Finding Text
Finding 2025-001 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #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 review surplus cash calculations and related payment requirements under the Loan and Regulatory Agreements and implement procedures to ensure required payments are made timely when surplus cash is available. Views of Responsible Officials and Corrective Action Plan: Management acknowledges the required mortgage and surplus cash note payments were not made. Management responded to the fiscal year ended 2022 SEBA report on December 23, 2024. As of the date of this report, the Corporation has not received any further communication from the SEBA regarding this matter. Management will continue to review surplus cash requirements and payment obligations under the Loan and Regulatory Agreements. Additionally, management will monitor surplus cash annually and ensure required payments are made in compliance with applicable agreements.