FHA Gave Mortgage Help to Thousands of Tax Deadbeats

June 28, 2012— -- Several thousand homeowners who got federal help to avoid defaulting on their mortgages were tax deadbeats who owed the government more than $77 million in back taxes, a new report has determined.

Despite owing the feds taxes, it was still legal for many of those to get help from the Federal Housing Administration. Others, however, were ineligible depending on the program for which they applied, but got the federal cash anyway.

The report by the Government Accountability Office released Tuesday looked at two programs in the FHA during 2009 that were part of the government's Recovery and Reinvestment Act efforts to ease the mortgage crisis for many homeowners.

"In 2009, FHA insured over $1.44 billion in mortgages for 6,327 borrowers who at the same time had delinquent tax debt and benefited from the Recovery Act," the report stated. "According to IRS records, these borrowers had an estimated $77.6 million in unpaid federal taxes as of June 30, 2010."

The audit looked at the FHA's mortgage insurance program and its First Time Home Buyers Credits. Tax debtors were allowed to receive benefits from the FTHBC program, but are ineligible for the mortgage insurance program.

About half of the 6,327 had received help from the mortgage insurance program, the audit said.

Nevertheless, the GAO found that it could not determine "the proportion of borrowers who were ineligible" because of difficulty tracking each applicant, so they sampled eight borrowers.

"We found that five of our eight selected borrowers were not in valid repayment agreements at the time they obtained FHA mortgage insurance," it concluded.

The GAO warned that records show that tax deadbeats were as much as three times more likely also to default on their loans, "which potentially represents an increased risk to FHA."

The report is the most recent to detail problems with tax delinquents slipping through the review process to gain access to the FHA's mortgage insurance program.