Single-Family Housing: Current Information Systems Do Not Fully Support the Business Processes at HUD's Homeownership Centers
Released: 2001-10-24T00:00:00

Letter

Background

HUD’s homeownership centers support the single-family activities of FHA. FHA insures lenders against losses on mortgages for single-family homes. Lenders usually require mortgage insurance when a homebuyer makes a down payment of less than 20 percent of the value of the home. Thus, FHA plays a particularly large role in certain market segments, including loans to low-income borrowers and first-time homebuyers, whose cash for down payments is likely to be limited. During fiscal year 2000 alone, FHA endorsed more than 900,000 mortgages totaling about $94 billion. As of June 2001, the total value of HUD’s single-family insured portfolio was almost $498 billion. If a borrower defaults and the lender subsequently forecloses on an FHA-insured mortgage, the lender can file an insurance claim with FHA for the unpaid balance of the loan. When FHA reimburses a lender for a defaulted loan, HUD receives the deed to the foreclosed property. HUD, in turn, sells this property via one of its management and marketing contractors to recoup as much of FHA’s reimbursement costs as possible.

In the past, HUD carried out its single-family activities—such as processing mortgage insurance and overseeing lenders participating in FHA’s programs—in 81 separate field offices. As part of its 2020 Management Reform Plan announced in 1997, HUD consolidated the single-family housing activities of its 81 field offices at 4 homeownership centers. According to the 2020 plan, the homeownership centers would, among other things, (1) improve service to lenders through automated systems; (2) provide faster, more uniform, and more efficient services to lenders, borrowers, and industry clients; and (3) improve HUD’s risk assessment, loss mitigation, and quality assurance activities.

The consolidation of activities at the four centers was carried out in phases and was substantially completed in December 1998. The homeownership centers are located in Atlanta, Georgia; Denver, Colorado; Philadelphia, Pennsylvania; and Santa Ana, California, and they report directly to HUD’s Deputy Assistant Secretary for Single Family Housing. They perform a variety of activities that fall within three basic functions: Lender oversight—Many activities formerly performed by FHA staff have been delegated to lenders, increasing the importance of the centers’ oversight of lenders’ performance. The centers are responsible for granting direct endorsement authority to lenders participating in FHA programs.Before granting lenders direct endorsement authority, the centers evaluate mortgages that the lenders have submitted as test cases using FHA’s underwriting requirements. To ensure lenders’ continued compliance with FHA’s mortgage requirements, the centers use two monitoring tools: (1) desk audits of the underwriting quality of individual loans already insured by FHA, known as technical reviews, and (2) on-site evaluations of lenders’ operations, known as lender reviews.

Contractor oversight—As many activities formerly performed by FHA staff have been transferred to contractors, the centers have become responsible for overseeing contractors’ performance. For instance, the centers monitor contractors hired to review loan case files and issue mortgage insurance certificates. The centers also oversee contractors hired to manage and market acquired single-family properties, inspect 10 percent of the properties handled by each of the management and marketing contractors, and review 10 percent of the management and marketing contractors’ property case files each month.

Customer service—Each center has designated customer service staff who respond to requests from the general public (for basic information on HUD and FHA programs) and industry clients (for support on FHA programs, services, and information systems). Designated program staff also provide more advanced customer service, responding to technical questions on loan underwriting and property disposition. In total, the centers average almost 90,000 telephone calls a month.

HUD recognized that its decision to consolidate FHA’s single-family field activities at four homeownership centers would dramatically change its business processes and require changes to its single-family information systems. In its April 1998 assessment of the homeownership centers’ susceptibility to waste, fraud, abuse, and mismanagement, HUD noted the proliferation of financial management systems within the Department and the need to replace them with an integrated, state-of-the-art system. It also observed that two major single-family information systems would have to be modified to reflect the new business processes at the centers. Despite this recognition, FHA’s failure to enhance its information technology systems to support its business processes more effectively was cited as a material weakness in the HUD Inspector General’s last three reports on FHA’s financial statements. For example, according to the Inspector General’s report on FHA’s fiscal year 2000 financial statements, FHA’s inability to acquire more modern information technology has deterred its efforts to be a more efficient and effective housing credit provider. Also according to the report, FHA will be forced to use less efficient processes to collect and report on data until a comprehensive new integrated information technology environment is implemented.

A best practice used in the public and private sectors to improve existing information systems and develop new ones efficiently and effectively is the development, maintenance, and implementation of an enterprise architecture, also known as an information technology architecture. The Clinger-Cohen Act requires agency chief information officers to develop, maintain, and facilitate the implementation of sound and integrated information technology architectures. An agency’s architecture should be an integrated framework for evolving or maintaining existing information technology and acquiring new technology to achieve the agency’s strategic and information resource management goals and better support its business needs. According to the Office of Management and Budget (OMB), to develop an enterprise architecture, an agency should identify and document its business processes, information flows and relationships, applications, data descriptions and relationships, and technology infrastructure. OMB has also issued guidance that requires an agency’s information systems investments to be consistent with its architecture. In addition, the federal Chief Information Officers Council, in collaboration with us and OMB, has published a framework that defines effective architecture management controls that successful organizations practice.

Homeownership Centers Use Numerous Systems to Support Their Operations

While more than 20 different information systems support single-family operations, the homeownership centers currently rely on 7 major information systems to oversee lenders and contractors and provide customer service. These seven information systems are a combination of older systems acquired to support business processes in place before the centers were formed and newer systems implemented to better support current center operations and improve the usefulness of the older systems. In addition to these major systems, the centers have developed specialized databases to help them fulfill their missions. Also, each of the four centers uses a different telephone system to distribute calls and track workload data.

Systems Used Are a Combination of Major Systems and Less Complex Databases Developed to Address Gaps

The seven major information systems the centers use are a combination of legacy systems and newer systems implemented to make better use of these legacy systems and to better support the centers’ current operations. Information on the seven systems is shown in table 1.

Of these seven systems, three are legacy systems that were implemented well before the homeownership centers were established—the Single Family Insurance System (SFIS), the Computerized Homes Underwriting Management System (CHUMS), and the Single Family Acquired Asset Management System (SAMS). Since these three legacy systems were implemented, FHA’s single-family business processes have changed dramatically. For instance, when CHUMS was implemented, FHA staff were responsible for all aspects of FHA’s mortgage insurance operations, such as evaluating and processing applications for mortgage insurance. Since then, FHA has increasingly delegated responsibility for the loan underwriting process to lenders, and FHA staff have assumed the role of verifying the underwriting process for completeness and compliance with FHA policies and regulations. Similarly, when SAMS was implemented, FHA staff were responsible for managing and selling properties acquired through foreclosure. Since the formation of the centers, the management and sale of these properties has been contracted out.

The four newer systems that the centers use were implemented to improve the usefulness of the legacy systems and better support the centers’ current operations. HUD headquarters created the Single Family Data Warehouse to allow staff to query data from CHUMS, SAMS, and several other smaller legacy systems. Updated monthly, it provides historical case- level information that staff can use to complete trend analyses. As more responsibilities were delegated to lenders, headquarters created the FHA Connection to give lenders direct access to information in CHUMS and other FHA systems. Lenders can use the FHA Connection to request an FHA case number and assign an appraiser, among other things. Headquarters implemented the Approval/Recertification/Review Tracking System (ARRTS) and Neighborhood Watch to help FHA staff monitor lenders’ performance. Figure 1 illustrates the number of information systems used to support just one aspect of the centers’ operations, the origination of FHA-insured loans.

In addition to the information systems provided by HUD headquarters, staff at each of the four homeownership centers have developed databases, including spreadsheets, to help them perform tasks that the headquarters-provided systems do not effectively support. The Denver center has developed 15 databases and the Philadelphia center 10 databases to enhance their staffs’ ability to track various program functions. One of these databases was designed to help FHA staff oversee contractors hired to perform desk audits of the underwriting quality of individual loans already insured by FHA, known as technical reviews. In our April 2000 report on lender oversight, we reported that the centers lacked the necessary information systems to readily identify and track the technical review ratings of new direct endorsement lenders. Since our report was issued, all four centers have implemented the Underwriting Reports System (URS), a Microsoft Access database developed by the Denver center that, among other things, tracks the performance of lenders with direct endorsement authority and the performance of the contractors hired to perform technical reviews. The centers have also started using the Inspection Tracking System, another Microsoft Access database developed by the Denver center, to monitor the performance of contractors hired to manage and market the properties HUD acquires through foreclosure. This system is used to assign cases to property inspectors hired to inspect 10 percent of the properties handled by each of the management and marketing contractors and to track the results of their inspections.

Different Telephone Systems Are Used to Provide Customer Service

Each homeownership center was responsible for acquiring its own telephone system to meet the center’s communications needs and track workload data. As a result, each center uses a different system. These telephone systems distribute calls to customer service and program staff and track data on calls received. The centers use the reports that these systems generate to manage their customer service workload. For example, the Philadelphia center uses 10 reports to create management and performance charts that show, among other things, the total number of calls answered daily by the center in a given month and the average number of calls each individual answered per day in a given month. In addition, the Denver center uses weekly reports on abandoned calls and call activity to manage its workload. Each center provides headquarters with monthly data on the number and types of calls received.

Current Information and Telephone Systems Do Not Fully Support Center Operations

The willingness of the homeownership centers’ staff to learn and use multiple information systems and develop specialized databases to meet their responsibilities demonstrates a commitment to accomplishing critical tasks. However, the information and telephone systems the centers use have not kept pace with changes in single-family business processes and workload. Therefore, these systems do not adequately support the centers’ efforts to oversee lenders and contractors and provide customer service. Although the systems collect wide-ranging data on single-family operations, center staff often must use multiple systems or manipulate the data in order to obtain the information needed to carry out their missions. For example, they must use data from multiple sources to identify high- risk lenders for monitoring reviews and identify and investigate potential fraud cases. Further, the information systems do not readily provide center staff with all the data they need to monitor contractor performance and manage contracting costs. Regarding customer service, inadequate telephone systems and the limited reporting capabilities of some information systems have made it difficult for center staff to provide service to both their external and internal customers.

High-Risk and Fraudulent Lenders Are Not Easily Identified

FHA’s single-family information systems do not effectively help center staff target high-risk lenders for review or identify and investigate potential fraud cases—two activities integral to lowering insurance risk. In response to our recommendations, HUD recently incorporated risk factors when monitoring the performance of lenders. Center staff must now consider factors such as lenders’ default rates and loan volume, borrowers’ complaints, and reports of fraudulent activity when selecting lenders for review. However, they must go to multiple sources to obtain this information. As shown in table 2, the centers must compile data from three information systems and several nonautomated sources in order to develop the list of lenders to be reviewed each quarter. Although center staff are able to identify lenders for review using these multiple sources, center staff could logically save valuable time each quarter and be better assured that they are identifying the lenders of highest risk if this information were more integrated.

Not only do FHA’s single-family information systems not facilitate the identification of high-risk lenders, they also do not help the centers identify predatory lending schemes before they become a major problem. Property flipping—buying a home at a low price and reselling it at an inflated price within a short time, often after making only cosmetic improvements—is one example of fraud in FHA loan origination activities. While property flipping is not always illegal, most known FHA cases involved fraudulent documentation provided by the lender and/or appraiser, which is illegal. The HUD Inspector General testified in June 2000 that these fraudulent property flipping activities could have been more quickly identified and the losses minimized had appropriate controls been in place. Similarly, according to the HUD Inspector General’s report on FHA’s fiscal year 2000 financial statements, FHA must continue to place more emphasis on early warning and loss prevention for single- family insured mortgages, including increasing its use and analysis of available data to monitor lenders. Although the report states that FHA has improved its early warning and loss prevention processes, it notes that the Inspector General has still found a high risk of fraud concentrated in certain geographic areas.

FHA’s single-family information systems also do not facilitate investigation of predatory lending schemes once they have been identified. To protect FHA borrowers from abusive mortgage practices such as illegal property flipping, HUD has designated certain low-income neighborhoods with higher-than-normal foreclosure rates as “hot zones.” Under this new initiative, applications for FHA-insured loans in these hot zones, located in Atlanta, Baltimore, Chicago, Los Angeles, and New York, receive increased scrutiny. Because the centers’ current information systems were not designed to support this new initiative, the centers had to develop the following manual procedures for identifying potential fraud cases and tracking the results of property flip checks: The centers have to perform up to three different searches to determine if properties for which FHA insurance has been requested have been flipped. Center staff search a commercial system containing property deed information, state and county web sites containing information on property transactions, and SAMS to determine if a property has been sold twice within 12 months, with the latest sales price exceeding the prior sales price by more than 30 percent. When searching each system or site, HUD staff must enter variations of the address (e.g., 135 N. Main, 135 North Main, and 135 N Main) to ensure a thorough search.

Some of the reports the centers need to review hot zone cases have to be generated manually. For example, to create a list of properties to be checked in one hot zone, an Atlanta official has to pull two standard CHUMS reports—one listing cases by county and one listing cases by state—and merge them outside the system. Because it is not possible to extract information from ARRTS by zip code, a Santa Ana official must pull up information for the entire center, check each entry in the relevant state to determine if it is in one of the hot zone zip codes, and manually prepare a list.

Once they have researched hot zone cases, the centers use a special database to track the results of their reviews. The Philadelphia center developed the Predatory Lending Monitoring System for use by all the centers to ensure that the results of their reviews in the designated hot zones are uniformly recorded. This system records case information and generates reports for HUD headquarters.

It is a credit to the centers’ staff that they have developed these manual processes to investigate potential fraud. Automating all or part of these processes, however, might enable the homeownership centers to extend their flip checks beyond the five hot zones and prevent additional fraud.

Systems Do Not Totally Support Centers’ Efforts to Assess Contractor Performance or Manage Contracting Costs

Although the centers have expanded their use of contractors, their information systems do not readily provide some of the performance data needed to monitor these contractors or the procurement and financial data needed to manage contract costs. For instance, center staff cannot always easily obtain the data they need to monitor endorsement contractors hired to review loan case files and issue mortgage insurance certificates. The Atlanta official responsible for overseeing these contractors has developed spreadsheets to help him use CHUMS data more effectively to gauge contractors’ performance, but to obtain and analyze the data he must go through a multi-step process. He first transfers standard CHUMS hard-copy reports to a disk for analysis. He then creates spreadsheets that highlight weekly production trends, such as how many days it takes the contractor’s staff, on average, to process mortgage insurance applications and how many errors the contractor’s staff have made. He uses this information to determine where bottlenecks are occurring and whether the endorsement contractor is making the same mistakes repeatedly. This effort is commendable, but it could be avoided if the CHUMS system readily generated this information.

Center staff also cannot readily obtain and analyze data needed to monitor management and marketing contractors—contractors paid millions of dollars to manage and sell HUD’s single-family acquired properties. The homeownership centers have a number of resources upon which they can draw to aid them in making monthly assessments of these contractors’ performance. For instance, HUD hired third-party contractors to inspect 10 percent of the properties handled by each of the management and marketing contractors and to review 10 percent of the management and marketing contractors’ property case files each month by following a HUD checklist. The centers also use data from SAMS in making their monthly assessments. However, the following examples illustrate that very little of the data the centers receive is automated in a way that facilitates analysis: In fiscal years 1999 and 2000, the centers received the results of thousands of property inspections and reviews of property case files. However, a recent HUD Inspector General report on single-family property disposition activities at the Philadelphia center found that the results of these inspections and file reviews are not automated in a way that enables staff to use them effectively to monitor the performance of management and marketing contractors. According to the report, deficiencies identified by these inspections and reviews were not being included in monthly assessment reports because center staff did not have the time to analyze fully the results of third-party monitoring. In some cases, the staff were not even reviewing the reports because they did not understand the results and did not know how to use them as part of the overall monitoring process. As a result, the Inspector General concluded that the center needs to strengthen its monitoring of management and marketing contractors to ensure that performance deficiencies identified by third- party contractors are reported and tracked.

Several officials whom we interviewed at the Philadelphia center questioned the usefulness of the monthly reports they received assessing the management and marketing contractors’ property case files. According to one center official, the summary reports provided by the original contractor were so bad that center staff used only the last page of the report, which indicated the number of files reviewed. In September 2000, the Department hired a new national contractor to conduct operational, management, and performance reviews of each management and marketing contractor. This new contractor is required to develop and maintain a national database file that can be used to perform detailed analyses of the results of the reviews at various levels of risk.

Center staff cannot obtain from SAMS the information they need to monitor certain aspects of management and marketing contractors’ performance. One of the responsibilities the centers have delegated to these contractors is the sale of foreclosed properties under the Officer Next Door and Teacher Next Door programs. Under these programs, HUD allows police officers and teachers to purchase HUD-owned homes at 50 percent off the list price in HUD-designated revitalization neighborhoods.According to one center official, SAMS does not generate reports that list the properties sold through these two programs. Therefore, to oversee the programs, the center must rely on its management and marketing contractors to provide reports listing the properties sold under these programs. Work by HUD’s Inspector General indicates that the centers’ oversight of the Officer/Teacher Next Door programs has not been adequate. In two recent reports, the Inspector General concluded that the two programs were at high risk for noncompliance and abuse by homebuyers and that HUD had not established adequate management controls over the programs. It found, among other things, that homebuyers had abused the programs by not fulfilling occupancy requirements and thus received unearned discounts of about $735,000. In response to the first report, HUD imposed an immediate 120-day suspension of sales under the Officer/Teacher Next Door programs, effective April 1, 2001. On August 1, 2001, HUD announced that it would resume these programs after having taken some corrective measures to prevent homebuyer fraud, including a review of program procedures.

In addition to the difficulties previously discussed, the homeownership centers also cannot readily obtain the procurement and financial data they need to manage contract costs, which is essential to contractor oversight. In order for the centers to manage their contracting costs, they must know how much they are obligating for and spending on contracts. As the following examples illustrate, however, HUD’s information systems do not readily provide the centers with contract obligation and expenditure data: The centers could not readily provide us with the amounts they had obligated for single-family contracts in fiscal years 1999 and 2000. The Atlanta center provided us with the most complete information—reports from HUD’s procurement system that listed awarded active contracts for different time periods during the 2 fiscal years. The other three centers provided fewer reports from HUD’s procurement system and/or estimates. For example, staff at the Philadelphia center manually compiled lists of the contracts the center had awarded for the 2 fiscal years. The staff found this information to be useful and told us they intended to keep the lists current. Later, we were able to request and analyze data from HUD’s procurement system to determine how much HUD headquarters and each of the homeownership centers had obligated for single-family contract support in fiscal years 1999 and 2000.

HUD headquarters took approximately 3 months to provide us information on the funds expended on different types of major single-family contracts during fiscal years 1999 and 2000. When provided, the information did not seem to match the obligation data that we had received and analyzed. HUD initially sought to get the expenditure information from the centers before finally retrieving the data from its financial system. The information HUD provided from this system, however, appears incomplete. Our analysis of data from HUD’s procurement system showed that HUD obligated about $465 million for one major single-family contract type, management and marketing services, in fiscal years 1999 and 2000. Yet, the data HUD provided from its financial system showed that expenditures for all major single-family contract types during the 2 fiscal years totaled only about $44 million.

Inadequate Telephone Systems and the Limited Reporting Capabilities of Some Information Systems Reduce the Centers’ Ability to Provide Customer Service

The centers’ ability to provide service to their external and internal customers has been hindered by inadequate telephone systems and the limited reporting capabilities of some information systems. While the centers’ telephone systems generate a number of reports, they do not provide all the information needed to manage the centers’ customer service workload. For example, according to the branch chief at Philadelphia’s customer service call center, the center’s telephone system does not produce any information showing the peak usage times—the times of day that generate the highest volume of phone calls. The Atlanta center director also expressed concern about his ability to track the total number of calls coming into the center. The center’s customer service telephone system tracks the number of calls the center receives on its toll- free number, but the calls made directly to program staff, which represent an estimated 25 percent of the center’s call volume, cannot be easily tracked. In addition, the centers’ telephone systems do not allow telephone calls to be transferred between centers. Finally, because of telephone network inadequacies, more than 14,000 single-family calls were blocked in fiscal year 2000.

In October 2000, the Office of Single Family Housing hired a contractor to assess the single-family toll-free number information systems and operations and identify a more efficient and cost-effective means of providing customer service. In its March 2001 report, the contractor concluded that some of the single-family telephone systems were strained to the limit and that the systems in place would not provide the services that would be needed in the future. It recommended just one single-family toll-free number for the centers and a tracking system that would provide information on each interaction with the public and include responses to frequently asked questions. According to the Associate Deputy Assistant Secretary for Single Family Housing, the contractor’s recommendations are still under consideration.

The centers’ information systems also do not effectively support their customer service activities, for they do not allow center staff to generate easily some of the reports their internal customers—center and headquarters managers—need to manage center operations. According to an August 2000 assessment of HUD’s loan origination systems needs, the extensive number of reports produced by the current information systems that support the loan origination process do not accurately serve the new FHA business model. Also, an overly rigid reporting process hinders staff’s ability to meet their responsibilities. For example, reports are delivered in hard copy on predetermined reporting schedules, and staff must enlist programming help if they want to specify reporting parameters. During our visits to the four centers, we found the following examples of center staff going to great efforts to produce needed reports: Staff at two of the four centers must generate reports manually because, while CHUMS has been modified to produce some standard reports by center, it continues to generate other reports by field office only. For a CHUMS user in Philadelphia to prepare a monthly report that shows whether the center is meeting its performance goals, the user must print out a standard report that provides information by field office and enter data for each of the 24 field offices within the center’s jurisdiction into a spreadsheet. It takes up to 1 full day each month to prepare this report. Similarly, the CHUMS user in Santa Ana responsible for generating monthly management reports spends 1 day each month manually summarizing data on the 16 field offices in the center’s jurisdiction. According to single-family officials, HUD plans to automate part of this process in fiscal year 2002.

Center staff must print out SAMS reports for each management and marketing contract area in the center’s jurisdiction in order to supply monthly data to headquarters on the HUD-owned properties for which the center is responsible. Since 6 of the 16 contract areas fall within Santa Ana’s jurisdiction, the center must print out reports for each of the 6 areas each month.

SAMS’ ad hoc reporting feature is so difficult to use that center staff responsible for overseeing property disposition often must request ad hoc reports from headquarters if the system’s standard reports do not meet their needs. For example, when the Atlanta center temporarily assumed responsibility for the management and sale of certain properties after terminating a management and marketing contractor, center staff had to request an ad hoc report from headquarters every week. Rather than request an ad hoc report from headquarters, some SAMS users told us that they pull needed information from multiple reports intended for other purposes, which can be time-consuming. In addition, one SAMS user said that she sometimes makes do without the information.

The Single Family Data Warehouse has helped center staff obtain needed information from multiple single-family legacy systems. However, the data in the warehouse are updated only once a month. According to Office of Single Family Housing officials, the warehouse is helpful to those who want to use historical data to develop trend analyses but is of limited use for day-to-day operational needs. Center staff who need up-to-date data would probably have to go directly to the individual data systems, according to these officials. Another limitation of the warehouse is that it is difficult for most staff to use. Because it requires extensive knowledge of database software, only a few staff at each homeownership center are proficient in using the warehouse. To make the warehouse more useful to the average user, HUD has developed a front-end query tool that enables staff to request basic information without having knowledge of database software. However, advanced queries still require program and database knowledge.

HUD’s Plans to Improve Its Single- Family Information Systems Are in the Early Stages

To better ensure that FHA’s single-family information systems support the homeownership centers’ operations, HUD’s Office of the Chief Information Officer is developing an enterprise architecture, and its Office of Single Family Housing is planning improvements to specific information systems. An enterprise architecture defines an organization’s current (baseline) and desired (target) systems operating environments and provides a road map for moving between the two. It is an essential tool for effectively and efficiently reengineering business processes and for implementing and evolving their supporting systems. A well-defined enterprise architecture can assist in optimizing an organization’s business operations and the underlying information technology supporting these operations.

As required by the Clinger-Cohen Act, HUD’s Office of the Chief Information Officer is developing an enterprise architecture for the Department. As planned, its enterprise architecture will define: the work HUD performs in achieving the Department’s mission, the information necessary to deliver programs and operate the Department, the automated systems that create or manipulate data to support HUD’s business, and the technology, such as hardware and software, necessary to support the Department’s activities.

As part of its efforts to develop an enterprise architecture for the Department as a whole, the Office of the Chief Information Officer plans to complete its definition of FHA’s baseline architecture by the fall of 2001. By January 2002, it expects to define some aspects of the Department’s target architecture. According to the Associate Deputy Chief Information Officer for Information Technology Reform, HUD will use this partial target architecture to guide its decisions on the next round of information technology projects to be submitted in March 2002. Once its target architecture is complete, HUD will develop an implementation plan for transitioning over time from the baseline to target architecture.

Although HUD has made progress in developing an enterprise architecture, it has not yet put in place certain management controls for developing, implementing, and maintaining an enterprise architecture recommended by the Chief Information Officers Council. The Council’s guidance on best practices for successfully managing an enterprise architecture states that an agency should, among other things, have a written policy that governs the development, maintenance, and use of enterprise architecture and a committee or group that is responsible for directing, overseeing, and/or approving the enterprise architecture.According to its response to our survey of federal departments’ enterprise architecture efforts, HUD has drafted an architecture policy, but it has not been approved. Obtaining a clear mandate for the architecture in the form of an enterprise policy statement is a critical success factor and will be instrumental in gaining the buy-in and commitment of all organizational components of the enterprise, whose participation is vital to successfully developing and implementing the enterprise’s architecture. Also according to HUD, it plans to form a committee to oversee its enterprise architecture, although it has not yet done so. Such a committee should be an executive body whose members represent all stakeholder organizations and have the authority to commit resources and to make and enforce decisions for their respective organizations.

Concurrent with the development of an enterprise architecture, HUD’s Office of Single Family Housing has developed plans to replace CHUMS, SFIS, and two other systems that support the origination of FHA-insured loans with one system that has greater capabilities. As designed, the new system would support a paperless insurance process, complete with virtual case binders and digitally signed mortgage documents. The Internet would be used as the mode of communication among FHA, its business partners, and service providers. According to a contractor’s cost/benefit analysis, HUD could save $70 million by replacing the four old systems with a new system that would operate for 10 years. HUD included funding to begin development of this new system in its proposed fiscal year 2002 budget.

Although plans for a new loan origination system have progressed, HUD has not yet completed its enterprise architecture or assessed the business processes that the new system should support. HUD’s Office of Single Family Housing has developed plans for a new system and contracted for a cost/benefit analysis, yet the Office of the Chief Information Officer does not plan to have even a partially completed target architecture until January 2002. Furthermore, the Office of Single Family Housing did not assess the current loan origination processes in place at the centers before laying the groundwork for a new loan origination system. As recently as early August 2001, it was planning to contract out preparation of a functional requirements document for the new system. It decided later that month, however, to delay acquisition of the new system until after it had assessed the current loan origination process. As part of this review, the Office of Single Family Housing plans to assess what information is needed to support the process as well as research the best way to maintain case binders and generate mortgage insurance certificates.

Since HUD has not yet completed its enterprise architecture or examined single-family business processes, it is premature to assess whether these efforts will fully address the centers’ information systems needs. However, ensuring that single-family business processes are reviewed and HUD’s enterprise architecture is completed before attempting to acquire a new system would be in accordance with OMB guidance, which requires an agency’s information systems investments to be consistent with its architecture. Our experience with federal agencies has shown that attempting to define and build major information technology systems without first completing an enterprise architecture often results in systems that are duplicative, are not well integrated, are unnecessarily costly to maintain and interface, and do not effectively optimize mission performance.

The Office of Single Family Housing also plans to enhance the Single Family Data Warehouse. For example, it plans to add information on nonprofit agencies that participate in FHA’s programs and on FHA-insured reverse mortgages. In addition, it intends to expand the front-end query tool that enables users to query the warehouse without having to use database software. However, it has no plans to update the data in the warehouse more often than once a month; therefore, the warehouse still will not be able to provide data essential to meeting day-to-day operational needs.

Conclusions

Given the multibillion-dollar insurance risk that FHA assumes annually, it is critical that the agency’s single-family information and telephone systems help it carry out its responsibilities efficiently and effectively. However, the information and telephone systems in use at FHA’s four homeownership centers do not support FHA’s current business processes or efficiently supply FHA staff with necessary information. Center staff have demonstrated dedication and a willingness to overcome problems with these systems. Still, nonintegrated systems and cumbersome reporting mechanisms make it difficult for them to obtain the information needed to oversee lenders and contractors and provide timely and consistent customer service. Also, because FHA’s information systems do not share information, time and effort must be spent pulling together data needed for routine oversight or customer service purposes, and this lengthens response times and increases costs. Staff spend time learning, using, and working around information system problems—time that could be spent in more productive ways. Furthermore, while it seems that the Single Family Data Warehouse should alleviate some of these problems, it is updated only monthly and requires special technical expertise to extract all but basic reports.

These problems indicate that new single-family information and telephone systems are necessary to support homeownership center operations and reduce insurance risk. However, HUD’s Offices of the Chief Information Officer and Single Family Housing have to work together to acquire new systems for the centers. Currently, as required by the Clinger-Cohen Act, the Office of the Chief Information Officer is developing an enterprise architecture to better ensure that HUD’s information systems support its business processes. However, HUD has not yet put into place certain architecture management controls recommended by the Chief Information Officers Council. Only if developed and implemented effectively will HUD’s enterprise architecture help ensure that the centers have the information and telephone systems necessary to support their efforts to oversee lenders and contractors and provide customer service. Meanwhile, the Office of Single Family Housing has designed a new loan origination system and made plans to assess the loan origination process at the centers before acquiring the new system. While we agree that assessing single-family business processes before acquiring new systems is prudent, any plans to reengineer single-family business processes or improve single-family information systems should fall within the framework of HUD’s enterprise architecture. If this does not occur, HUD risks acquiring systems that are not well integrated and do not effectively support the centers’ efforts to oversee lenders and contractors and provide customer service.

Recommendations for Executive Action

To address the information system challenges facing HUD’s homeownership centers, we recommend that the Secretary of Housing and Urban Development direct the Chief Information Officer and Assistant Secretary for Housing-Federal Housing Commissioner to: Implement the best practices for enterprise architecture management recommended by the Chief Information Officers Council, including forming an enterprise architecture steering committee and formulating an enterprise architecture policy; Continue delaying any sizable single-family systems acquisition or development until the Department’s enterprise architecture is complete; and Ensure the development of an enterprise architecture that reflects the Office of Single Family Housing’s analysis of business processes and data needs at the homeownership centers and provides a framework for the future acquisition of single-family information systems.

Finally, we recommend that the Secretary of Housing and Urban Development direct the Assistant Secretary for Housing-Federal Housing Commissioner to implement telephone systems that track the data, such as peak usage periods, that the centers need to manage their customer service workload.

Agency Comments and Our Evaluation

We provided copies of a draft of this report to HUD for its review and comment. In a letter from the Assistant Secretary for Housing-Federal Housing Commissioner (see app. II), HUD did not take issue with any of our findings or factual statements. It agreed with three of our recommendations and expressed concerns about one recommendation. HUD commented as follows on each recommendation: HUD stated that it plans to recharter its Technology Investment Board Executive Committee to include oversight of its enterprise architecture. This committee will then be asked to adopt the existing draft enterprise architecture policy after it has completed departmental clearance.

While HUD agreed that its single-family information systems must be replaced or substantially overhauled in order to meet FHA’s business needs, it disagreed that any major efforts to improve these information systems should be suspended until HUD’s enterprise architecture is completed. It stated that its Offices of the Chief Information Officer and Housing will immediately review all systems development work planned for single-family systems in fiscal year 2002 and assess whether the development of any significant new capabilities for these systems should be deferred until the target enterprise architecture for Office of Housing systems is under development. In addition, it noted that the Office of the Chief Information Officer will ensure that the information technology project selection process for fiscal years 2003 and 2004 explicitly uses the target enterprise architecture as a major determining factor for selecting an information technology investment for funding. While these are positive steps, we still believe that HUD should delay any sizable single-family systems acquisition or development until the Department’s enterprise architecture is complete. Our experience with federal agencies has shown that attempting to define and build major information technology systems without first completing an enterprise architecture often results in systems that are duplicative, are not well integrated, are unnecessarily costly to maintain and interface, and do not effectively optimize mission performance. Therefore, we made no changes to our recommendation.

HUD noted that the Offices of the Chief Information Officer and Housing will work together to ensure that the information needs of the homeownership centers are integrated into the design and architecture for the single-family business process and subsequent information technology.

HUD stated that it plans to establish a single toll-free telephone number for FHA’s clients and to acquire new telephone equipment and tracking systems to capture information about the caller, the nature of calls, and the number of calls.

Scope and Methodology

We conducted our work at HUD headquarters and at all four of the Department’s homeownership centers in Atlanta, Denver, Philadelphia, and Santa Ana. We reviewed documents describing FHA’s single-family information systems and telephone systems. We interviewed officials from HUD’s Office of Single Family Housing, Office of the Chief Information Officer, and the four centers. Finally, we reviewed documents outlining HUD’s enterprise architecture and its plans for specific single-family information systems. We performed our work from July 2000 through September 2001, in accordance with generally accepted government auditing standards.

We are sending copies of this report to the Chairman, Subcommittee on Housing and Transportation, Senate Committee on Banking, Housing, and Urban Affairs; the Chairman and Ranking Minority Member, Senate Committee on Banking, Housing, and Urban Affairs; the Chairwoman and Ranking Minority Member, Subcommittee on Housing and Community Opportunity, House Committee on Financial Services; and the Chairman and Ranking Minority Member, House Committee on Financial Services. We will also send copies to the Secretary of Housing and Urban Development; the Assistant Secretary for Housing-Federal Housing Commissioner; and the Director of the Office of Management and Budget. We will make copies available to others upon request.

Please call me at (202) 512-2834 if you or your staff have any questions about this report. Key contributors to this report are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe the information systems used by the homeownership centers, (2) analyze the effectiveness of these systems in supporting the centers’ current operations, and (3) assess the Department of Housing and Urban Development’s (HUD) plans for the information systems used by the centers.

To determine what information systems the homeownership centers use, we reviewed a list of HUD’s information systems and identified those information systems that support single-family operations. We then interviewed HUD officials to determine which information systems are the major single-family information systems. For the seven major single-family information systems, we obtained and reviewed documentation that described the purpose of and the information contained in each system. At each of the four homeownership centers, we interviewed the director, division heads, and system users to determine which information systems are used to support the center’s operations. Our interviews also focused on (1) the databases, including spreadsheets, the centers have developed to support their operations, and (2) the telephone systems the centers use. We obtained and reviewed documentation on these databases and telephone systems.

To determine how effectively these systems support the centers’ current operations, we interviewed information system users at each of the four homeownership centers. We asked them about how they use FHA’s single- family information systems to accomplish their missions, the training they received on the information systems they use, the quality of the data in the information systems, and information systems’ limitations. Our interviews focused on the Computerized Homes Underwriting Management System, the Single Family Acquired Asset Management System, the Approval/Recertification/Review Tracking System, and the Single Family Data Warehouse. We reviewed the procedures followed by the centers to target high-risk lenders for review and identify potential loan fraud cases in order to determine the extent to which the centers can rely on their information systems for data. Similarly, we obtained and analyzed contract obligation data from the HUD Procurement System and contract expenditure data from HUD’s Central Accounting and Program System to determine the systems’ ability to readily provide complete and accurate contract cost information. We also reviewed a March 2001 HUD-sponsored assessment of the centers’ toll-free telephone information systems and operations for information on the strengths and weaknesses of the systems and their ability to provide efficient and cost-effective customer service. Finally, we reviewed reports on our prior work at the centers and reports issued by HUD’s Inspector General for information regarding HUD’s oversight of lenders and its management and marketing contractors.

To assess HUD’s plans for the information systems used by the centers, we interviewed HUD officials and reviewed documents outlining HUD’s enterprise architecture and its plans for specific single-family information systems. Specifically, we interviewed officials from the Office of the Chief Information Officer and reviewed documents to determine the status of HUD’s efforts to develop an enterprise architecture. These documents included the Chief Information Officers Council’s A Practical Guide to Federal Enterprise Architecture Version 1.0 and HUD’s response to our survey of federal departments’ enterprise architecture efforts. We also interviewed officials from the Office of Single Family Housing regarding HUD’s plans for individual single-family information systems. Finally, we reviewed documents outlining plans to replace the Computerized Homes Underwriting Management System and three other information systems with one integrated system.

We performed our work from July 2000 through September 2001 in accordance with generally accepted government auditing standards.

Appendix II: Comments From the Department of Housing and Urban Development

Appendix III: GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition to those named above, Bess Eisenstadt, Daniel Gage, Cathy Hurley, Barbara Johnson, John McGrail, Stanley Ritchick, Stewart Seman, Paige Smith, and Alwynne Wilbur made key contributions to this report.