HUD Halved Nursing-Home Loan Oversight as Defaults Rose
Summary
A HUD Inspector General audit of the federal mortgage-insurance program for nursing homes found the office overseeing it lost more than a third of its staff between October 2024 and May 2025 -- the same stretch in which lenders became eligible to claim $329.5 million in federal insurance on loans that office was supposed to catch first.
A watchdog office losing its watchers
's Office of Residential Care Facilities (ORCF) runs Section 232, a program Congress created in 1959 to help finance nursing homes; it now insures $18.1 billion across 2,119 loans nationwide. Each property is assigned an Account Executive, who is supposed to review the borrower's annual audited financial statements -- required within 90 days of the fiscal year's end⧉ -- catch early signs a property can't cover its debts, and push for a fix before a loan defaults and a lender collects on 's insurance. Between October 2024 and May 2025, ORCF's staff fell from 61 employees to 38, a 38% cut, while the average caseload per Account Executive rose from a 60-80 property range to 165-200 -- roughly 2.6 times as many. ORCF told auditors its remaining staff simply lacked the manpower to run the analysis needed to catch borrowers pulling money out of properties that couldn't afford it.
View data as table
| October 2024 | 61 | Before the reduction |
|---|---|---|
| May 2025 | 38 | Same troubled portfolios, 23 fewer staff |
What the audit still found, understaffed or not
Even with fewer people watching, the sample of four high-risk portfolios -- 70 properties, 84 loans -- turned up 204 instances of what HUD's own regulations⧉ call an unauthorized distribution: a borrower taking money out of a property that didn't have the surplus cash on hand to allow it, a violation the rule requires be repaid within 30 days unless approves otherwise. Auditors counted 174 unauthorized loans from project funds, 29 unauthorized distributions, and one unauthorized reserve withdrawal. Cash deficiencies turned up in 65 of the 70 properties -- 93% -- and 44% of the 407 financial statements reviewed showed a property's income falling short of its current debts, the specific early-warning signal the annual reporting requirement exists to surface.
View data as table
| Properties with disclosed cash deficiencies | 93% | 65 of 70 audited properties |
|---|---|---|
| Statements with weak debt coverage | 44% | 180 of 407 statements below HUD's 1.0 target ratio |
From troubled to claims-eligible
All 84 sampled loans were already rated troubled before the audit began. By July 2025, most had moved further along: 21 borrowers had entered bankruptcy, had already paid insurance claims on 3 loans, and 2 more were paid off by their borrowers -- leaving 58 loans, worth $329.5 million, where a lender can still file a claim against 's insurance fund. That's 80% of the sample's original $410.6 million balance, and it's a separate figure from the $1.1 billion in unpaid balances tied to the 167 defaults counts programwide. OIG's recommendation⧉ frames the $329.5 million as money still avoidable -- if ORCF acts on the remaining loans "within a reasonable time frame," a phrase the report does not attach a date to.
View data as table
| Audited sample -- 84 troubled loans | 410,633,180 | 4 portfolios, 70 properties, unpaid balance as of April 2024 |
|---|---|---|
| Now eligible for insurance claims -- 58 loans | 329,541,272 | As of July 2025; the remaining 26 are in bankruptcy, already paid, or paid off |
HUD's response: the trend has turned
ORCF's written response, dated March 10, 2026 and reprinted in the report, disputes that framing. It points to newer internal tracking showing its portfolio-wide default rate falling from 2.12% in February 2025 to 0.68% in February 2026, and argues that despite the staff cuts it has "continued to provide excellent customer service" and lowered both default and delinquency rates -- attributing much of the earlier surge to COVID-19, a cause it says was outside its control. OIG revised parts of the report⧉ to reflect the updated timeline but left all 12 of its recommendations open, saying had not yet supplied the documentation several of them require -- including, for one recommendation ORCF asked to close immediately, evidence covering only two of the three portfolios involved.
One example in the audit shows how thin that documentation gap can get: reviewing three years of statements across two related portfolios (28 loans), ORCF staff first flagged more than $1.7 million in unauthorized withdrawals in fiscal 2020, $111,007 in fiscal 2021, and $959,638 in fiscal 2022 -- more than $2.8 million combined. Further analysis found most of the fiscal-2020 figure wasn't unauthorized after all; the borrower didn't dispute the remainder and returned roughly $1.2 million without being made to.
- $329.5 million in mortgage insurance is now claims-eligible on 58 of the 84 nursing-home loans sampled -- all already flagged troubled before the ORCF staff watching them shrank by more than a third.
- Caseloads per Account Executive grew roughly 2.6x (a 60-80 property range to 165-200) in the same window headcount fell from 61 to 38 -- a gap ORCF itself says left staff without the manpower to catch unauthorized withdrawals.
- disputes the trajectory, not the underlying numbers: its newer internal data shows the default rate falling, but left all 12 recommendations open, and Recommendation 1A's fix for the $329.5 million carries no completion date.
selected these four portfolios because they already looked high-risk, not to represent the Section 232 program as a whole; the report says explicitly that results from this non-statistical sample "cannot be projected" onto the program's other 372 portfolios. The $329.5 million and $1.1 billion figures in this piece describe different things: the first is what this four-portfolio sample owes on loans now claims-eligible; the second is 's own programwide count of unpaid balances across all 167 defaulted Section 232 borrowers, not limited to the audited sample.
Sources(2) ▾
- U.S. Department of Housing and Urban Development, Office of Inspector General, HUD Did Not Always Address Risks Reported in Borrowers' Audited Financial Statements for Section 232 Residential Care Facility Portfolios (Report 2026-BO-0001) (2026-04-02) — 's April 2, 2026 audit of the Office of Residential Care Facilities' (ORCF) oversight of the Section 232 nursing-home mortgage insurance program -- the sole evidentiary basis for this piece's figures. Source for the program-wide default count and unpaid principal balance (Highlights; p. 1), the four-portfolio audit sample and its unpaid balance (Highlights; p. 3; p. 10), the 204 instances of unauthorized distributions and the worked FY2020-2022 example (p. 4), the cash-deficiency and default-timeline findings (p. 4), the debt-service-coverage-ratio findings (p. 5), the ORCF staffing decline and caseload growth (p. 6), the bankruptcy/claims-paid/claims-eligible breakdown (p. 7), the program-wide portfolio count and unpaid balance (p. 1; p. 10), the 12 numbered recommendations (pp. 7-9), the Schedule of Funds to Be Put to Better Use (Appendix A, p. 12), and ORCF's management response disputing the default-rate framing with its own more-recent internal data (Appendix B). hudoig.gov · original document
- Electronic Code of Federal Regulations (National Archives and Records Administration / Government Publishing Office), 24 CFR 232.254 -- Distributions to principals from surplus cash (2026-07-17) — The enacted regulation defining an 'unauthorized distribution' under the Section 232 program -- the rule 's audit found borrowers violated 204 times across the four audited portfolios. Source for the 30-calendar-day repayment requirement when surplus cash is negative. ecfr.gov · original document
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In April 2026, HUD's Office of Inspector General⧉ -- the agency's own internal watchdog -- audited 's Section 232 program, which insures mortgages on nursing homes and other residential care facilities, and found the unit overseeing it losing staff just as the loans it polices went bad. As of June 2024, 167 of 's 3,670 Section-232-insured borrowers -- nearly 5% -- had defaulted, carrying more than $1.1 billion⧉ in unpaid mortgage balances. Auditors picked four of the highest-risk portfolios to examine closely -- 84 loans had already rated troubled -- and found that by July 2025, lenders could make insurance claims against on 58 of them: $329,541,272. Over that same stretch, the office responsible for catching this kind of trouble before it reaches that point had lost more than a third of its own staff.