Single-Family Housing: Current Information Systems Do Not Fully  
Support the Business Processes at HUD's Homeownership Centers	 
(24-OCT-01, GAO-02-44). 					 
								 
To oversee the work of lenders and contractors and provide	 
customer service, the Federal Housing Administration's (FHA)	 
homeownership centers use more than 20 different information	 
systems implemented by the Department of Housing and Urban	 
Development (HUD) headquarters, including seven major systems;	 
databases developed by the centers; and a variety of different	 
telephone systems. Some of these technologies were implemented	 
before FHA revised its single-family business practices by	 
forming the centers and transferring some responsibilities to	 
lenders and contractors. Others were implemented afterward, in	 
large part to help FHA staff focus more on overseeing lenders and
contractors and on providing customer service. Although 	 
homeownership center staff have developed specialized databases  
to improve their ability to meet their responsibilities, neither 
FHA's single-family information systems nor its telephone systems
adequately support the centers' efforts to oversee lenders and	 
contractors and provide customer service. To better ensure the	 
FHA's single-family information systems support current center	 
operations, HUD is developing a systems blueprint, or enterprise 
architecture. HUD's Office of the Chief Information Officer plans
to finish defining the current capabilities of FHA's information 
systems by the fall of 2001 and to have partially defined the	 
desired capabilities of all the Department's information systems 
by January 2002.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-44						        
    ACCNO:   A02358						        
    TITLE:   Single-Family Housing: Current Information Systems Do Not
             Fully Support the Business Processes at HUD's Homeownership      
             Centers                                                          
     DATE:   10/24/2001 
  SUBJECT:   Contractors					 
	     Data bases 					 
	     Information systems				 
	     Mortgage loans					 
	     Mortgage programs					 
	     Telephone						 
	     Customer service					 
	     FHA Inspection Tracking System			 
	     HUD Single Family Mortgage Insurance		 
	     Program						 
								 
	     FHA Underwriting Report System			 
	     HUD 2020 Management Reform Plan			 
	     HUD Approval/Recertification/Review		 
	     Tracking System					 								 
	     HUD Computerized Home Underwriting 		 
	     Management System					 								 
	     HUD Officer Next Door Program			 
	     HUD Predatory Lending Monitoring System		 
	     HUD Single Family Acquired Asset			 
	     Management System					 								 
	     HUD Single Family Insurance System 		 
	     HUD Teacher Next Door Program			 

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GAO-02-44
     
Report to the Ranking Minority Member, Subcommittee on Housing and
Transportation, Committee on Banking, Housing, and Urban Affairs, U. S.
Senate

United States General Accounting Office

GAO

October 2001 SINGLE- FAMILY HOUSING

Current Information Systems Do Not Fully Support the Business Processes at
HUD's Homeownership Centers

GAO- 02- 44

Page i GAO- 02- 44 Homeownership Center Information Systems Letter 1

Results in Brief 2 Background 4 Homeownership Centers Use Numerous Systems
to Support Their

Operations 8 Current Information and Telephone Systems Do Not Fully Support

Center Operations 12 HUD?s Plans to Improve Its Single- Family Information
Systems Are

in the Early Stages 21 Conclusions 24 Recommendations for Executive Action
25 Agency Comments and Our Evaluation 26 Scope and Methodology 27

Appendix I Objectives, Scope, and Methodology 29

Appendix II Comments From the Department of Housing and Urban Development 31

Appendix III GAO Contacts and Staff Acknowledgments 34 GAO Contacts 34
Acknowledgments 34

Tables

Table 1: Seven Major Single- Family Information Systems Used at HUD?s
Homeownership Centers 9 Table 2: Steps the Four Homeownership Centers Follow
Each

Quarter to Target Lenders for Monitoring Reviews 14

Figures

Figure 1: Single- Family Information Systems That Support the Origination of
FHA- Insured Loans 11 Contents

Page ii GAO- 02- 44 Homeownership Center Information Systems Abbreviations

ARRTS Approval/ Recertification/ Review Tracking System CHUMS Computerized
Homes Underwriting Management System FHA Federal Housing Administration FHAC
FHA Connection HUD Department of Housing and Urban Development NW
Neighborhood Watch OMB Office of Management and Budget SAMS Single Family
Acquired Asset Management System SFDW Single Family Data Warehouse SFIS
Single Family Insurance System URS Underwriting Reports System

Page 1 GAO- 02- 44 Homeownership Center Information Systems

October 24, 2001 The Honorable Wayne Allard Ranking Minority Member,
Subcommittee

on Housing and Transportation Committee on Banking, Housing,

and Urban Affairs United States Senate

Dear Senator Allard: The Department of Housing and Urban Development?s (HUD)
Federal Housing Administration (FHA) relies on more than 20 different
information systems as it annually insures billions of dollars in home
mortgage loans made by private lenders. FHA?s mission is to expand
homeownership in the United States by assuming 100 percent of the risk for
mortgages it insures. To carry out its mission, FHA relies on private
lenders to determine borrowers? creditworthiness and to make and fund loans.
FHA also relies on contractors to help assess lenders? compliance with its
requirements and to manage and sell the properties it acquires through
foreclosure. Without careful oversight of these lenders and contractors, FHA
is vulnerable to mismanagement and fraud. The information systems FHA uses
to collect and analyze data on FHA- insured loans and foreclosed properties
are crucial to its oversight activities. However, the White House?s fiscal
year 2002 budget blueprint stated that inadequate information systems have
weakened FHA?s ability to monitor lenders. FHA?s information and telephone
systems are also essential to its efforts to provide customer service to
lenders, borrowers, and the general public.

In 1997, HUD issued its 2020 Management Reform Plan, which provided for
downsizing and reforming the Department, including its single- family
mortgage insurance program. As part of its 2020 reforms, HUD consolidated
the single- family program?s field activities from 81 field offices to 4 new
regional homeownership centers. This consolidation significantly altered the
way FHA?s single- family program operated. One affected area was information
systems, which had been established to support the old field office
structure and had to be adapted to support the operations of the new
homeownership centers.

This is the second of two reports responding to your request that we review
HUD?s implementation of the homeownership center concept. The

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 44 Homeownership Center Information Systems

first, issued in July 2001, discussed HUD?s efforts to resolve human capital
issues related to staffing, training, and oversight of contractors at the
homeownership centers. 1 This report focuses on the single- family
information systems used at the centers. Specifically, as agreed with your
office, we (1) describe the information systems used by the homeownership
centers, (2) analyze the effectiveness of these systems in supporting the
centers? current operations, and (3) assess HUD?s plans for the information
systems used by the centers.

To address these issues, we interviewed officials at HUD headquarters and
managers and information system users at all four of the Department?s
homeownership centers, located in Atlanta, Georgia; Denver, Colorado;
Philadelphia, Pennsylvania; and Santa Ana, California. We also collected and
analyzed documents related to FHA?s single- family information systems,
FHA?s single- family business processes, and HUD?s plans for FHA?s single-
family information systems. Appendix I provides additional details on our
scope and methodology.

To oversee the work of lenders and contractors and provide customer service,
FHA?s homeownership centers use more than 20 different information systems
implemented by HUD headquarters, including 7 major systems; databases
developed by the centers; and a variety of different telephone systems. Some
of these technologies were implemented before FHA revised its single- family
business practices by forming the centers and transferring some
responsibilities to lenders and contractors. Others were implemented
afterward, in large part to help FHA staff focus more on overseeing lenders
and contractors and on providing customer service. For example, one of the
seven major information systems the centers use, the Computerized Homes
Underwriting Management System (CHUMS), was implemented in 1985 for FHA
staff to track their processing of singlefamily mortgage insurance
applications from receipt to approval. After FHA delegated many of these
responsibilities to lenders, HUD implemented another major information
system, the FHA Connection, to give lenders access to the information from
CHUMS and other FHA systems that the lenders need to originate and service
loans. Furthermore, as the centers have increased their reliance on
contractors, they have developed databases to help them monitor contractors?
performance. To

1 Single- Family Housing: Better Strategic Human Capital Management Needed
at HUD?s Homeownership Centers (GAO- 01- 590, July 26, 2001). Results in
Brief

Page 3 GAO- 02- 44 Homeownership Center Information Systems

provide customer service, the centers have acquired a variety of different
telephone systems- systems that distribute telephone calls and generate
management reports on workload.

Although homeownership center staff have developed specialized databases to
improve their ability to meet their responsibilities, neither FHA?s single-
family information systems nor its telephone systems adequately support the
centers? efforts to oversee lenders and contractors and provide customer
service. For example:

 Effective oversight of lenders is critical to minimizing FHA?s insurance
risk, yet center staff must collect information from many different sources
to target high- risk lenders for review and to identify and investigate
potential fraud cases. This creates a greater risk of error and increases
the likelihood that problems will go unnoticed.  FHA?s single- family
information systems do not readily provide

information that the centers need to monitor contractors who are paid
millions of dollars to manage and sell the single- family properties HUD
acquires when borrowers default on loans. For example, the centers? systems
do not generate reports needed to monitor these contractors? sale of
properties under two special programs that allow police officers and
teachers to purchase at a discount HUD- owned homes located in certain
neighborhoods. HUD?s Inspector General identified evidence of potential
fraud in these programs, causing HUD to suspend the programs for 120 days. 
The telephone systems at two of the four centers do not provide the

detailed information, such as total call volume and peak usage periods, that
staff need to provide efficient customer service.

To better ensure that FHA?s single- family information systems support
current center operations, HUD is developing a systems blueprint, or
enterprise architecture. 2 HUD?s Office of the Chief Information Officer
plans to finish defining the current capabilities of FHA?s information
systems by the fall of 2001 and to have partially defined the desired
capabilities of all the Department?s information systems by January 2002.
Although HUD has made progress in developing an enterprise architecture, it
has not yet put in place certain architecture management

2 An enterprise architecture is an essential tool for effectively and
efficiently reengineering business processes and for implementing and
evolving their supporting systems. It defines an organization?s current
(baseline) and desired (target) systems operating environments and provides
a road map for moving from one to the other.

Page 4 GAO- 02- 44 Homeownership Center Information Systems

controls recommended by the Chief Information Officers Council, including
forming an executive steering committee to oversee the enterprise
architecture. Concurrent with the development of an enterprise architecture,
HUD?s Office of Single Family Housing has developed plans to replace four
systems that currently support the origination of FHAinsured loans with one
system that has greater capabilities. Prior to laying the groundwork for a
new loan origination system, the Office of Single Family Housing did not
assess the current loan origination processes in place at the centers. It
decided in August 2001, however, to delay acquisition of the new system
until after it has reviewed the entire loan origination process. Since HUD
has not yet completed its enterprise architecture or examined its single-
family operations, it is too soon to assess whether these efforts will fully
address the centers? information system needs.

Given the multibillion- dollar insurance risk that FHA assumes annually, it
is critical that the agency?s information and telephone systems help it
carry out its responsibilities efficiently and effectively. However, the
information and telephone systems in use at FHA?s four homeownership centers
do not support current business processes. Although center staff have
developed methods to cope with the systems? weaknesses (often by performing
time- consuming, manual analyses), problems with the current information and
telephone systems make it difficult for the staff to oversee lenders and
contractors and provide timely and consistent customer support. This report
contains recommendations designed to improve the usefulness of the centers?
information and telephone systems. HUD did not take issue with any of our
findings or factual statements and only expressed concerns about one of our
recommendations.

HUD?s homeownership centers support the single- family activities of FHA. 3
FHA insures lenders against losses on mortgages for single- family homes.
Lenders usually require mortgage insurance when a homebuyer makes a down
payment of less than 20 percent of the value of the home. Thus, FHA plays a
particularly large role in certain market segments, including loans to low-
income borrowers and first- time homebuyers, whose cash for down payments is
likely to be limited. During fiscal year 2000 alone, FHA endorsed more than
900,000 mortgages totaling about $94

3 FHA is a unit within HUD, and the Assistant Secretary for Housing is also
the Federal Housing Commissioner. Background

Page 5 GAO- 02- 44 Homeownership Center Information Systems

billion. As of June 2001, the total value of HUD?s single- family insured
portfolio was almost $498 billion. If a borrower defaults and the lender
subsequently forecloses on an FHA- insured mortgage, the lender can file an
insurance claim with FHA for the unpaid balance of the loan. When FHA
reimburses a lender for a defaulted loan, HUD receives the deed to the
foreclosed property. HUD, in turn, sells this property via one of its
management and marketing contractors to recoup as much of FHA?s
reimbursement costs as possible.

In the past, HUD carried out its single- family activities- such as
processing mortgage insurance and overseeing lenders participating in FHA?s
programs- in 81 separate field offices. As part of its 2020 Management
Reform Plan announced in 1997, HUD consolidated the single- family housing
activities of its 81 field offices at 4 homeownership centers. According to
the 2020 plan, the homeownership centers would, among other things, (1)
improve service to lenders through automated systems; (2) provide faster,
more uniform, and more efficient services to lenders, borrowers, and
industry clients; and (3) improve HUD?s risk assessment, loss mitigation, 4
and quality assurance activities.

The consolidation of activities at the four centers was carried out in
phases and was substantially completed in December 1998. The homeownership
centers are located in Atlanta, Georgia; Denver, Colorado; Philadelphia,
Pennsylvania; and Santa Ana, California, and they report directly to HUD?s
Deputy Assistant Secretary for Single Family Housing. They perform a variety
of activities that fall within three basic functions:

 Lender oversight- Many activities formerly performed by FHA staff have
been delegated to lenders, increasing the importance of the centers?
oversight of lenders? performance. The centers are responsible for granting
direct endorsement authority to lenders participating in FHA programs. 5
Before granting lenders direct endorsement authority, the centers evaluate
mortgages that the lenders have submitted as test cases using FHA?s
underwriting requirements. To ensure lenders? continued compliance with
FHA?s mortgage requirements, the centers use two monitoring tools: (1) desk
audits of the underwriting quality of individual loans already insured

4 FHA?s loss mitigation program seeks, among other things, to reduce the
number of foreclosures by using alternatives to foreclosure, such as loan
modifications. 5 Direct endorsement authority is the ability to underwrite
loans and determine their eligibility for FHA mortgage insurance without
HUD?s prior review.

Page 6 GAO- 02- 44 Homeownership Center Information Systems

by FHA, known as technical reviews, and (2) on- site evaluations of lenders?
operations, known as lender reviews.  Contractor oversight- As many
activities formerly performed by FHA staff

have been transferred to contractors, the centers have become responsible
for overseeing contractors? performance. For instance, the centers monitor
contractors hired to review loan case files and issue mortgage insurance
certificates. The centers also oversee contractors hired to manage and
market acquired single- family properties, inspect 10 percent of the
properties handled by each of the management and marketing contractors, and
review 10 percent of the management and marketing contractors? property case
files each month.  Customer service- Each center has designated customer
service staff who

respond to requests from the general public (for basic information on HUD
and FHA programs) and industry clients (for support on FHA programs,
services, and information systems). Designated program staff also provide
more advanced customer service, responding to technical questions on loan
underwriting and property disposition. In total, the centers average almost
90,000 telephone calls a month.

HUD recognized that its decision to consolidate FHA?s single- family field
activities at four homeownership centers would dramatically change its
business processes and require changes to its single- family information
systems. In its April 1998 assessment of the homeownership centers?
susceptibility to waste, fraud, abuse, and mismanagement, HUD noted the
proliferation of financial management systems within the Department and the
need to replace them with an integrated, state- of- the- art system. 6 It
also observed that two major single- family information systems would have
to be modified to reflect the new business processes at the centers. Despite
this recognition, FHA?s failure to enhance its information technology
systems to support its business processes more effectively was cited as a
material weakness in the HUD Inspector General?s last three reports on FHA?s
financial statements. 7 For example, according to the Inspector General?s
report on FHA?s fiscal year 2000 financial statements, FHA?s inability to
acquire more modern information technology has deterred its

6 Single Family Homeownership Centers Front End Risk Assessment, Office of
Single Family Housing, Apr. 27, 1998. 7 HUD?s Inspector General contracts
with independent public accountants to audit FHA?s financial statements.

Page 7 GAO- 02- 44 Homeownership Center Information Systems

efforts to be a more efficient and effective housing credit provider. 8 Also
according to the report, FHA will be forced to use less efficient processes
to collect and report on data until a comprehensive new integrated
information technology environment is implemented.

A best practice used in the public and private sectors to improve existing
information systems and develop new ones efficiently and effectively is the
development, maintenance, and implementation of an enterprise architecture,
also known as an information technology architecture. 9 The Clinger- Cohen
Act requires agency chief information officers to develop, maintain, and
facilitate the implementation of sound and integrated information technology
architectures. 10 An agency?s architecture should be an integrated framework
for evolving or maintaining existing information technology and acquiring
new technology to achieve the agency?s strategic and information resource
management goals and better support its business needs. According to the
Office of Management and Budget (OMB), to develop an enterprise
architecture, an agency should identify and document its business processes,
11 information flows and relationships, applications, data descriptions and
relationships, and technology infrastructure. OMB has also issued guidance
that requires an agency?s information systems investments to be consistent
with its architecture. In addition, the federal Chief Information Officers
Council, in collaboration with us and OMB, has published a framework that
defines effective architecture management controls that successful
organizations practice. 12

8 Audit of the Federal Housing Administration?s Fiscal Year 2000 Financial
Statements

(2001- FO- 0002, Mar. 1, 2001). 9 An enterprise architecture provides a
comprehensive blueprint that systematically details the breadth and depth of
an organization?s mission- based mode of operation. Such an architecture
provides details first in logical terms, such as defining business
functions, providing high- level descriptions of information systems and
their interrelationships, and specifying information flows; and second in
technical terms, such as specifying hardware, software, data,
communications, security, and performance characteristics.

10 Public Law 104- 106, section 5125, 110 Stat. 684 (1996). 11 Enterprise
architectures should contain a business process component that describes the
core business processes supporting the organization?s mission. The business
process component of the architecture must be developed by senior program
managers in conjunction with information technology managers.

12 Chief Information Officers Council, A Practical Guide to Federal
Enterprise Architecture, Version 1. 0 (February 2001).

Page 8 GAO- 02- 44 Homeownership Center Information Systems

While more than 20 different information systems support single- family
operations, the homeownership centers currently rely on 7 major information
systems to oversee lenders and contractors and provide customer service.
These seven information systems are a combination of older systems acquired
to support business processes in place before the centers were formed and
newer systems implemented to better support current center operations and
improve the usefulness of the older systems. In addition to these major
systems, the centers have developed specialized databases to help them
fulfill their missions. Also, each of the four centers uses a different
telephone system to distribute calls and track workload data.

The seven major information systems the centers use are a combination of
legacy systems and newer systems implemented to make better use of these
legacy systems and to better support the centers? current operations. 13
Information on the seven systems is shown in table 1.

13 A legacy system is an old system with which new technology must be
compatible. Homeownership

Centers Use Numerous Systems to Support Their Operations

Systems Used Are a Combination of Major Systems and Less Complex Databases
Developed to Address Gaps

Page 9 GAO- 02- 44 Homeownership Center Information Systems

Table 1: Seven Major Single- Family Information Systems Used at HUD?s
Homeownership Centers Information system Acronym Purpose Types of uses Year
implemented

Single Family Insurance System SFIS Contains detailed case information on
all

FHA- insured single- family properties Used to research the history of an
FHA- insured loan 1983 Computerized Homes Underwriting Management System

CHUMS Records the processing of single- family mortgage insurance
applications, from initial receipt through endorsement

Used to process applications for FHA insurance 1985

Single Family Acquired Asset Management System

SAMS Tracks acquired single- family properties from acquisition to sale Used
to manage properties

acquired through foreclosure 1995 Approval/ Recertification/ Review Tracking
System

ARRTS Tracks the status of application and recertification packages received
from lenders and reviews conducted of approved lenders

Used to approve and recertify lenders and to track reviews of lenders

1995 Single Family Data Warehouse a SFDW Provides critical single- family
business

data from eight single- family systems Used to obtain case- level
information covering all the processes in the mortgage insurance life cycle

1996 FHA Connection FHAC Gives approved FHA lenders real- time

access to FHA systems Used by lenders to originate and service loans 1997
Neighborhood Watch NW Displays loan performance data by loan

types and geographic areas Used to monitor lender default rates 1998 Note:
Many other systems support single- family operations. They include the
Institution Master File, which is a list of institutions that have been
approved to participate in FHA?s mortgage insurance programs, and the
Consolidated Single Family Statistical System, which is HUD?s comprehensive
reporting system for the FHA single- family mortgage portfolio. a HUD
officials do not consider the Single Family Data Warehouse to be an
information system in the

traditional sense because it is a warehouse that pulls data from other
information systems. We included it in the list of major information
systems, however, because it is one of the major tools that the centers use
to accomplish their functions.

Source: HUD data.

Of these seven systems, three are legacy systems that were implemented well
before the homeownership centers were established- the Single Family
Insurance System (SFIS), the Computerized Homes Underwriting Management
System (CHUMS), and the Single Family Acquired Asset Management System
(SAMS). Since these three legacy systems were implemented, FHA?s single-
family business processes have changed dramatically. For instance, when
CHUMS was implemented, FHA staff were responsible for all aspects of FHA?s
mortgage insurance operations, such as evaluating and processing
applications for mortgage insurance. Since then, FHA has increasingly
delegated responsibility for the loan underwriting process to lenders, and
FHA staff have assumed the role of verifying the underwriting process for
completeness and compliance with

Page 10 GAO- 02- 44 Homeownership Center Information Systems

FHA policies and regulations. 14 Similarly, when SAMS was implemented, FHA
staff were responsible for managing and selling properties acquired through
foreclosure. Since the formation of the centers, the management and sale of
these properties has been contracted out.

The four newer systems that the centers use were implemented to improve the
usefulness of the legacy systems and better support the centers? current
operations. HUD headquarters created the Single Family Data Warehouse to
allow staff to query data from CHUMS, SAMS, and several other smaller legacy
systems. Updated monthly, it provides historical caselevel information that
staff can use to complete trend analyses. As more responsibilities were
delegated to lenders, headquarters created the FHA Connection to give
lenders direct access to information in CHUMS and other FHA systems. Lenders
can use the FHA Connection to request an FHA case number and assign an
appraiser, among other things. Headquarters implemented the Approval/
Recertification/ Review Tracking System (ARRTS) and Neighborhood Watch to
help FHA staff monitor lenders? performance. Figure 1 illustrates the number
of information systems used to support just one aspect of the centers?
operations, the origination of FHA- insured loans.

14 Underwriting refers to a risk analysis that uses information collected
during the origination process to decide whether to approve a loan.

Page 11 GAO- 02- 44 Homeownership Center Information Systems

Figure 1: Single- Family Information Systems That Support the Origination of
FHA- Insured Loans

Note: The support systems perform a variety of functions not covered by the
major systems, including providing information on the claim or default
history of an individual, tracking insurance claims filed, and listing
institutions that have been approved to participate in FHA?s mortgage
insurance programs.

Source: HUD?s Office of Single Family Housing.

In addition to the information systems provided by HUD headquarters, staff
at each of the four homeownership centers have developed databases,
including spreadsheets, to help them perform tasks that the headquarters-
provided systems do not effectively support. The Denver center has developed
15 databases and the Philadelphia center 10 databases to enhance their
staffs? ability to track various program functions. One of these databases
was designed to help FHA staff oversee contractors hired to perform desk
audits of the underwriting quality of individual loans already insured by
FHA, known as technical reviews. In our April 2000 report on lender
oversight, we reported that the centers lacked the necessary information
systems to readily identify and track the

Page 12 GAO- 02- 44 Homeownership Center Information Systems

technical review ratings of new direct endorsement lenders. 15 Since our
report was issued, all four centers have implemented the Underwriting
Reports System (URS), a Microsoft Access database developed by the Denver
center that, among other things, tracks the performance of lenders with
direct endorsement authority and the performance of the contractors hired to
perform technical reviews. The centers have also started using the
Inspection Tracking System, another Microsoft Access database developed by
the Denver center, to monitor the performance of contractors hired to manage
and market the properties HUD acquires through foreclosure. This system is
used to assign cases to property inspectors hired to inspect 10 percent of
the properties handled by each of the management and marketing contractors
and to track the results of their inspections.

Each homeownership center was responsible for acquiring its own telephone
system to meet the center?s communications needs and track workload data. As
a result, each center uses a different system. These telephone systems
distribute calls to customer service and program staff and track data on
calls received. The centers use the reports that these systems generate to
manage their customer service workload. For example, the Philadelphia center
uses 10 reports to create management and performance charts that show, among
other things, the total number of calls answered daily by the center in a
given month and the average number of calls each individual answered per day
in a given month. In addition, the Denver center uses weekly reports on
abandoned calls and call activity to manage its workload. Each center
provides headquarters with monthly data on the number and types of calls
received.

The willingness of the homeownership centers? staff to learn and use
multiple information systems and develop specialized databases to meet their
responsibilities demonstrates a commitment to accomplishing critical tasks.
However, the information and telephone systems the centers use have not kept
pace with changes in single- family business processes and workload.
Therefore, these systems do not adequately support the centers? efforts to
oversee lenders and contractors and provide customer service. Although the
systems collect wide- ranging data on single- family

15 Single- Family Housing: Stronger Oversight of FHA Lenders Could Reduce
HUD?s Insurance Risk (GAO/ RCED- 00- 112, Apr. 28, 2000). Different
Telephone

Systems Are Used to Provide Customer Service

Current Information and Telephone Systems Do Not Fully Support Center
Operations

Page 13 GAO- 02- 44 Homeownership Center Information Systems

operations, center staff often must use multiple systems or manipulate the
data in order to obtain the information needed to carry out their missions.
For example, they must use data from multiple sources to identify highrisk
lenders for monitoring reviews and identify and investigate potential fraud
cases. Further, the information systems do not readily provide center staff
with all the data they need to monitor contractor performance and manage
contracting costs. Regarding customer service, inadequate telephone systems
and the limited reporting capabilities of some information systems have made
it difficult for center staff to provide service to both their external and
internal customers.

FHA?s single- family information systems do not effectively help center
staff target high- risk lenders for review or identify and investigate
potential fraud cases- two activities integral to lowering insurance risk.
In response to our recommendations, HUD recently incorporated risk factors
when monitoring the performance of lenders. Center staff must now consider
factors such as lenders? default rates and loan volume, borrowers?
complaints, and reports of fraudulent activity when selecting lenders for
review. However, they must go to multiple sources to obtain this
information. As shown in table 2, the centers must compile data from three
information systems and several nonautomated sources in order to develop the
list of lenders to be reviewed each quarter. Although center staff are able
to identify lenders for review using these multiple sources, center staff
could logically save valuable time each quarter and be better assured that
they are identifying the lenders of highest risk if this information were
more integrated. High- Risk and Fraudulent

Lenders Are Not Easily Identified

Page 14 GAO- 02- 44 Homeownership Center Information Systems

Table 2: Steps the Four Homeownership Centers Follow Each Quarter to Target
Lenders for Monitoring Reviews Step Information source

Identify the 200 lenders in the center?s jurisdiction with the highest
default and claim rates and export the data to a spreadsheet Neighborhood
Watch Add the following information about the 200 lenders to the
spreadsheet:

Date of last review to identify the lender branches that have been reviewed
during the 18- month period prior to the beginning of the quarter
Neighborhood Watch Percentage of overall ?poor? ratings each lender received
as a result of postendorsement technical reviews a Neighborhood Watch
Information on any complaints, referrals, or documented evidence of
irregularities related to the lender ARRTS and various nonautomated sources
Add the following types of lenders to the spreadsheet:

Lenders randomly selected from the universe of all FHA- approved lenders
each fiscal year b HUD headquarters 203( k) lenders targeted for review c
Neighborhood Watch Title I lenders targeted for review d Borrower complaints
and referrals e Note any lenders that have experienced a spike in volume- a
100 percent increase in origination volume over a 12- month period CHUMS
Analyze the data and prioritize the lenders for review

a Postendorsement technical reviews are desk audits performed to evaluate
the underwriting quality of loans insured by FHA. b No more than 15 percent
of the lenders that a center reviews each year can be randomly chosen

lenders. c The 203( k) Home Rehabilitation Mortgage Insurance program
combines, in one insured mortgage,

the funds needed to purchase and rehabilitate a single- family home. d The
Title I mortgage insurance program insures loans used to finance property
improvements or the purchase of manufactured homes. e Staff must rely on
borrower complaints and referrals, as well as other factors, to identify
Title I

lenders for review because there is no computerized monitoring of the Title
I program in place. Source: HUD?s Office of Single Family Housing.

Not only do FHA?s single- family information systems not facilitate the
identification of high- risk lenders, they also do not help the centers
identify predatory lending schemes before they become a major problem.
Property flipping- buying a home at a low price and reselling it at an
inflated price within a short time, often after making only cosmetic
improvements- is one example of fraud in FHA loan origination activities.
While property flipping is not always illegal, most known FHA cases involved
fraudulent documentation provided by the lender and/ or appraiser, which is
illegal. The HUD Inspector General testified in June 2000 that these
fraudulent property flipping activities could have been more quickly
identified and the losses minimized had appropriate controls

Page 15 GAO- 02- 44 Homeownership Center Information Systems

been in place. 16 Similarly, according to the HUD Inspector General?s report
on FHA?s fiscal year 2000 financial statements, FHA must continue to place
more emphasis on early warning and loss prevention for singlefamily insured
mortgages, including increasing its use and analysis of available data to
monitor lenders. 17 Although the report states that FHA has improved its
early warning and loss prevention processes, it notes that the Inspector
General has still found a high risk of fraud concentrated in certain
geographic areas.

FHA?s single- family information systems also do not facilitate
investigation of predatory lending schemes once they have been identified.
To protect FHA borrowers from abusive mortgage practices such as illegal
property flipping, HUD has designated certain low- income neighborhoods with
higher- than- normal foreclosure rates as ?hot zones.? Under this new
initiative, applications for FHA- insured loans in these hot zones, located
in Atlanta, Baltimore, Chicago, Los Angeles, and New York, receive increased
scrutiny. Because the centers? current information systems were not designed
to support this new initiative, the centers had to develop the following
manual procedures for identifying potential fraud cases and tracking the
results of property flip checks:

 The centers have to perform up to three different searches to determine if
properties for which FHA insurance has been requested have been flipped.
Center staff search a commercial system containing property deed
information, state and county web sites containing information on property
transactions, and SAMS to determine if a property has been sold twice within
12 months, with the latest sales price exceeding the prior sales price by
more than 30 percent. When searching each system or site, HUD staff must
enter variations of the address (e. g., 135 N. Main, 135 North Main, and 135
N Main) to ensure a thorough search.  Some of the reports the centers need
to review hot zone cases have to be

generated manually. For example, to create a list of properties to be
checked in one hot zone, an Atlanta official has to pull two standard CHUMS
reports- one listing cases by county and one listing cases by state- and
merge them outside the system. Because it is not possible to extract
information from ARRTS by zip code, a Santa Ana official must

16 Statement of Susan Gaffney, Inspector General, Department of Housing and
Urban Development Before the United States Senate Permanent Subcommittee on
Investigations, Committee on Governmental Affairs, June 30, 2000.

17 2001- FO- 0002.

Page 16 GAO- 02- 44 Homeownership Center Information Systems

pull up information for the entire center, check each entry in the relevant
state to determine if it is in one of the hot zone zip codes, and manually
prepare a list.  Once they have researched hot zone cases, the centers use
a special

database to track the results of their reviews. The Philadelphia center
developed the Predatory Lending Monitoring System for use by all the centers
to ensure that the results of their reviews in the designated hot zones are
uniformly recorded. This system records case information and generates
reports for HUD headquarters.

It is a credit to the centers? staff that they have developed these manual
processes to investigate potential fraud. Automating all or part of these
processes, however, might enable the homeownership centers to extend their
flip checks beyond the five hot zones and prevent additional fraud.

Although the centers have expanded their use of contractors, their
information systems do not readily provide some of the performance data
needed to monitor these contractors or the procurement and financial data
needed to manage contract costs. For instance, center staff cannot always
easily obtain the data they need to monitor endorsement contractors hired to
review loan case files and issue mortgage insurance certificates. The
Atlanta official responsible for overseeing these contractors has developed
spreadsheets to help him use CHUMS data more effectively to gauge
contractors? performance, but to obtain and analyze the data he must go
through a multi- step process. He first transfers standard CHUMS hard- copy
reports to a disk for analysis. He then creates spreadsheets that highlight
weekly production trends, such as how many days it takes the contractor?s
staff, on average, to process mortgage insurance applications and how many
errors the contractor?s staff have made. He uses this information to
determine where bottlenecks are occurring and whether the endorsement
contractor is making the same mistakes repeatedly. This effort is
commendable, but it could be avoided if the CHUMS system readily generated
this information.

Center staff also cannot readily obtain and analyze data needed to monitor
management and marketing contractors- contractors paid millions of dollars
to manage and sell HUD?s single- family acquired properties. The
homeownership centers have a number of resources upon which they can draw to
aid them in making monthly assessments of these contractors? performance.
For instance, HUD hired third- party contractors to inspect 10 percent of
the properties handled by each of the management and marketing contractors
and to review 10 percent of the management and Systems Do Not Totally

Support Centers? Efforts to Assess Contractor Performance or Manage
Contracting Costs

Page 17 GAO- 02- 44 Homeownership Center Information Systems

marketing contractors? property case files each month by following a HUD
checklist. The centers also use data from SAMS in making their monthly
assessments. However, the following examples illustrate that very little of
the data the centers receive is automated in a way that facilitates
analysis:

 In fiscal years 1999 and 2000, the centers received the results of
thousands of property inspections and reviews of property case files.
However, a recent HUD Inspector General report on single- family property
disposition activities at the Philadelphia center found that the results of
these inspections and file reviews are not automated in a way that enables
staff to use them effectively to monitor the performance of management and
marketing contractors. 18 According to the report, deficiencies identified
by these inspections and reviews were not being included in monthly
assessment reports because center staff did not have the time to analyze
fully the results of third- party monitoring. In some cases, the staff were
not even reviewing the reports because they did not understand the results
and did not know how to use them as part of the overall monitoring process.
As a result, the Inspector General concluded that the center needs to
strengthen its monitoring of management and marketing contractors to ensure
that performance deficiencies identified by thirdparty contractors are
reported and tracked.  Several officials whom we interviewed at the
Philadelphia center

questioned the usefulness of the monthly reports they received assessing the
management and marketing contractors? property case files. According to one
center official, the summary reports provided by the original contractor
were so bad that center staff used only the last page of the report, which
indicated the number of files reviewed. In September 2000, the Department
hired a new national contractor to conduct operational, management, and
performance reviews of each management and marketing contractor. This new
contractor is required to develop and maintain a national database file that
can be used to perform detailed analyses of the results of the reviews at
various levels of risk.  Center staff cannot obtain from SAMS the
information they need to

monitor certain aspects of management and marketing contractors?
performance. One of the responsibilities the centers have delegated to these
contractors is the sale of foreclosed properties under the Officer Next Door
and Teacher Next Door programs. Under these programs, HUD allows police
officers and teachers to purchase HUD- owned homes at 50

18 Philadelphia Homeownership Center Single Family Disposition Activities
(2001- PH0803, June 14, 2001).

Page 18 GAO- 02- 44 Homeownership Center Information Systems

percent off the list price in HUD- designated revitalization neighborhoods.
19 According to one center official, SAMS does not generate reports that
list the properties sold through these two programs. Therefore, to oversee
the programs, the center must rely on its management and marketing
contractors to provide reports listing the properties sold under these
programs. Work by HUD?s Inspector General indicates that the centers?
oversight of the Officer/ Teacher Next Door programs has not been adequate.
In two recent reports, the Inspector General concluded that the two programs
were at high risk for noncompliance and abuse by homebuyers and that HUD had
not established adequate management controls over the programs. 20 It found,
among other things, that homebuyers had abused the programs by not
fulfilling occupancy requirements and thus received unearned discounts of
about $735, 000. In response to the first report, HUD imposed an immediate
120- day suspension of sales under the Officer/ Teacher Next Door programs,
effective April 1, 2001. On August 1, 2001, HUD announced that it would
resume these programs after having taken some corrective measures to prevent
homebuyer fraud, including a review of program procedures.

In addition to the difficulties previously discussed, the homeownership
centers also cannot readily obtain the procurement and financial data they
need to manage contract costs, which is essential to contractor oversight.
In order for the centers to manage their contracting costs, they must know
how much they are obligating for and spending on contracts. As the following
examples illustrate, however, HUD?s information systems do not readily
provide the centers with contract obligation and expenditure data:

 The centers could not readily provide us with the amounts they had
obligated for single- family contracts in fiscal years 1999 and 2000. The
Atlanta center provided us with the most complete information- reports from
HUD?s procurement system that listed awarded active contracts for different
time periods during the 2 fiscal years. The other three centers provided
fewer reports from HUD?s procurement system and/ or estimates. For example,
staff at the Philadelphia center manually compiled lists of

19 Revitalization neighborhoods are neighborhoods that offer significant
opportunities for local economic growth and are, therefore, receiving
targeted public- and private- sector assistance.

20 Interim Results - Officer/ Teacher Next Door Program (2001- AT- 0801,
Feb. 14, 2001) and

Nationwide Audit Results on the Officer/ Teacher Next Door Program (2001-
AT- 0001, June 29, 2001).

Page 19 GAO- 02- 44 Homeownership Center Information Systems

the contracts the center had awarded for the 2 fiscal years. The staff found
this information to be useful and told us they intended to keep the lists
current. Later, we were able to request and analyze data from HUD?s
procurement system to determine how much HUD headquarters and each of the
homeownership centers had obligated for single- family contract support in
fiscal years 1999 and 2000.  HUD headquarters took approximately 3 months
to provide us information

on the funds expended on different types of major single- family contracts
during fiscal years 1999 and 2000. When provided, the information did not
seem to match the obligation data that we had received and analyzed. HUD
initially sought to get the expenditure information from the centers before
finally retrieving the data from its financial system. The information HUD
provided from this system, however, appears incomplete. Our analysis of data
from HUD?s procurement system showed that HUD obligated about $465 million
for one major single- family contract type, management and marketing
services, in fiscal years 1999 and 2000. Yet, the data HUD provided from its
financial system showed that expenditures for all major single- family
contract types during the 2 fiscal years totaled only about $44 million.

The centers? ability to provide service to their external and internal
customers has been hindered by inadequate telephone systems and the limited
reporting capabilities of some information systems. While the centers?
telephone systems generate a number of reports, they do not provide all the
information needed to manage the centers? customer service workload. For
example, according to the branch chief at Philadelphia?s customer service
call center, the center?s telephone system does not produce any information
showing the peak usage times- the times of day that generate the highest
volume of phone calls. The Atlanta center director also expressed concern
about his ability to track the total number of calls coming into the center.
The center?s customer service telephone system tracks the number of calls
the center receives on its tollfree number, but the calls made directly to
program staff, which represent an estimated 25 percent of the center?s call
volume, cannot be easily tracked. In addition, the centers? telephone
systems do not allow telephone calls to be transferred between centers.
Finally, because of telephone network inadequacies, more than 14, 000
single- family calls were blocked in fiscal year 2000.

In October 2000, the Office of Single Family Housing hired a contractor to
assess the single- family toll- free number information systems and
operations and identify a more efficient and cost- effective means of
Inadequate Telephone

Systems and the Limited Reporting Capabilities of Some Information Systems
Reduce the Centers? Ability to Provide Customer Service

Page 20 GAO- 02- 44 Homeownership Center Information Systems

providing customer service. In its March 2001 report, the contractor
concluded that some of the single- family telephone systems were strained to
the limit and that the systems in place would not provide the services that
would be needed in the future. It recommended just one single- family toll-
free number for the centers and a tracking system that would provide
information on each interaction with the public and include responses to
frequently asked questions. According to the Associate Deputy Assistant
Secretary for Single Family Housing, the contractor?s recommendations are
still under consideration.

The centers? information systems also do not effectively support their
customer service activities, for they do not allow center staff to generate
easily some of the reports their internal customers- center and headquarters
managers- need to manage center operations. According to an August 2000
assessment of HUD?s loan origination systems needs, the extensive number of
reports produced by the current information systems that support the loan
origination process do not accurately serve the new FHA business model.
Also, an overly rigid reporting process hinders staff?s ability to meet
their responsibilities. For example, reports are delivered in hard copy on
predetermined reporting schedules, and staff must enlist programming help if
they want to specify reporting parameters. During our visits to the four
centers, we found the following examples of center staff going to great
efforts to produce needed reports:

 Staff at two of the four centers must generate reports manually because,
while CHUMS has been modified to produce some standard reports by center, it
continues to generate other reports by field office only. For a CHUMS user
in Philadelphia to prepare a monthly report that shows whether the center is
meeting its performance goals, the user must print out a standard report
that provides information by field office and enter data for each of the 24
field offices within the center?s jurisdiction into a spreadsheet. It takes
up to 1 full day each month to prepare this report. Similarly, the CHUMS
user in Santa Ana responsible for generating monthly management reports
spends 1 day each month manually summarizing data on the 16 field offices in
the center?s jurisdiction. According to single- family officials, HUD plans
to automate part of this process in fiscal year 2002.  Center staff must
print out SAMS reports for each management and

marketing contract area in the center?s jurisdiction in order to supply
monthly data to headquarters on the HUD- owned properties for which the
center is responsible. Since 6 of the 16 contract areas fall within Santa
Ana?s jurisdiction, the center must print out reports for each of the 6
areas each month.

Page 21 GAO- 02- 44 Homeownership Center Information Systems

 SAMS? ad hoc reporting feature is so difficult to use that center staff
responsible for overseeing property disposition often must request ad hoc
reports from headquarters if the system?s standard reports do not meet their
needs. For example, when the Atlanta center temporarily assumed
responsibility for the management and sale of certain properties after
terminating a management and marketing contractor, center staff had to
request an ad hoc report from headquarters every week. Rather than request
an ad hoc report from headquarters, some SAMS users told us that they pull
needed information from multiple reports intended for other purposes, which
can be time- consuming. In addition, one SAMS user said that she sometimes
makes do without the information.

The Single Family Data Warehouse has helped center staff obtain needed
information from multiple single- family legacy systems. However, the data
in the warehouse are updated only once a month. According to Office of
Single Family Housing officials, the warehouse is helpful to those who want
to use historical data to develop trend analyses but is of limited use for
day- to- day operational needs. Center staff who need up- to- date data
would probably have to go directly to the individual data systems, according
to these officials. Another limitation of the warehouse is that it is
difficult for most staff to use. Because it requires extensive knowledge of
database software, only a few staff at each homeownership center are
proficient in using the warehouse. To make the warehouse more useful to the
average user, HUD has developed a front- end query tool that enables staff
to request basic information without having knowledge of database software.
However, advanced queries still require program and database knowledge.

To better ensure that FHA?s single- family information systems support the
homeownership centers? operations, HUD?s Office of the Chief Information
Officer is developing an enterprise architecture, and its Office of Single
Family Housing is planning improvements to specific information systems. An
enterprise architecture defines an organization?s current (baseline) and
desired (target) systems operating environments and provides a road map for
moving between the two. It is an essential tool for effectively and
efficiently reengineering business processes and for implementing and
evolving their supporting systems. A well- defined enterprise architecture
can assist in optimizing an organization?s business operations and the
underlying information technology supporting these operations. HUD?s Plans
to

Improve Its SingleFamily Information Systems Are in the Early Stages

Page 22 GAO- 02- 44 Homeownership Center Information Systems

As required by the Clinger- Cohen Act, HUD?s Office of the Chief Information
Officer is developing an enterprise architecture for the Department. As
planned, its enterprise architecture will define:

 the work HUD performs in achieving the Department?s mission,  the
information necessary to deliver programs and operate the

Department,  the automated systems that create or manipulate data to
support HUD?s

business, and  the technology, such as hardware and software, necessary to
support the

Department?s activities. As part of its efforts to develop an enterprise
architecture for the Department as a whole, the Office of the Chief
Information Officer plans to complete its definition of FHA?s baseline
architecture by the fall of 2001. By January 2002, it expects to define some
aspects of the Department?s target architecture. According to the Associate
Deputy Chief Information Officer for Information Technology Reform, HUD will
use this partial target architecture to guide its decisions on the next
round of information technology projects to be submitted in March 2002. Once
its target architecture is complete, HUD will develop an implementation plan
for transitioning over time from the baseline to target architecture.

Although HUD has made progress in developing an enterprise architecture, it
has not yet put in place certain management controls for developing,
implementing, and maintaining an enterprise architecture recommended by the
Chief Information Officers Council. The Council?s guidance on best practices
for successfully managing an enterprise architecture states that an agency
should, among other things, have a written policy that governs the
development, maintenance, and use of enterprise architecture and a committee
or group that is responsible for directing, overseeing, and/ or approving
the enterprise architecture. 21 According to its response to our survey of
federal departments? enterprise architecture efforts, 22 HUD has drafted an
architecture policy, but it has not been approved. Obtaining a clear mandate
for the architecture in the form of an enterprise policy statement is a
critical success factor and will

21 A Practical Guide to Federal Enterprise Architecture, Version 1. 0.

22 This survey was conducted as part of our ongoing review of federal
departments? and agencies? enterprise architecture efforts to gauge progress
towards meeting Clinger- Cohen Act and OMB requirements.

Page 23 GAO- 02- 44 Homeownership Center Information Systems

be instrumental in gaining the buy- in and commitment of all organizational
components of the enterprise, whose participation is vital to successfully
developing and implementing the enterprise?s architecture. Also according to
HUD, it plans to form a committee to oversee its enterprise architecture,
although it has not yet done so. Such a committee should be an executive
body whose members represent all stakeholder organizations and have the
authority to commit resources and to make and enforce decisions for their
respective organizations.

Concurrent with the development of an enterprise architecture, HUD?s Office
of Single Family Housing has developed plans to replace CHUMS, SFIS, and two
other systems that support the origination of FHA- insured loans with one
system that has greater capabilities. As designed, the new system would
support a paperless insurance process, complete with virtual case binders
and digitally signed mortgage documents. The Internet would be used as the
mode of communication among FHA, its business partners, and service
providers. According to a contractor?s cost/ benefit analysis, HUD could
save $70 million by replacing the four old systems with a new system that
would operate for 10 years. HUD included funding to begin development of
this new system in its proposed fiscal year 2002 budget.

Although plans for a new loan origination system have progressed, HUD has
not yet completed its enterprise architecture or assessed the business
processes that the new system should support. HUD?s Office of Single Family
Housing has developed plans for a new system and contracted for a cost/
benefit analysis, yet the Office of the Chief Information Officer does not
plan to have even a partially completed target architecture until January
2002. Furthermore, the Office of Single Family Housing did not assess the
current loan origination processes in place at the centers before laying the
groundwork for a new loan origination system. As recently as early August
2001, it was planning to contract out preparation of a functional
requirements document for the new system. It decided later that month,
however, to delay acquisition of the new system until after it had assessed
the current loan origination process. As part of this review, the Office of
Single Family Housing plans to assess what information is needed to support
the process as well as research the best way to maintain case binders and
generate mortgage insurance certificates.

Since HUD has not yet completed its enterprise architecture or examined
single- family business processes, it is premature to assess whether these
efforts will fully address the centers? information systems needs. However,
ensuring that single- family business processes are reviewed and HUD?s

Page 24 GAO- 02- 44 Homeownership Center Information Systems

enterprise architecture is completed before attempting to acquire a new
system would be in accordance with OMB guidance, which requires an agency?s
information systems investments to be consistent with its architecture. Our
experience with federal agencies has shown that attempting to define and
build major information technology systems without first completing an
enterprise architecture often results in systems that are duplicative, are
not well integrated, are unnecessarily costly to maintain and interface, and
do not effectively optimize mission performance.

The Office of Single Family Housing also plans to enhance the Single Family
Data Warehouse. For example, it plans to add information on nonprofit
agencies that participate in FHA?s programs and on FHA- insured reverse
mortgages. 23 In addition, it intends to expand the front- end query tool
that enables users to query the warehouse without having to use database
software. However, it has no plans to update the data in the warehouse more
often than once a month; therefore, the warehouse still will not be able to
provide data essential to meeting day- to- day operational needs.

Given the multibillion- dollar insurance risk that FHA assumes annually, it
is critical that the agency?s single- family information and telephone
systems help it carry out its responsibilities efficiently and effectively.
However, the information and telephone systems in use at FHA?s four
homeownership centers do not support FHA?s current business processes or
efficiently supply FHA staff with necessary information. Center staff have
demonstrated dedication and a willingness to overcome problems with these
systems. Still, nonintegrated systems and cumbersome reporting mechanisms
make it difficult for them to obtain the information needed to oversee
lenders and contractors and provide timely and consistent customer service.
Also, because FHA?s information systems do not share information, time and
effort must be spent pulling together data needed for routine oversight or
customer service purposes, and this lengthens response times and increases
costs. Staff spend time learning, using, and working around information
system problems- time that could be spent in more productive ways.
Furthermore, while it seems that the Single Family Data Warehouse should
alleviate some of these problems, it

23 Under its Home Equity Conversion Mortgage Program, FHA insures reverse
mortgages- mortgages that convert equity into income- made to older
homeowners. Conclusions

Page 25 GAO- 02- 44 Homeownership Center Information Systems

is updated only monthly and requires special technical expertise to extract
all but basic reports.

These problems indicate that new single- family information and telephone
systems are necessary to support homeownership center operations and reduce
insurance risk. However, HUD?s Offices of the Chief Information Officer and
Single Family Housing have to work together to acquire new systems for the
centers. Currently, as required by the Clinger- Cohen Act, the Office of the
Chief Information Officer is developing an enterprise architecture to better
ensure that HUD?s information systems support its business processes.
However, HUD has not yet put into place certain architecture management
controls recommended by the Chief Information Officers Council. Only if
developed and implemented effectively will HUD?s enterprise architecture
help ensure that the centers have the information and telephone systems
necessary to support their efforts to oversee lenders and contractors and
provide customer service. Meanwhile, the Office of Single Family Housing has
designed a new loan origination system and made plans to assess the loan
origination process at the centers before acquiring the new system. While we
agree that assessing single- family business processes before acquiring new
systems is prudent, any plans to reengineer single- family business
processes or improve single- family information systems should fall within
the framework of HUD?s enterprise architecture. If this does not occur, HUD
risks acquiring systems that are not well integrated and do not effectively
support the centers? efforts to oversee lenders and contractors and provide
customer service.

To address the information system challenges facing HUD?s homeownership
centers, we recommend that the Secretary of Housing and Urban Development
direct the Chief Information Officer and Assistant Secretary for Housing-
Federal Housing Commissioner to:

 Implement the best practices for enterprise architecture management
recommended by the Chief Information Officers Council, including forming an
enterprise architecture steering committee and formulating an enterprise
architecture policy;  Continue delaying any sizable single- family systems
acquisition or

development until the Department?s enterprise architecture is complete; and
 Ensure the development of an enterprise architecture that reflects the

Office of Single Family Housing?s analysis of business processes and data
Recommendations for

Executive Action

Page 26 GAO- 02- 44 Homeownership Center Information Systems

needs at the homeownership centers and provides a framework for the future
acquisition of single- family information systems.

Finally, we recommend that the Secretary of Housing and Urban Development
direct the Assistant Secretary for Housing- Federal Housing Commissioner to
implement telephone systems that track the data, such as peak usage periods,
that the centers need to manage their customer service workload.

We provided copies of a draft of this report to HUD for its review and
comment. In a letter from the Assistant Secretary for Housing- Federal
Housing Commissioner (see app. II), HUD did not take issue with any of our
findings or factual statements. It agreed with three of our recommendations
and expressed concerns about one recommendation. HUD commented as follows on
each recommendation:

 HUD stated that it plans to recharter its Technology Investment Board
Executive Committee to include oversight of its enterprise architecture.
This committee will then be asked to adopt the existing draft enterprise
architecture policy after it has completed departmental clearance.  While
HUD agreed that its single- family information systems must be

replaced or substantially overhauled in order to meet FHA?s business needs,
it disagreed that any major efforts to improve these information systems
should be suspended until HUD?s enterprise architecture is completed. It
stated that its Offices of the Chief Information Officer and Housing will
immediately review all systems development work planned for single- family
systems in fiscal year 2002 and assess whether the development of any
significant new capabilities for these systems should be deferred until the
target enterprise architecture for Office of Housing systems is under
development. In addition, it noted that the Office of the Chief Information
Officer will ensure that the information technology project selection
process for fiscal years 2003 and 2004 explicitly uses the target enterprise
architecture as a major determining factor for selecting an information
technology investment for funding. While these are positive steps, we still
believe that HUD should delay any sizable single- family systems acquisition
or development until the Department?s enterprise architecture is complete.
Our experience with federal agencies has shown that attempting to define and
build major information technology systems without first completing an
enterprise architecture often results in systems that are duplicative, are
not well integrated, are unnecessarily costly to maintain and interface, and
do not effectively optimize mission performance. Therefore, we made no
changes to our recommendation. Agency Comments

and Our Evaluation

Page 27 GAO- 02- 44 Homeownership Center Information Systems

 HUD noted that the Offices of the Chief Information Officer and Housing
will work together to ensure that the information needs of the homeownership
centers are integrated into the design and architecture for the single-
family business process and subsequent information technology.  HUD stated
that it plans to establish a single toll- free telephone number

for FHA?s clients and to acquire new telephone equipment and tracking
systems to capture information about the caller, the nature of calls, and
the number of calls.

We conducted our work at HUD headquarters and at all four of the
Department?s homeownership centers in Atlanta, Denver, Philadelphia, and
Santa Ana. We reviewed documents describing FHA?s single- family information
systems and telephone systems. We interviewed officials from HUD?s Office of
Single Family Housing, Office of the Chief Information Officer, and the four
centers. Finally, we reviewed documents outlining HUD?s enterprise
architecture and its plans for specific single- family information systems.
We performed our work from July 2000 through September 2001, in accordance
with generally accepted government auditing standards.

We are sending copies of this report to the Chairman, Subcommittee on
Housing and Transportation, Senate Committee on Banking, Housing, and Urban
Affairs; the Chairman and Ranking Minority Member, Senate Committee on
Banking, Housing, and Urban Affairs; the Chairwoman and Ranking Minority
Member, Subcommittee on Housing and Community Opportunity, House Committee
on Financial Services; and the Chairman and Ranking Minority Member, House
Committee on Financial Services. We will also send copies to the Secretary
of Housing and Urban Development; the Assistant Secretary for Housing-
Federal Housing Commissioner; and the Director of the Office of Management
and Budget. We will make copies available to others upon request. Scope and

Methodology

Page 28 GAO- 02- 44 Homeownership Center Information Systems

Please call me at (202) 512- 2834 if you or your staff have any questions
about this report. Key contributors to this report are listed in appendix
III.

Sincerely yours, Stanley J. Czerwinski Director, Physical Infrastructure
Issues

Appendix I: Objectives, Scope, and Methodology

Page 29 GAO- 02- 44 Homeownership Center Information Systems

Our objectives were to (1) describe the information systems used by the
homeownership centers, (2) analyze the effectiveness of these systems in
supporting the centers? current operations, and (3) assess the Department of
Housing and Urban Development?s (HUD) plans for the information systems used
by the centers.

To determine what information systems the homeownership centers use, we
reviewed a list of HUD?s information systems and identified those
information systems that support single- family operations. We then
interviewed HUD officials to determine which information systems are the
major single- family information systems. For the seven major single- family
information systems, we obtained and reviewed documentation that described
the purpose of and the information contained in each system. At each of the
four homeownership centers, we interviewed the director, division heads, and
system users to determine which information systems are used to support the
center?s operations. Our interviews also focused on (1) the databases,
including spreadsheets, the centers have developed to support their
operations, and (2) the telephone systems the centers use. We obtained and
reviewed documentation on these databases and telephone systems.

To determine how effectively these systems support the centers? current
operations, we interviewed information system users at each of the four
homeownership centers. We asked them about how they use FHA?s singlefamily
information systems to accomplish their missions, the training they received
on the information systems they use, the quality of the data in the
information systems, and information systems? limitations. Our interviews
focused on the Computerized Homes Underwriting Management System, the Single
Family Acquired Asset Management System, the Approval/ Recertification/
Review Tracking System, and the Single Family Data Warehouse. We reviewed
the procedures followed by the centers to target high- risk lenders for
review and identify potential loan fraud cases in order to determine the
extent to which the centers can rely on their information systems for data.
Similarly, we obtained and analyzed contract obligation data from the HUD
Procurement System and contract expenditure data from HUD?s Central
Accounting and Program System to determine the systems? ability to readily
provide complete and accurate contract cost information. We also reviewed a
March 2001 HUD- sponsored assessment of the centers? toll- free telephone
information systems and operations for information on the strengths and
weaknesses of the systems and their ability to provide efficient and cost-
effective customer service. Finally, we reviewed reports on our prior work
at the centers and reports issued by HUD?s Inspector General for information
regarding Appendix I: Objectives, Scope, and

Methodology

Appendix I: Objectives, Scope, and Methodology

Page 30 GAO- 02- 44 Homeownership Center Information Systems

HUD?s oversight of lenders and its management and marketing contractors.

To assess HUD?s plans for the information systems used by the centers, we
interviewed HUD officials and reviewed documents outlining HUD?s enterprise
architecture and its plans for specific single- family information systems.
Specifically, we interviewed officials from the Office of the Chief
Information Officer and reviewed documents to determine the status of HUD?s
efforts to develop an enterprise architecture. These documents included the
Chief Information Officers Council?s A Practical Guide to Federal Enterprise
Architecture Version 1. 0 and HUD?s response to our survey of federal
departments? enterprise architecture efforts. We also interviewed officials
from the Office of Single Family Housing regarding HUD?s plans for
individual single- family information systems. Finally, we reviewed
documents outlining plans to replace the Computerized Homes Underwriting
Management System and three other information systems with one integrated
system.

We performed our work from July 2000 through September 2001 in accordance
with generally accepted government auditing standards.

Appendix II: Comments From the Department of Housing and Urban Development

Page 31 GAO- 02- 44 Homeownership Center Information Systems

Appendix II: Comments From the Department of Housing and Urban Development

Appendix II: Comments From the Department of Housing and Urban Development

Page 32 GAO- 02- 44 Homeownership Center Information Systems

Appendix II: Comments From the Department of Housing and Urban Development

Page 33 GAO- 02- 44 Homeownership Center Information Systems

Appendix III: GAO Contacts and Staff Acknowledgments

Page 34 GAO- 02- 44 Homeownership Center Information Systems

Stanley Czerwinski, (202) 512- 2834 Paul Schmidt, (312) 220- 7681

In addition to those named above, Bess Eisenstadt, Daniel Gage, Cathy
Hurley, Barbara Johnson, John McGrail, Stanley Ritchick, Stewart Seman,
Paige Smith, and Alwynne Wilbur made key contributions to this report.
Appendix III: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(541005)

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