against individuals undergoing bankruptcy 

proceedings.61

 

6026 U.S.C. § 6402(d). 

6111 U.S.C. § 362(b)(26). 
 

Page 19 GAO-12-592 Recovery Act

The amounts of unpaid federal taxes, mortgage insurance, and FTHBCs 

we identified are likely understated for the following reasons:

• Certain individuals did not file tax returns or underreported their 

income, and therefore are not included in our analysis.

• Data limitations in the FTHBC data prevented us from isolating all 

individuals who benefitted from the FTHBC under the Recovery Act.62

• Any Recovery Act FTHBC recipient whose FTHBC was greater than 

their outstanding tax liability would not be included in our analysis 

because the refundable credit would have offset their outstanding tax 

liability. Federal law generally requires that IRS offset any refund 

against an individual’s tax liability.63

Some ineligible tax debtors received FHA mortgage insurance, in part, 

due to shortcomings in the capacity of FHA-required documentation to 

identify tax debts and shortcomings in other policies that lenders may 

misinterpret. Lenders are required by FHA policy to perform steps to 

identify an applicant’s federal debt status, but the information provided by 

these steps does not reliably indicate an applicant’s tax debt. Statutory 

restrictions limit the disclosure of taxpayer information without the 

taxpayer’s consent. Lenders are already required to obtain such consent 

through an IRS form they use to validate the income of some applicants. 

This same form could also be used to obtain permission from applicants 

to access reliable tax-debt information directly from IRS, but doing so is 

not addressed in FHA’s policies. Requiring lenders to collect more reliable 

information on tax debts could better prevent ineligible tax debtors from 

obtaining FHA mortgage insurance. Further, FHA’s policies requiring 

lenders to investigate whether tax liens indicate unresolved tax debt are 

unclear and may be misinterpreted. The lenders we spoke with believed 

they were in compliance with FHA policies when they provided FHAinsured loans to applicants with tax liens, but FHA officials indicated 

otherwise. As a result of these shortcomings, lenders may approve 

federally insured mortgages for ineligible applicants with delinquent tax 

debt in violation of federal policies.

 

62We were only able to identify and analyze about 43 percent of all Recovery Act 

FTHBCs. Additional details on scope limitations related to the FTHBC can be found in 

appendix I.

6326 U.S.C. § 6402(d). 

Shortcomings in the 

Capacity of FHARequired 

Documentation to 

Identify Tax Debts 

and in Certain 

Policies Allow Tax 

Debtors to Obtain 

Mortgage Insurance
 

Page 20 GAO-12-592 Recovery Act

Consistent with OMB policies, FHA has lender policies intended to 

prevent ineligible tax debtors from obtaining FHA mortgage insurance; 

however, the information the agency requires lenders to collect does not 

reliably indicate the existence of federal tax debt. The three sources of 

information FHA requires lenders to obtain each have shortcomings in 

their capacity to identify borrowers’ tax debts:

• Uniform Residential Loan Application (URLA). The URLA requires that 

applicants declare any federal debt that is delinquent or in default. 

The URLA also requires applicants to disclose any liabilities, including 

tax debt, so a lender can assess the applicant’s ability to repay the 

proposed mortgage. While knowingly making false statements on an 

URLA is a federal crime and may deter some from lying about their 

tax debt, much of our work has focused on the inadequacies of selfreported information without independent verification.64 In fact, our 

comparison of the URLAs in eight mortgage files with IRS tax data 

revealed that five borrowers wrongly declared they were not, by FHA’s 

definition, delinquent or in default on federal tax debt (e.g., not in a 

valid IRS repayment agreement).65 In addition, six of the borrowers 

did not properly disclose the tax debts on the liabilities section of the 

URLA. Because of the federal statute that prohibits the disclosure of 

taxpayer information, we are unable to refer these cases to FHA for 

further investigation.66 Excerpts of the URLA where applicants are 

required to disclose any debts that may affect their eligibility for FHA 

mortgage insurance or their ability to repay the proposed mortgage 

are illustrated in appendix II.

• CAIVRS. FHA requires that lenders check all applicants against 

CAIVRS, HUD’s database of delinquent federal debtors, to identify 

federal debts. While it contains delinquent debt information from six 

 

64GAO, Service-Disabled Veteran-Owned Small Business Program: Governmentwide 

Fraud Prevention Control Weaknesses Leave Program Vulnerable to Fraud and Abuse, 

but VA Has Made Progress in Improving Its Verification Process. GAO-12-443T 

(Washington, D.C.: Feb. 7, 2012), and Energy Star Program: Covert Testing Shows the 

Energy Star Program Certification Process Is Vulnerable to Fraud and Abuse. 

GAO-10-470 (Washington, D.C.: Mar. 5, 2010).

65We requested IRS notes, detailed account transcripts, and other records from IRS as 

well as mortgage files from FHA for 18 individuals. Of these requested cases, FHA 

provided us information that only allowed us to fully analyze 8 of them. For additional 

details on our selection methodology, see appendix I.

6626 U.S.C. § 6103. 

Information That FHA 

Requires Lenders to 

Collect on Mortgage 

Applicants Does Not 

Reliably Indicate the 

Existence of Federal Tax 

Debt
 

Page 21 GAO-12-592 Recovery Act

agencies, such as the Department of Education and the Small 

Business Administration, CAIVRS does not contain federal tax 

information from IRS because statutory restrictions generally prohibit 

IRS from disclosing taxpayer information without the taxpayer’s

consent. Two of the three lenders we spoke with mistakenly believed 

CAIVRS could be used to identify federal tax debt.

• Credit reports. Lenders told us that credit reports, which contain public 

records such as federal tax liens, were a primary method of identifying 

liens to indicate certain tax debts. However, delinquent federal taxes 

do not always appear on credit reports because IRS does not file liens 

on all tax debtors with property. In addition, many FHA borrowers are 

first-time home buyers and may not have real property on which IRS 

can place a lien. IRS records indicated that only two of our eight 

selected borrowers had tax liens filed against them at the time they 

obtained FHA mortgage insurance.

Lenders using only these FHA-required methods for identifying tax debt 

are missing an opportunity to more accurately determine whether 

applicants are eligible for FHA-insured mortgages, in part, because they 

do not have access to certain information. Access to the federal tax 

information needed to obtain the tax payment status of applicants is 

restricted under section 6103 of the Internal Revenue Code, which 

prohibits disclosure of taxpayer data to lenders in most instances. 

However, lenders may request information on federal tax debts directly 

from IRS if the applicant provides consent. To verify the income of selfemployed and commission-income applicants, FHA requires that lenders 

obtain an applicant-signed consent form allowing the lender to verify the 

applicant’s income directly with IRS. 

The three lenders we spoke with indicated they use IRS form 4506-T 

Request for Transcript of Tax Return to satisfy this requirement. FHA 

could also compel lenders to use this form or otherwise obtain borrower 

consent to identify tax debts.67

 

67FHA policy allows lenders to use IRS form 4506 Request for Copy of Tax Return, IRS 

form 4506-T Request for Transcript of Tax Return, or any other document that is 

appropriate for obtaining tax returns from IRS. Any of these options could be used to 

obtain the financial status of an applicant’s account, so long as it includes the same 

information and provides for the taxpayer's signature and date of signature.

Files for four of our eight selected 

borrowers had a copy of the IRS Form 4506-T in their FHA mortgage 

files. The lenders for these borrowers used the 4506-T only to validate 
 

Page 22 GAO-12-592 Recovery Act

income by requesting federal tax return transcripts and did not use the 

form to request account transcripts that would have disclosed tax debt 

information. None of the eight mortgage files contained IRS tax account 

transcripts. Officials from each of the lenders we interviewed said it is 

their policy to use the 4506-T only to validate the income of these 

applicants, as this is the requirement under FHA policies. Officials from 

two of the lenders used the form to verify income for all borrowers.68

As shown in figure 4, checking box 6a on the form allows a lender to 

obtain tax return transcripts for applicants, which do not disclose tax debt 

information. Checking box 6b would allow a lender to request and receive 

account transcripts. Account transcripts contain information on the 

financial status of the account, including information on any existing tax 

debts.

In 

contrast, officials from the third lender stated that they executed this form 

for a random sample of additional applicants for income verification, but 

noted that doing so for every applicant would be too burdensome.

69

 

68IRS form 4506-T is not used to verify income when the applicant is applying for a 

streamline refinance (a refinance of an existing FHA mortgage that requires limited 

documentation).

These transcripts would allow a lender to identify federal taxes 

owed by any applicant, including debts not found on credit reports 

because a federal tax lien does not exist. Checking box 6c would allow a 

lender to obtain both tax return transcripts and account transcripts, which

the lender could use to verify the income of an applicant as well as 

identify whether the applicant has federal tax debt. The lender may 

request account transcripts only for the current year and up to 3 prior 

years and must state the requested years on the form; transcripts beyond 

this are generally unavailable. Despite this limitation, the IRS form 4506-T 

could serve as a method for lenders to identify loan applicants with 

unpaid debt. Without such a method, lenders may approve federally 

insured mortgages for ineligible applicants with delinquent tax debt in 

violation of OMB and FHA policies.

69IRS returns the information requested on IRS form 4506-T within 10 business days at no 

expense to the requester, or within 48 hours through the IRS Income Verification Express 

Service (IVES) at an expense of $2.00, according to IRS officials.
 

Page 23 GAO-12-592 Recovery Act

Figure 4: Excerpt of IRS Form 4506-T 

Note: In practice, records of account and account transcripts are processed in the same amount of 

time as tax return transcripts (i.e., 10 business days) or within 48 hours through the IRS Income 

Verification Express Service at an expense of $2.

All three lenders we spoke with unknowingly violated FHA policies on 

requirements to investigate tax liens. Federal tax liens remain on a 

property until the associated tax debt has been paid in full or otherwise 

satisfied.70

 

70During prior audits of IRS's financial statement, we found that IRS did not always 

release the applicable federal tax lien within 30 days after a tax liability is satisfied, either 

through payment or abatement, as required by the Internal Revenue Code. See GAO, 

Financial Audit: IRS’s Fiscal Years 2011 and 2010 Financial Statements, 

The presence of a lien does not prevent an applicant from 

receiving FHA mortgage insurance because, per OMB and FHA policies, 

applicants are eligible for mortgage insurance if they are in a valid 

repayment agreement. However, according to FHA officials, FHA requires 

lenders to investigate whether the tax debt that caused the lien has been 

GAO-12-165 

(Washington, D.C.: Nov. 10, 2011). 

Shortcomings in FHA 

Policies May Have Led to 

Ineligible Tax Debtors 

Obtaining Mortgage 

Insurance 
 

Page 24 GAO-12-592 Recovery Act

resolved or brought current under a repayment plan. If it has not, 

insurance must be denied. Lenders understood these policies to have 

exemptions for some applicants. FHA officials told us that endorsing a 

mortgage without determining applicant eligibility by investigating the 

status of tax debts related to federal tax liens for any applicant is improper 

due diligence.

Specifically, officials from two of the three lenders said they would 

approve FHA insurance for applicants with a federal tax lien on their 

credit report if IRS agreed to subordinate the lien to FHA.71,72 The lenders 

believed this was in accordance with FHA policy that indicates that tax 

liens may remain unpaid if the lien holder subordinates the lien to FHA. 

One of the lenders told us that this policy could potentially allow ineligible 

applicants with delinquent federal tax debt to obtain FHA mortgage 

insurance. However, FHA officials told us that this policy is only 

applicable if the lender has previously determined the applicant is eligible 

by investigating the lien (i.e., requesting verification from IRS that they 

have repaid their debt or are in a repayment agreement). See figure 5 for

FHA policy excerpts.

 

71Lien subordination is when IRS allows a later lien to take precedence over the federal 

tax lien.

72One of the lenders said they would approve FHA insurance in this manner as long as 

TOTAL rated the applicant as “accept.” This lender subsequently told us that applicants 

with federal tax liens are ineligible for FHA mortgage insurance unless they have repaid 

their tax debt or entered into a valid repayment agreement with IRS; however, this lender’s 

written policies show that reviewing credit reports for tax liens is not required for applicants 

for whom TOTAL rates as “accept.”
 

Page 25 GAO-12-592 Recovery Act

Figure 5: FHA Policy Excerpts on Tax Debt That Some Lenders Misinterpret

Officials from the third lender said they would approve any applicant rated 

as “accept” by TOTAL without additional review or manual underwriting, 

even if the applicant’s credit report showed a tax lien. The officials 

believed this was consistent with FHA policy because TOTAL would not 

have granted an “accept” unless the application met FHA requirements. 

However, FHA officials told us that while TOTAL considers an applicant’s 

credit score in its risk evaluation, it does not consider other factors such 

as tax liens. FHA guidance states that the lender remains accountable for 
 

Page 26 GAO-12-592 Recovery Act

compliance with FHA eligibility requirements, regardless of the risk 

assessment provided by TOTAL.

Due to potential shortcomings in FHA policies, lenders may misinterpret 

them, which could result in lenders approving federally insured mortgages 

for ineligible applicants with delinquent tax debt in violation of OMB and 

FHA policies. Our review was limited to mortgages obtained under the 

Recovery Act provisions; however, these policies are the same for all 

FHA mortgages. Our review included only a small percentage of all 

mortgages insured by FHA in 2009, and it is likely that FHA’s unclear 

policies may negatively affect some of the other mortgages.

FHA has helped millions of families purchase homes through its singlefamily mortgage insurance programs. As more and more Americans turn 

to FHA to finance their homes, it is critical for FHA to ensure that it has 

policies in place to minimize financial risks to the federal government 

while meeting the housing needs of borrowers. Tax debtors who were 

ineligible for FHA mortgage insurance were still able to obtain insurance, 

despite FHA policies intended to prohibit this. Our review focused 

exclusively on individuals who benefitted from the Recovery Act, which 

only accounted for a small percentage of FHA borrowers in 2009; 

nevertheless we were able to identify thousands of tax debtors who 

obtained insurance. These debtors became seriously delinquent in their 

payments and lost their homes to foreclosures at a higher rate than those 

without tax debt. 

Current shortcomings we found in the capacity of available information 

sources to identify applicants’ tax debts could be addressed by improved 

access to federal tax information. But because FHA’s underwriting 

policies apply equally to all mortgage insurance applicants, it is likely that 

loans we did not review also included tax debtors. To ensure compliance 

with the confidentiality requirements associated with the disclosure of 

taxpayer information, FHA would need to consult with IRS to take action 

to identify tax debtors who are ineligible for FHA mortgage insurance, as 

has been done to verify the income of certain applicants. This would 

include developing appropriate criteria and safeguards to ensure taxpayer 

privacy and minimize undue approval delays. In addition, strengthening 

FHA policies and their interpretation by lenders can help prevent ineligible 

tax debtors from continuing to receive the benefit of FHA insurance. To 

the extent that borrowers with tax debt represent additional risk, FHA 

could minimize the potential for this risk by taking steps to address the 

issues identified in this report.

Conclusion 
 

Page 27 GAO-12-592 Recovery Act

The Secretary of HUD should direct the Assistant Secretary for Housing 

(Federal Housing Commissioner) to implement the following two 

recommendations:

• Consult with IRS to develop written policies requiring lenders to collect 

and evaluate IRS documentation appropriate for identifying ineligible 

applicants with unpaid federal taxes, while fully complying with the 

statutory restriction on disclosure of taxpayer information. For 

example, FHA could require lenders to obtain consent from borrowers 

to allow FHA and its lenders to verify with IRS whether recipients of 

FHA insurance have unpaid federal taxes.

• Provide FHA lenders with revised policies or additional guidance on 

borrower ineligibility due to delinquent federal debts and tax liens to 

more clearly distinguish requirements for lenders to investigate any 

indication that an applicant has federal tax debt (such as a federal tax 

lien) to provide reasonable assurance that ineligible borrowers do not 

receive FHA mortgage insurance.

We provided a draft of this report to IRS and HUD for review and 

comment. IRS did not have any comments in response to the draft report. 

The Acting Assistant Secretary for Housing (Federal Housing 

Commissioner) provided a written response which is reprinted in 

appendix III.

In HUD’s response, the agency agreed with our recommendations and 

acknowledged that current policies and procedures may fail to identify all 

potential borrowers with delinquent tax debt. To address our 

recommendations, FHA stated that it would contact IRS in an effort to 

establish executable policy that may identify delinquent tax debtors. 

Further, the agency affirmed that it would execute changes to current 

FHA requirements for lenders in order to address the concerns 

discovered through the audit. Included in its written response, HUD 

provided technical comments which were incorporated into this report. 

Specifically, HUD recommended that we change the terminology used to 

characterize federal tax debts. According to HUD, this suggested change 

would provide clarity and avoid the appearance that FHA knew of 

delinquent tax debts. We agreed to make the recommended change. 

However, for certain cases included in our review, evidence indicates that 

FHA-approved lenders were aware of tax debts. 

As agreed with your offices, unless you publicly release its contents 

earlier we plan no further distribution of this report until 30 days from its 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 28 GAO-12-592 Recovery Act

issue date. At that time, we will send copies of this report to interested 

congressional committees, the Secretary of the Treasury, the Secretary of 

Housing and Urban Development, the Commissioner of Internal Revenue,

the Acting Assistant Secretary for Housing (Federal Housing 

Commissioner), and other interested parties. The report is also available 

at no charge on the GAO Web site at http://www.gao.gov. If you have any 

questions concerning this report, please contact Gregory D. Kutz at (202) 

512-6722 or kutzg@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Major contributors to this report are acknowledged in 

appendix IV.

Gregory D. Kutz

Director

Forensic Audits and Investigative Service
 

Page 29 GAO-12-592 Recovery Act

List of Congressional Requesters

The Honorable Max Baucus

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Charles Grassley

Ranking Member

Committee on the Judiciary

United States Senate 

The Honorable Carl Levin

Chairman

The Honorable Tom Coburn, M.D. 

Ranking Member

Permanent Subcommittee on Investigations

Committee on Homeland Security and Governmental Affairs

United States Senate
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-12-592 Recovery Act

Our objectives were to determine: (1) the extent to which tax debtors 

benefited from the Recovery Act’s provisions for increased Federal 

Housing Administration (FHA) loan limits and the First-Time Homebuyer 

Credit (FTHBC); and (2) what challenges, if any, FHA faces in preventing 

ineligible tax debtors from receiving mortgage insurance.

To determine the extent to which individuals with unpaid tax debt 

benefited from the Recovery Act’s provision for increased loan limits on 

FHA mortgage insurance, we obtained and analyzed electronic data from 

FHA’s Single Family Data Warehouse (SFDW) as of September 2011.1

We also obtained and analyzed tax debt data from the Internal Revenue 

Service (IRS) as of June 30, 2010.2 Using the taxpayer identification 

numbers (TIN) present in these data, we electronically matched IRS’s tax 

debt data to the population we identified of Recovery Act borrower Social 

Security numbers (SSN) from the SFDW.3 The Recovery Act stipulated 

that revised FHA loan limits for 2009 be set in each county at the higher 

of the loan limits established under the Economic Stimulus Act of 2008 

(ESA) or those established under the Housing and Economic Recovery 

Act of 2009 (HERA). Since loan limits would have reverted to HERAestablished rates if the Recovery Act had not been promulgated, we 

considered an FHA borrower to be part of our Recovery Act population if 

he or she obtained mortgage insurance in 2009 at a value greater than 

would have been authorized under HERA.4,5

 

1

FHA’s SFDW is an information system used to obtain case-level information covering all 

the processes in the mortgage insurance lifecycle. The SFDW contains Social Security 

numbers for the primary borrower and up to four coborrowers. For the purposes of this 

audit, we have limited our scope to the primary borrower and first coborrower, if 

applicable.

FHA officials agreed with 

this methodology.

2

The FTHBC under the Recovery Act had to be claimed on either a 2008 or 2009 tax 

return. Because returns for the 2009 tax year were due by April 15, 2010, all claims filed 

on time, without an extension, would be accounted for in the July 2010 data.

3

A TIN is a unique nine-digit identifier assigned to each business and individual that files a 

tax return. For most individuals, the Social Security number is the TIN. For businesses, 

the employer identification number assigned by IRS serves as the TIN. 

4

Loan limits set forth under HERA were to be in place in 2009, but they were not fully 

implemented until October 2011 due to a series of temporary measures, including the 

Recovery Act, to ensure that higher limits were allowed to continue.

5

The Recovery Act applied for borrowers with credit approval dates—the underwriters’ 

approval date of the loan—in calendar year 2009.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-12-592 Recovery Act

To determine the extent to which individuals with unpaid taxes received 

the FTHBC under the Recovery Act, we obtained and analyzed FTHBC 

transaction data from IRS as of July 10, 2010, and then electronically 

matched IRS’s tax debt data to the population of individuals who claimed 

the FTHBC under the Recovery Act.6 Since IRS’s FTHBC data do not 

contain home purchase dates, we were unable to isolate all individuals 

who benefitted from the FTHBC under the Recovery Act. As a result, we 

used the SFDW to obtain home purchase dates to determine which 

FTHBCs were awarded under the Recovery Act. We electronically 

matched the FTHBC transaction data TINs with the SSNs in the SFDW 

and extracted mortgages with closing dates from January 1, 2009, 

through November 30, 2009, to identify a population of Recovery Act 

FTHBC recipients with FHA mortgage insurance. We identified 722,003 

FTHBC claims associated with the Recovery Act for individuals who 

financed their home using FHA mortgage insurance, and in our prior work 

we found that there were 1,669,081 FTHBC claims filed under the 

Recovery Act.7

Therefore, our analysis includes two groups:

Therefore, we estimate that our analysis includes 

approximately 43 percent of all FTHBCs claimed under the Recovery Act.

1. individuals who received FHA mortgage insurance under the higher 

limits authorized under the Recovery Act, and

2. individuals who received the FTHBC under the Recovery Act and 

obtained FHA mortgage insurance of any value.

Further, to determine the extent to which these Recovery Act FTHBC 

recipients with unpaid tax debt received federal tax refunds in the same 

year they claimed the FTHBC, we obtained and analyzed federal tax 

refund data from IRS from fiscal years 2009 and 2010.8

 

6

The FTHBC was available under the Recovery Act for homes purchased from January 1, 

2009, through November 30, 2009.

We electronically 

matched the refund data TINs with the TINs we identified to be FHA 

7

GAO, Tax Administration: Usage and Selected Analyses of the First-Time Homebuyer 

Credit, GAO-10-1025R (Washington, D.C.: Sept. 2, 2010).

8

We removed refunds that occurred after June 30, 2010, because our unpaid tax data 

from IRS were as of this date. This was necessary because we would not have been able 

to identify whether an individual had paid off their federal tax debt if they had done so after 

June 30, 2010.
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-12-592 Recovery Act

mortgage insurance borrowers who claimed the FTHBC under the 

Recovery Act while having unpaid federal tax debt.

To avoid overestimating the amount owed by borrowers who benefitted 

from the increased loan limits for FHA mortgage insurance under the 

Recovery Act and FTHBC recipients with unpaid federal tax debts, and to 

capture only significant tax debts, we excluded from our analysis tax 

debts meeting specific criteria to establish a minimum threshold in the 

amount of tax debt to be considered when determining whether a tax debt 

is significant. The criteria we used to exclude tax debts are as follows:

• tax debts IRS classified as compliance assessments or memo 

accounts for financial reporting,9

• tax debts from calendar years 2009 and 2010 tax periods,10

• tax debts that were assessed by IRS after the mortgage insurance 

was issued, and

• tax debts from individuals with total unpaid taxes of less than $100.

The criteria above were used to exclude tax debts that might be under 

dispute or generally duplicative or invalid, and tax debts that were

recently incurred. Specifically, compliance assessments or memo 

accounts were excluded because these taxes have neither been agreed 

to by the taxpayers nor affirmed by the court, or these taxes could be 

invalid or duplicative of other taxes already reported. We also excluded 

tax debts from calendar years 2009 and 2010 tax periods to eliminate tax 

debt that may involve matters that are routinely resolved between the 

taxpayers and IRS, with the taxes paid or abated within a short time. We 

excluded any debts that were assessed by IRS after the mortgage 

insurance was received because those debts would not have been 

included in IRS records at the time the mortgage insurance was issued. 

We also excluded tax debts of less than $100 because we considered 

them insignificant for the purpose of determining the extent of taxes owed 

by Recovery Act recipients. Using these criteria, we identified at least 

6,327 Recovery Act recipients with federal tax debt.

 

9

Under federal accounting standards, unpaid assessments require taxpayer or court 

agreement to be considered federal taxes receivables. Compliance assessments and 

memo accounts are not considered federal taxes receivable because they are not agreed 

to by taxpayers or the courts.

10The length of a delinquent tax period is dependent on the type of tax owed. For 

instance, income taxes are assessed on an annual basis; payroll taxes are assessed on a 

quarterly basis. 
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-12-592 Recovery Act

To provide examples of Recovery Act recipients who have unpaid federal 

taxes, we selected a non-probability sample of Recovery Act beneficiaries 

for a detailed review. We used the selection criteria below to provide 

examples that illustrate the sizeable amounts of taxes owed by some 

individuals who benefitted from the Recovery Act:

• We selected nine individuals who benefitted from increased FHA 

mortgage limits who had (1) large amounts of unpaid federal tax debt 

(at least $100,000), (2) at least three delinquent tax periods, and (3) 

indications of IRS penalties or home foreclosures.

• We also selected nine individuals who benefitted from the FTHBC and 

obtained FHA mortgage insurance of any value who had (1) large 

amounts of unpaid federal tax debt (at least $50,000), (2) at least five 

delinquent tax periods, (3) FHA mortgage insurance of $200,000 or 

more, and (4) indications of IRS penalties or home foreclosures.11

We requested IRS notes, detailed account transcripts, and other records 

from IRS as well as mortgage files from FHA for these 18 individuals. Of 

the 18 total requested cases, FHA provided us information that only 

allowed us to fully analyze 8 of them.12,13 Although we did not receive 

complete information necessary to fully analyze the remaining cases, we 

were able to assess all 18 for limited purposes (e.g., nonfiling of tax 

returns). We also selected 9 additional cases of FTHBC recipients who 

received tax refunds to determine how they were able to receive federal 

tax refunds while having unpaid federal taxes.14

 

11The value of mortgage insurance was not a criterion in selecting cases for borrowers 

who obtained FHA mortgage insurance under the Recovery Act because all of these 

mortgages were as a result of increased FHA loan limits in high-cost areas. For each of 

the two groups included in our analysis, we selected two cases with IRS civil penalties for 

noncompliance and two cases in which the home had been foreclosed.

For these 9, we selected 

12To mask the identities of the tax debtors included in our case studies, we requested 

additional files from FHA that were not tax debtors. 

13FHA and IRS provided us some information on an additional three cases; however, we 

found that two of these cases did not have outstanding debt at the time they obtained FHA 

mortgage insurance, because they were either deemed an innocent spouse (granted relief 

from a joint tax liability) or had satisfied the repayment portion on an offer in compromise 

(an agreement to settle the debt for less than the amount owed).The third case’s debt had 

been removed from IRS because it was beyond the 10-year statutory collection period at 

the time we received the IRS records, therefore we did not include them in our analysis. 

We did not receive FHA mortgage files from FHA for the remaining seven cases because 

the lenders for these files had either gone out of business or were not otherwise required 

to provide the mortgage file, according to FHA officials.

14 We did not request FHA mortgage files for these nine cases.
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-592 Recovery Act

individuals who had (1) at least $5,000 in unpaid federal tax debt, (2) at 

least three delinquent tax periods, and (3) a federal tax refund value of at 

least $5,000. All of our cases were selected to illustrate the sizeable 

amounts of taxes owed by some individuals who benefitted from the

Recovery Act. None of our case selections provide information that can 

be generalized beyond the specific cases presented.

To analyze the controls FHA has in place to prevent ineligible individuals 

with unpaid federal tax debt from receiving mortgage insurance, we 

reviewed FHA’s lender credit analysis and underwriting handbook, 

mortgagee letters, and reports from GAO and HUD’s Office of Inspector 

General.15,16

To understand how private lenders interpret and implement FHA’s 

guidelines for preventing individuals with delinquent federal tax debt from 

receiving mortgage insurance, we interviewed senior-level officials from 

three large FHA-approved lenders. We selected four lenders based on 

the following criteria: (1) we selected the two largest lenders in terms of 

the number of FHA loans approved in 2009, and (2) we selected 2 of the 

top 10 largest FHA lenders that approved a comparable number of FHA 

loans in 2009 but varied in proportion of loans awarded to individuals with 

federal tax debt. However, the lender chosen for having a high proportion 

of loans awarded to individuals with federal tax debt declined to speak 

with GAO officials. In total, the three lenders we interviewed endorsed 

about 15 percent of all FHA mortgages for homes purchased in 2009.

We also interviewed officials from FHA’s Office of Single 

Family Housing and Office of the Chief Information Officer.

To assess the reliability of record-level IRS unpaid assessments and 

FTHBC data, we relied on the work we performed during our annual audit 

of IRS’s financial statements and interviewed knowledgeable IRS officials 

about any data reliability issues.17

 

15HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage Insurance (March 

2011).

We also performed electronic testing of 

required FTHBC elements. While our financial statement audits have 

16Mortgagee letters are written instructions that FHA periodically issues to all of its 

approved lenders (mortgagees).

17GAO, Financial Audit: IRS’s Fiscal Years 2010 and 2009 Financial Statements, 

GAO-11-142 (Washington, D.C.: Nov. 10, 2010). 

Data Reliability 

Assessment
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-12-592 Recovery Act

identified some data reliability problems associated with tracing IRS’s tax 

records to source records and including errors and delays in recording 

taxpayer information and payments, we determined that the data were 

sufficiently reliable to address this report’s objectives.

To assess the reliability of record-level FHA mortgage insurance data, we 

reviewed documentation from FHA, interviewed FHA officials who 

administer these information systems and officials who routinely use 

these systems for mortgage insurance management, verified selected 

data across multiple sources, and performed electronic testing of required 

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

purposes.

We conducted this performance audit and related investigations from 

April 2011 through May 2012. We performed this performance audit in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

audit 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 II: Excerpts of the Uniform 

Residential Loan Application

Page 36 GAO-12-592 Recovery Act

Two of the three figures below represent sections of the Uniform 

Residential Loan Application (URLA) where applicant’s are required to 

disclose any debts that may affect their eligibility for FHA mortgage 

insurance or their ability to repay the proposed mortgage. The third 

excerpt lists the consequences of making a false statement on the URLA. 

Knowingly making any false statement on the URLA is a federal crime 

punishable by fine or imprisonment.1

Figure 6: Liabilities Section of the Uniform Residential Loan Application

 

1

18 U.S.C. § 1001.

Appendix II: Excerpts of the Uniform 

Residential Loan Application
Appendix II: Excerpts of the Uniform 

Residential Loan Application

Page 37 GAO-12-592 Recovery Act

Figure 7: Declarations Section of the Uniform Residential Loan Application
Appendix II: Excerpts of the Uniform 

Residential Loan Application

Page 38 GAO-12-592 Recovery Act

Figure 8: Line on the Uniform Residential Loan Application Showing the Consequences of Making a False Statement
Appendix III: Comments from the Federal 

Housing Administration

Page 39 GAO-12-592 Recovery Act

Appendix III: Comments from the Federal 

Housing Administration
Appendix III: Comments from the Federal 

Housing Administration

Page 40 GAO-12-592 Recovery Act
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 41 GAO-12-592 Recovery Act

Gregory D. Kutz, (202) 512-6722 or kutzg@gao.gov

In addition to the contact named above, Matthew Valenta, Assistant 

Director; Emily C.B. Wold, Analyst-in-Charge; Jamie L. Berryhill; Jeff 

McDermott; Maria McMullen; Wayne Turowski; Susan B. Wallace; and 

Timothy Walker made significant contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(192379)
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