While the Department of Housing and Urban Development’s Office of Healthcare Program has taken steps to strengthen the Section 232 program, more can still be done according to a report from the Office of Inspector General.
“Additional steps can be taken to strengthen the controls which were sometimes inconsistent or vague, and ensure punch lists are followed,” said the report. “Further, the Office of Healthcare Programs could place a higher priority on enforcing regulatory issues.”
Formed by HUD in 2008, the OHP was created to administer the Federal Housing Administration’s Section 232 and 234 programs. As of December 2010, HUD’s 232 portfolio included 2,390 mortgages valued at more than $16 billion with unpaid principal balances totaling more than $15 billion. This portfolio included 811 properties that HUD classified as troubled or potentially troubled, with mortgage balances totaling more than $5 billion.
The OIG audit found the agency could place a higher priority on regulatory enforcement, which would contribute to a lower risk of defaults.
“The Office of Healthcare Programs adopted a “no claims” goal, with an emphasis on claims reduction and customer service rather than on what it considered minor enforcement issues,” said the report.
Since the OHP place regulatory enforcement at a low priority, it failed to see important ongoing regulatory violations in its at risk portfolio. “Examples included a defunct property in Illinois and significant unsupported expenditures totaling $756,833 at properties in Texas and Florida,” said the report.
HUD staff felt that the key to minimizing loss was to keep properties operating and that previous losses in the Section 232 program were the result of weak operators.
View a copy of the report.