President Obama’s stimulus package subsidized home loans for individuals who already owed the federal government millions in back taxes, according to a new report by federal watchdogs.
The report, released Wednesday by the Government Accountability Office, found that the Federal Housing Administration, a division of the Department of Housing and Urban Development, had insured $1.44 billion worth of home loans through the stimulus for 6,327 borrowers who collectively owed $77.6 million in federal tax debts.
More than half of those borrowers also claimed a total of $27.4 million in stimulus-backed First Time Home-Buyer tax credits.
Federal law prohibits FHA mortgage insurance for delinquent taxpayers unless they have arranged a payment plan with the IRS, but GAO found that FHA did not have adequate controls in place to enforce those prohibitions in its disbursement of stimulus-backed mortgage insurance.
The oversight exposed taxpayers to greater financial risk, GAO found, since “serious delinquency and foreclosure rates among Recovery Act borrowers with unpaid federal taxes were at least twice as high as the rates for other borrowers.”
In a response to the GAO report, HUD “acknowledged that current policies and procedures may fail to identify all potential borrowers with delinquent tax debt” and pledged to work with the IRS to remedy the problem.
