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Testimony of
Deputy Secretary Saul N. Ramerez, Jr.
before the Subcommittee on Government Management,
Information and Technology

June 15, 1999

Good Morning, Mr. Chairman and Members of the Subcommittee on Government Management, Information and Technology. I am Saul Ramirez, Deputy Secretary of the Department of Housing and Urban Development. On behalf of Secretary Cuomo and the Department, I appreciate this opportunity to come before you and the Subcommittee to report on HUD's implementation of the Debt Collection Improvement Act (DCIA).

In order to give you a better perspective of the Department's debt collection initiatives and its implementation of the DCIA, I would like to first present a description of the Department's debt portfolio as of September 30, 1998.

Summary of Debt Portfolio Total receivables due the Department as of September 30, 1998 totaled $13.9 billion. The largest portion of total receivables relates to old debt from our Elderly and Disabled Section 202 direct loan program. However, it is primarily our FHA Single Family, Multifamily and Title I debt that comprises the bulk of our delinquent debt.

Debt Referred To Treasury

I would like to draw your attention to Exhibit A which shows the total amount of debt which was eligible for referral to Treasury for administrative offset, and for cross-servicing. This exhibit shows that total debt eligible for referral to Treasury for offset totaled $300 million as of September 30, 1998, and that $240 million of this amount - 80% of what was eligible -- was actually referred.

The $300 million reported as eligible for offset excludes $645 million which represents accelerated FHA multifamily debt delinquent over 180 days. This accelerated debt should not have been included in the information reported to Treasury as of September 1998 as we erroneously reported the total unpaid principal balance instead of just the amount of delinquent debt due and payable at that time.

Second, we added another column to this chart, "Intra-governmental and Non-Profit Debt," to reflect debt that should be excluded from what was eligible for Treasury offset and cross-servicing. About $314 million, or 88% of the $358 million in this category, relates to the defaulted portfolios of issuers of Ginnie Mae Mortgage Backed Securities. The entire defaulted portfolio, consisting of mortgages insured or guaranteed by FHA or VA, is collectible from these agencies and is therefore not referred to Treasury for offset and cross-servicing.

Regarding the FHA Multifamily "In Foreclosure" figure of $255 million (top chart of Exhibit A), $123.5 million is actually in foreclosure, and the remaining $131 million will either go to foreclosure or be sold. We excluded the latter $131 million from referral eligibility because of the unique "non-recourse" feature of FHA's Multifamily mortgage loans. The Government may not go after the personal assets of the borrowers for these Multifamily mortgage loans, and therefore nothing can be gained by referring them to Treasury.

Finally, Exhibit A's bottom chart shows that $123 million (45%) of $274 million eligible was referred to Treasury for cross-servicing. Of the $151 million not referred, $109 million was referred by March 31, 1999, bringing to 85% the proportion of eligible that has been referred. New programming of an automated system allowed a cross-servicing referral backlog of FHA Title I notes to be cleared.

Let me say that HUD is in substantial compliance with the major provisions of DCIA.

  • FHA manages credit risk using a variety of means. One is to require that all borrowers have an acceptable credit history, sufficient assets to close the mortgage loan, and sufficient income to repay the mortgage--all per traditional underwriting methods. In addition, FHA has approved an automated underwriting system that assigns an approval rating based on borrower characteristics, such as credit score, debt-to-income ratio, and loan-to-value ratio. This method has been demonstrated to be much more effective in controlling credit risk than traditional underwriting methods.

  • HUD has developed a new consumer protection measure to reduce the number of families who default on FHA-insured mortgages and to remove poorly performing lenders from the FHA program. Under the initiative, HUD will use a new computerized system called Credit Watch to identify lenders with an above-average number of defaults and foreclosures involving FHA-insured mortgages.

  • We have addressed the administrative offset and cross-servicing provisions of the Act by referring debt to Treasury for offset and cross-servicing when appropriate. We refer all new cases that meet the criteria, and we will discuss with Treasury how to refer remaining eligible delinquent debt.

  • In the past, we have successfully used an asset sales program that has made us the leader in the Federal Government in this area, and we are in the process of designing and implementing a new asset disposition program to comply with new statutory requirements.

  • We pioneered the use of the Credit Alert Interactive Voice Response System (CAIVRS) as a pre-screening tool to bar individuals who owe the government money from obtaining new government loans or loan guarantees.

  • The Taxpayer Identification Number Implementation Report and Certification for FY 1998 shows that HUD had included the Taxpayer ID numbers on certified payment vouchers for 99.8% of all payees. compliance is expected by December, 1999. 100% compliance is expected by December, 1999.

HUD has been pleased to work closely with the Department of Treasury to implement the Debt Collection Improvement Act. HUD considers the efficient management of the debt collection process as an important public trust function, and I want to thank you for the opportunity to discuss our efforts.

I would welcome any questions at this time.


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