HUD Addressed Multifamily Mortgage Application Processing Delays, but Additional Action Is Needed To Manage Future Backlogs

We audited the U.S. Department of Housing and Urban Development (HUD), Office of Multifamily Housing Programs’ efforts to address multifamily mortgage application processing delays. When applications for these loans are delayed, it slows the production and availability of affordable multifamily housing units. During the COVID-19 pandemic, HUD took action to eliminate a backlog of over 500 applications waiting to be assigned to underwriters for review. We did this audit to assess HUD’s efforts for receiving and screening applications and assigning them to underwriters. HUD took steps to address delays in assigning applications to underwriters, but its methods and systems could be improved to help it manage applications and future challenges. HUD used several methods to address delays, including implementing (1) a nationwide queue, (2) an application completeness screening, (3) priority application processing, (4) use of contract underwriters, (5) workload sharing, and (6) an option to bypass initial feasibility reviews for certain applications (one-step processing). Although HUD eliminated the nationwide queue in November 2022, it was unable to transition successfully to a state-of-the-art processing platform. As a result, HUD still uses multiple systems, email, and other manual methods to process applications. We found this creates a future risk that HUD cannot process applications as quickly and effectively as possible. With a more integrated system and a plan for which methods will be used when applications exceed underwriter capacity, HUD can more easily identify, monitor, and address processing delays; evaluate its performance and processes; and manage future challenges, such as fluctuations in application volume. We recommend that HUD enhance its system for receiving, processing, and assigning applications in several important ways. These include tracking applications and capturing application intake, screening, and status, including key dates; capturing data on the type of underwriter used; developing a portal for receiving documents and communicating with lenders; and generating Federal Housing Administration (FHA) loan numbers. Further, we recommend that HUD update its policies and procedures to include methods that will be used when applications exceed underwriter capacity, align intake and screening processes, and explain when timeframes will be enforced. Last, we recommend that HUD issue an industry wide letter to reinforce how intake, screening, and enforcement of timeframes will be handled.