To prevent the detrimental effects of abandoned home foreclosures, the Federal Reserve and the Office of Comptroller of the Currency should require loan servicers to notify borrowers and communities when a foreclosure is halted, the Government Accountability Office says.
Although abandoned foreclosures are relatively rare and make up less than 1 percent of vacant homes, they contribute to a rise in crime, a decline in neighborhood property values, and higher costs for local government, the GAO said.
Mortgage servicers abandon a foreclosure when they determine that the cost of completing a foreclosure exceed the anticipated proceeds from the property sale. Mortgage servicers are not required to notify borrowers when they decide to abandon a foreclosure, and the homeowner is usually unaware that he or she remains responsible for paying taxes and maintaining the property.
In some neighborhoods, looters strip abandoned houses, sometimes within 24 hours of the tenants’ departure. Abandoned houses attract break-ins, drug dealers, prostitution, arson, squatting, and other illegal activities, the GAO said.
“No laws or regulations exist that require servicers to complete foreclosures once the process has been initiated,” the GAO noted in its report, “servicers can abandon the foreclosure process at any point.”
In a response attached to the report, the Fed did not agree or disagree with the GAO’s recommendations. The Comptroller is part of the Treasury Department, which said the recommendations were “not directly relevant” to the department’s goal of preventing foreclosures.
FAST FACT: The Comptroller oversees federally-chartered banks while the Fed supervises insured state-chartered banks that are members of the Federal Reserve System and large bank holding companies. The Office of Thrift Supervision – which is being phased out by the Dodd-Frank reform law – oversees savings and loan institutions. The Federal Deposit Insurance Corp. regulates insured state-chartered banks that are not members of the Federal Reserve System.
Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.
- The estimated net cost to taxpayers of the Treasury Dept's Troubled Asset Relief Program from inception through Sept. 30, 2010 was $18.5 billion, but there are "significant uncertainties" with some transactions such as the restructuring of American International Group, Inc. (GAO)
- The Federal Housing Finance Agency, which oversees Fannie Mae, Freddie Mac, and 12 federal home loan banks, had effective internal controls for its financial reporting in fiscal 2010. (GAO)
- A final report will soon be issued analyzing the effectiveness of six emergency lending facilities created by the Fed to help restore liquidity during the financial market crisis, according to the Fed inspector general's semi-annual report to Congress (OIG).
- The SEC, which polices corporate quarterly financial statements, did not maintain effective internal control over its own financial reporting in fiscal 2010 because of "pervasive" information system control deficiencies and accounting problems with penalties and disgorgement from enforcement cases. (GAO).
- A GAO analysis shows that federal fiscal pressures predate the economic downturn and are driven by rising health care costs and an aging population. The GAO concluded that the historical levels of spending and revenue cannot be maintained going forwards and are unsuitable long-term. (GAO)
- FEMA’s public assistance program did not follow a federal law requiring agencies to award contracts based on experience, competency and qualifications. Instead, FEMA awarded contracts by equally dividing dollars among three contractors. (OIG)
- The State Dept. should work with Congress to eliminate duplication of annual reports. The department's legislative affairs bureau says there are 310 congressionally-required reports due each year, while its administration bureau tallied 108 recurring reports -- but neither bureau has an exhaustive list of reports. (OIG)
- Sandia National Laboratories, which is run by Lockheed Martin Corp., is questioned about $10 million in fiscal 2007-08 costs, mostly for business meals, expense vouchers, travel, and purchase card transactions lacking documentation. (OIG).
- The U.S. government has so far billed BP $581 million to clean up the spill in the Gulf of Mexico, and BP had repaid the government $518.4 million by Oct. 12, 2010. However, unless a federal law is amended, the Oil Spill Liability Trust Fund may soon hit the $1 billion cap on tax dollars that can be used for immediate cleanup costs while the government seeks repayment from the responsible company. (GAO)
- One in seven hospitalized Medicare beneficiaries is harmed from poor medical care, contributing to at least $4.4 billion in government health costs and the deaths of 180,000 patients a year. (The New York Times) (OIG)
- U.S. Transportation Dept. should help states develop new highway safety plans to reduce traffic fatalities and injuries, in part by borrowing successful techniques from other countries such as roadside sobriety checks. (National Research Council)
- According the GAO’s annual analysis of itself, every dollar invested in the agency produces $87 in return. The GAO documented $49.9 billion in financial benefits in FY2010. (GAO Comptroller)