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 over 900,000 mortgages totaling about $94 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 as possible. In the past, HUD carried out its single-family activities—such as processing mortgage insurance and overseeing appraisers and lenders participating in FHA’s programs—in 81 separate field offices. During late 1993 and early 1994, HUD developed and tested a plan for consolidating these single-family activities into centers so as to achieve more efficient and effective operations. It established a pilot center in Denver and transferred the functions for processing and endorsing loans from 17 HUD field offices to the center. In 1996, HUD declared that the pilot was a success. It found that the center reduced the time for processing loans from several weeks to a few days and required only about half as many staff as previously needed to process and endorse loans. In 1997, the homeownership centers became a key part of the 2020 Management Reform Plan. HUD’s 2020 plan was designed to address service-delivery problems that had prompted congressional proposals to severely downsize or eliminate HUD. According to the plan, the homeownership centers would correct problems with the delivery of single-family housing services, such as delays in processing insurance endorsements and inconsistent customer service. The plan stated that the homeownership centers would, among other things, (1) provide faster, more uniform, and more efficient services to clients, lenders, and borrowers; (2) improve HUD’s risk assessment, loss mitigation, and quality assurance activities; (3) increase HUD’s production of single-family loans to targeted populations; and (4) cut the processing time for insurance endorsements from 2 weeks to 1 day. The 2020 plan envisioned downsizing HUD’s workforce from 10,500 to 7,500 by fiscal year 2000. To help achieve this goal, HUD planned to reduce its single-family field workforce by about 60 percent and merge the numerous single-family field office responsibilities into homeownership centers. The consolidation of activities at four centers was carried out in phases and was substantially completed in December 1998. The centers grant FHA-approved lenders direct endorsement authority, meaning that they can underwrite loans and determine their eligibility for FHA mortgage insurance without HUD’s prior review. They also oversee the contractors who review loan case files and endorse or reject loans for FHA mortgage insurance on the basis of these reviews. To monitor lenders’ compliance with FHA’s mortgage requirements, the centers (1) oversee contractors hired to perform desk audits of the underwriting quality of individual loans already insured by FHA, known as technical reviews, and (2) conduct on- site evaluations of lenders’ operations, known as lender reviews. The centers also monitor the contractors who manage and sell properties acquired through foreclosure. As shown in table 1, each homeownership center is divided into five divisions. The homeownership centers are located in Atlanta, Georgia; Denver, Colorado; Philadelphia, Pennsylvania; and Santa Ana, California. Figure 1 shows the jurisdiction of each of the four centers, and the field office locations with center staff. The centers report directly to HUD’s Deputy Assistant Secretary for Single Family Housing who, in turn, reports to the Assistant Secretary for Housing-Federal Housing Commissioner. In fiscal year 1999, the centers, with the help of contractors, endorsed about 1.3 million mortgages totaling $123.1 billion—a record in dollar terms. According to HUD, a strong economy and lower interest rates contributed to this success. The percentage of FHA-insured loans made to targeted populations also increased. For first-time homebuyers, the percentage increased from 70.3 percent in fiscal year 1997 to 80.7 percent in fiscal year 1999, and for minorities, it increased from 31 percent in fiscal year 1996 to 37 percent in fiscal year 1999. In addition, the processing time for insurance endorsements dropped from several weeks to a few days. The centers achieved this reduction in processing time through a combination of technology, direct endorsement by lenders, and contracting out. According to a representative of a major lender association, customer service has improved because the guidance that the 4 centers provide is more uniform than the guidance provided by the 81 different field offices. Despite these successes, our recent reviews of operations at the homeownership centers revealed problems that can be attributed, in part, to human capital shortfalls. Specifically, we identified problems with the centers’ oversight of appraisers, mortgage lenders, and property disposition contractors. These problems increased HUD’s insurance risk and limited its ability to recoup losses upon foreclosure. According to center officials, a shortage of staff and insufficient training contributed to these oversight problems. For example, center officials cited in our April 2000 report on HUD’s oversight of FHA lenders maintained that inexperience on the part of staff was one reason why high-risk lenders were not always reviewed. The officials explained that many of the staff assigned to review lenders came from a pool of unassigned staff after the reorganization and had no background in lender monitoring and credit issues. Additionally, according to officials at the Philadelphia and Denver centers cited in our April 1999 report on HUD’s oversight of appraisers, these centers rarely conducted on-site reviews of properties that contractors had field reviewed because the centers lacked sufficient staff and travel resources. As a result, the centers neither tracked the percentage of each contractor’s work that received on-site reviews nor evaluated the contractor’s performance. These shortfalls weakened HUD’s ability to assess the quality of the appraisals used to support FHA loans. Under 2020, HUD planned to locate the majority of its single-family field staff in the four homeownership centers. However, because HUD subsequently decided not to force staff to relocate from the field offices, more center staff remain working in field offices than are needed. As of January 2001, 44 percent of the centers’ workforce remained in field offices, compared with the 32 percent originally planned. Because the consolidation envisioned under the 2020 reforms has never been achieved, it has been difficult for the centers to use and supervise their scattered workforce. In addition, staff are not allocated across the centers according to workload. For example, the center with the largest workload does not have the most staff, making it more difficult for it to complete its work. Furthermore, increases in workload stemming from new initiatives, such as the Department’s fraud prevention efforts, have created further challenges for the centers. Modifications to the original 2020 reforms have resulted in a slightly larger single-family workforce overall and more staff in the field offices than HUD initially projected. According to a report HUD issued in the spring of 1997 in support of the 2020 plan, the centers were to have a staff of 805 by fiscal year 2000. We reported in March 1998 that this proposed staffing level was based on targeted staffing levels and the Department’s staffing constraints, rather than a systematic analysis of workload to determine need. HUD’s plans assumed that the centers’ workforce would be divided equally among the four centers. In May 1998, the Secretary decided to limit the planned downsizing, and as of January 2001, the centers had 841 full- time positions (see table 2). Under 2020, the majority of center staff were to be located at the centers and responsible for such activities as loan endorsements, reviews of FHA- insured loans, and management and oversight of HUD-acquired properties. Lender monitors and selected program support staff were to be located in field offices. Of the 805 staff originally planned for the centers, 551 were to be located at the homeownership centers, and 254, or 32 percent, were to be in the field offices. However, HUD decided in late summer 1997 not to force field office staff who had not yet been reassigned after the reorganization to relocate. Some of these unassigned staff were subsequently assigned to the centers but remained located in field offices. As of January 2001, 44 percent of the homeownership centers’ workforce was still located in field offices (see fig. 2). As a result, 71 field offices still have single-family staff. We believe that leaving such a large percentage of center staff scattered across field offices is contrary to the original objective of the homeownership center concept, which was to increase efficiency through consolidation. As figure 3 shows, all four centers have about 40 percent or more of their staff located outside the actual center. The Denver center has the largest percentage of field office staff (50 percent), while the Santa Ana center has the smallest (39 percent). Because the location of center field office staff was determined more by the location of staff who remained unassigned after the 2020 reorganization than by the centers’ needs, the centers have had difficulty making effective use of staff that remain in field offices. The centers have used their field office staff in a variety of ways. For instance, some field office staff are performing lender reviews and overseeing management and marketing contractors as originally planned.