Finding Text
Finding 2023-003 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, ALN #14.135 Statement of Condition: During the year ended December 31, 2021, the Corporation did not make the required mortgage payments on the second mortgage or surplus cash note from available surplus cash at December 31, 2019 as defined by the Loan and Regulatory Agreements. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note. Criteria: The Loan Agreement and the Regulatory Agreement with HUD requires the Corporation to distribute surplus cash as follows: 1) Payment of incentive performance fee of 3.82%; 2) 90% of the remaining balance to pay interest and principal on the second mortgage; 3) 75% of the remaining balance to pay interest and principal on the surplus cash note; 4) any remaining amount as a distribution to the sponsor. Effect: Noncompliance with HUD regulations and mortgage default. Cause: Calculation of surplus cash for December 31, 2019 was not made until 2021 and there was no cash available for payments. Context: A test to compare the required mortgage payments to the actual mortgage payments was performed. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note. Questioned Costs: $0 Recommendation: We recommend that management monitor the annual surplus cash and all required payments from any surplus cash. Views of Responsible Officials and Corrective Action Plan: Management acknowledges the required mortgage and surplus cash note payments were not made. Management will submit a request to re-evaluate payments due based on no surplus cash available at December 31, 2020 - December 31, 2023.