FHA Gets 1st Clean Audit in 16 Years

The Federal Housing Administration has substantially improved its estimates of defaults and claims on single-family loans, and the agency recently received a clean audit for the first time since 1990.The FHA has consistently underestimated claims over the years, raising the ire of White House budgeters and forcing outsider auditors to cite the agency's inability to predict the performance of its loans as a "material weakness." To improve estimates, the FHA recognized that loans with downpayment assistance have higher claims rates and incorporated credit scores in its performance models. As a result, the agency's claim estimate for fiscal year 2006 was "right on the money," said Judith May, director of the FHA's Office of Evaluation. The FHA predicted that lenders would submit 54,260 claims, and the actual total was 52,106. This estimate prompted the agency's outside auditor, Urbach Kahn & Werlin, to sign off on the agency's fiscal 2006 financial statement without citing a material weakness. It is the first clean audit the FHA has received since 1990, when Congress required an annual outside audit of the federal mortgage insurance fund.