The Federal Housing Administration may have lost as much as $1 billion in 2011 because of under-performing programs for real estate-owned properties, according to a report released July 23 by the Government Accountability Office, National Mortgage News reported.
The GAO found that the FHA could have increased its profits by as much as $400 million and decreased its holding costs by $600 million in 2011 alone if it had adopted an REO program similar to that used by Fannie Mae and Freddie Mac.
In producing its report, the GAO analyzed sales of more than 400,000 repossessed homes that the FHA sold between January 2007 and June 2012. During this period, its returns were 4 to 6 percentage points lower than those of government-sponsored enterprises Fannie and Freddie, National Mortgage News reported.
The GSEs averaged 200 days to dispose of REO properties while the FHA took 340 days — 60 percent longer. The GAO reported that the U.S. Department of Veterans Affairs also performed better than the FHA in dealing with REO inventory, National Mortgage News reported.
The report revealed that the FHA and the GSEs use similar strategies to dispose of REO properties, but differ when it comes to tactics that have the potential to improve sales performance. For example, the FHA does not repair its properties to boost their marketability or use multiple sources to set asking prices. Additionally, it does not consistently take into account market conditions when reducing prices.
The GAO also noted that the FHA has not updated its REO manual in two decades. The agency only inspects 2 to 6 percent of its properties annually, whereas Fannie and Freddie inspect 25 to 35 properties a month, National Mortgage News reported.
The report noted that, “Without implementing more effective activities to evaluate contractor performance and ensure compliance with program requirements, FHA's REO properties may continue to remain on the market longer and sell for lower prices than properties held by the enterprises,” National Mortgage News reported.