The government's Pre-foreclosure Sale Program was supposed to save struggling homeowners from foreclosure, but the government might have paid more than $1 billion to homeowners who didn't qualify for it.

Out of 80 randomly selected claims audited by the Office of the Inspector General of the Department of Housing and Urban Development (HUD), 61 did not meet the program's criteria.

The audit showed that HUD paid $1.06 billion in claims for 11,693 pre-foreclosure sales that did not meet requirements of the Federal Housing Authority (FHA), which runs the program.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

It's hard to say how much the FHA actually lost, the inspector general said. The $1.06 billion amount is not a direct loss for the FHA, since some of those loans might have gone into foreclosure anyway.

The office recommends that HUD strengthen its controls over the program and require lenders to reimburse the FHA for improper claims.

The program's requirements say homeowners must be facing an unavoidable financial crisis, live in the home and show they lack income to make monthly payments.

Yet, the audit found that some borrowers had enough savings for seven to nine months of mortgage payments, and half a dozen faced no unavoidable financial hardship. Another dozen were not owner-occupied homes, and fifteen had no income verification. Plus, lenders failed to verify expenses for 48 claims.

"HUD did not have adequate controls to enforce the program requirements, and the requirements were not well-written," the audit states.

"HUD did not adequately monitor and enforce the program requirements."

Critics warn that the FHA's Mutual Mortgage Insurance Fund will need a government bailout because of poor risk management and its booming loan volumes. Its capital reserves have fallen below its mandated amount of 2 percent of its portfolio.

A bill recently passed by the House of Representatives would shore up the fund, set minimum annual premiums for mortgage insurance and give the FHA tools to improve oversight.

The FHA is facing "an urgent fiscal crisis," stated Rep. Judy Biggert, R-Ill., sponsor of the bill

"The FHA’s cash reserves are down to dangerous levels, and taxpayers cannot afford another Fannie- and Freddie-style bailout. This administration needs to enforce stronger standards and create room for the private sector to replace taxpayers as the primary source of funding."

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.