CAGW Slams FHA for Insuring Tax Delinquents

(Washington, D.C.) – Today, Citizens Against Government Waste (CAGW) admonished the United States Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) for irresponsibly issuing mortgage insurance to thousands of borrowers who should have been ineligible due to tax debt, thus exposing FHA and ultimately taxpayers to undue risk.

According to a May 2012 Government Accountability Office (GAO) report requested by Senators Tom Coburn (R-Okla.), Carl Levin (D-Mich.), Max Baucus (D-Mont.), Orrin Hatch (R-Utah), and Charles Grassley (R-Iowa), FHA insured more than $1.44 billion in mortgages for 6,327 borrowers with an average of $20,340 in tax debt. In a statement on his website, Senator Coburn said that FHA “needlessly put taxpayers on the line to help tax cheats buy homes.”

GAO reviewed the cases of 8 borrowers with tax debt, finding that 5 had not reached repayment agreements with the IRS and thus should not have been eligible for the mortgage insurance they received. The implication of GAO’s findings is that thousands of borrowers who received insurance from FHA as part of the 2009 American Recovery and Reinvestment Act (stimulus) should have been ineligible to do so.

Amazingly, despite the fact that borrowers with tax debt carry foreclosure risk “two to three times” greater than those without unpaid taxes, applicants for FHA mortgage insurance are not required to provide their federal debt status to FHA, and such information cannot be obtained without taxpayer consent. Worse, the processes by which FHA culls applicants “do not reliably indicate an applicant’s tax debt,” according to GAO.

“In effect, FHA has been asking borrowers with federal debt to self-enforce its ineligibility rules, which is like asking kids to grade their own homework,” said CAGW President Tom Schatz. “The predictable result is that thousands of ineligible borrowers received mortgage insurance paid for by taxpayers that have played by the rules.

“This report confirms two points that CAGW has been making for years: that the 2009 stimulus bill was an egregious waste of $800 billion in taxpayer money, and that the federal government does no favors to taxpayers or the economy by meddling in housing finance,” Schatz concluded.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.