HUD's $291.6M mortgage servicing contract awarded to Carrington Mortgage Services LLC raises questions about competition and value

Contract Overview

Contract Amount: $291,649,409 ($291.6M)

Contractor: Carrington Mortgage Services LLC

Awarding Agency: Department of Housing and Urban Development

Start Date: 2019-08-10

End Date: 2023-08-09

Contract Duration: 1,460 days

Daily Burn Rate: $199.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: TIME AND MATERIALS

Sector: Other

Official Description: SINGLE FAMILY MASTER SUBSERVICER SERVICES IN SUPPORT OF GINNIE MAE'S MORTGAGE-BACKED SECURITIES (MBS) PROGRAMS.

Place of Performance

Location: ANAHEIM, ORANGE County, CALIFORNIA, 92806

State: California Government Spending

Plain-Language Summary

Department of Housing and Urban Development obligated $291.6 million to CARRINGTON MORTGAGE SERVICES LLC for work described as: SINGLE FAMILY MASTER SUBSERVICER SERVICES IN SUPPORT OF GINNIE MAE'S MORTGAGE-BACKED SECURITIES (MBS) PROGRAMS. Key points: 1. The contract's value of $291.6 million over four years suggests a significant investment in mortgage servicing capabilities. 2. The sole-source award indicates a lack of competitive bidding, potentially impacting price discovery and value for money. 3. The 'not competed' status warrants scrutiny regarding the justification for avoiding a competitive process. 4. The contract's duration of 1460 days (4 years) provides a long-term commitment, but also limits opportunities for re-evaluation. 5. The use of 'Time and Materials' pricing can sometimes lead to cost overruns if not closely managed. 6. The absence of small business set-asides or subcontracting requirements may limit opportunities for smaller firms in this sector.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging without comparable sole-source awards for similar services. However, the total value of $291.6 million over four years averages approximately $72.9 million annually. This figure needs to be assessed against the scope and complexity of the single-family master subservicer services provided to Ginnie Mae's MBS programs. The 'Time and Materials' contract type, while flexible, can present risks for cost control compared to fixed-price arrangements, potentially impacting the overall value if not meticulously managed and audited.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed. The justification for this approach is not provided in the data. Typically, sole-source awards occur when only one responsible source is available or in cases of urgent need. The lack of competition means that Ginnie Mae and HUD did not benefit from the price discovery and innovation that a competitive bidding process could have offered. This limits the ability to assess if the selected contractor, Carrington Mortgage Services LLC, offered the most advantageous terms.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. Without competing the contract, there is less assurance that the government secured the best possible price and terms for these essential mortgage servicing functions.

Public Impact

Homeowners with mortgages securitized under Ginnie Mae's MBS programs benefit from continuous and stable servicing operations. The contract ensures the ongoing administration of mortgage payments, default management, and investor reporting for a large portfolio. The services provided support the liquidity and stability of the mortgage-backed securities market, indirectly benefiting the broader housing finance system. The contract supports employment within Carrington Mortgage Services LLC, primarily in California where the contractor is located.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potentially increases costs for taxpayers.
Time and Materials contract type carries inherent risks of cost overruns if not rigorously managed.
Lack of transparency in the justification for sole-sourcing hinders public accountability.
Absence of small business subcontracting requirements may limit opportunities for smaller firms.

Positive Signals

Ensures continuity of critical mortgage servicing operations for Ginnie Mae's MBS programs.
Award to an established entity suggests potential for reliable service delivery.
Long-term contract provides stability for both the government and the contractor.

Sector Analysis

The mortgage servicing industry is a critical component of the U.S. housing finance system, managing trillions of dollars in mortgage debt. Ginnie Mae plays a vital role by guaranteeing mortgage-backed securities issued by approved issuers, thereby increasing the availability of affordable housing. Master subservicing contracts like this one are essential for the operational integrity of these programs. The market for mortgage servicing is competitive, but specific government contracts, especially those requiring specialized expertise or handling large, complex portfolios, can sometimes be awarded non-competitively if specific criteria are met. The scale of this contract, over $291 million, places it among significant government service agreements within the financial sector.

Small Business Impact

This contract does not appear to include specific provisions for small business set-asides or mandatory subcontracting goals. The award to Carrington Mortgage Services LLC, a presumably larger entity, suggests that the primary focus was on securing the required servicing capabilities. The absence of such provisions means that opportunities for small businesses to participate in this specific contract, either as prime contractors or subcontractors, were likely limited. This could represent a missed opportunity to foster small business growth within the mortgage servicing sector, particularly in specialized areas related to government-backed securities.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Housing and Urban Development (HUD), specifically Ginnie Mae's program offices responsible for overseeing mortgage-backed securities. The contract's 'Time and Materials' nature necessitates robust oversight to monitor labor hours, material costs, and overall expenditures to prevent cost creep. Transparency regarding the justification for the sole-source award and ongoing performance metrics would be crucial for accountability. While specific Inspector General (IG) jurisdiction isn't detailed, HUD's Office of Inspector General typically has oversight over HUD contracts.

Related Government Programs

Ginnie Mae Mortgage-Backed Securities Programs
Federal Housing Administration (FHA) Single Family Loan Programs
Department of Veterans Affairs (VA) Loan Guaranty Program
Department of Agriculture (USDA) Rural Development Single Family Housing Programs

Risk Flags

Sole-source award without clear justification.
Potential for cost overruns due to Time and Materials pricing.
Lack of transparency regarding competition and pricing.
Absence of small business participation requirements.

Frequently Asked Questions

What is this federal contract paying for?

Department of Housing and Urban Development awarded $291.6 million to CARRINGTON MORTGAGE SERVICES LLC. SINGLE FAMILY MASTER SUBSERVICER SERVICES IN SUPPORT OF GINNIE MAE'S MORTGAGE-BACKED SECURITIES (MBS) PROGRAMS.

Who is the contractor on this award?

The obligated recipient is CARRINGTON MORTGAGE SERVICES LLC.

Which agency awarded this contract?

Awarding agency: Department of Housing and Urban Development (Department of Housing and Urban Development).

What is the total obligated amount?

The obligated amount is $291.6 million.

What is the period of performance?

Start: 2019-08-10. End: 2023-08-09.

What is the specific justification provided by HUD for awarding this contract on a sole-source basis to Carrington Mortgage Services LLC?

The provided data indicates the contract was 'NOT COMPETED' and awarded as 'SOLE SOURCE'. However, the specific justification or rationale behind this decision is not detailed. Typically, sole-source awards are made when only one responsible source is capable of providing the required services, or in cases of urgent and compelling need, or when it's deemed not in the government's best interest to compete. Without further documentation from HUD, it is impossible to ascertain the precise reasons. This lack of transparency regarding the justification is a significant point of concern for assessing the contract's value and adherence to procurement principles.

How does the annual cost of this contract compare to industry benchmarks for master subservicing of Ginnie Mae MBS portfolios?

Direct comparison to industry benchmarks for master subservicing of Ginnie Mae MBS portfolios is difficult without specific cost data broken down by volume of loans, assets under management, and complexity of services. The total contract value of $291.6 million over four years equates to an average annual cost of approximately $72.9 million. This figure represents the total expenditure for comprehensive subservicing functions, including payment processing, default management, investor reporting, and loss mitigation. To benchmark effectively, one would need to analyze the number of loans serviced, the total principal balance outstanding, and the specific service level agreements. The 'Time and Materials' pricing structure also complicates direct comparisons, as actual costs can vary based on effort expended.

What are the potential risks associated with the 'Time and Materials' contract type for this large-scale subservicing agreement?

The 'Time and Materials' (T&M) contract type, while offering flexibility, carries inherent risks for large-scale agreements like this one. The primary risk is the potential for cost overruns, as the government pays for the time and materials used by the contractor without a predefined ceiling on total cost, unless specific limitations are imposed. This necessitates rigorous oversight and detailed tracking of labor hours, rates, and material expenses by the contracting agency. Without stringent controls and vigilant monitoring, the contractor could incur higher costs than anticipated, potentially leading to a less favorable value for the government compared to a fixed-price contract. Effective management of T&M contracts requires proactive engagement to ensure efficiency and prevent scope creep.

What is Carrington Mortgage Services LLC's track record in servicing federal mortgage-backed securities programs prior to this contract?

Information regarding Carrington Mortgage Services LLC's specific track record in servicing federal mortgage-backed securities programs prior to this contract is not provided in the data. However, their selection as a sole-source provider suggests they possess the necessary qualifications, expertise, and capacity to manage Ginnie Mae's complex MBS programs. Further investigation into their history with government contracts, regulatory compliance, performance reviews, and experience with similar large-scale servicing operations would be necessary to fully assess their capabilities and reliability in this role.

Are there any performance metrics or service level agreements (SLAs) associated with this contract that are publicly available?

The provided data does not include details on specific performance metrics or service level agreements (SLAs) associated with this contract. For a contract of this magnitude and importance to Ginnie Mae's MBS programs, it is highly probable that detailed SLAs exist, outlining expectations for payment processing timeliness, default management response times, investor reporting accuracy, and customer service standards. The absence of this information in the summary data limits the ability to assess the contractor's performance obligations and the government's mechanisms for ensuring service quality and accountability.

Industry Classification

NAICS: Finance and Insurance › Securities and Commodity Contracts Intermediation and Brokerage › Investment Banking and Securities Dealing

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: TIME AND MATERIALS (Y)

Evaluated Preference: NONE

Contractor Details

Address: 1600 DOUGLASS RD STE 200A, ANAHEIM, CA, 92806

Business Categories: Category Business, Corporate Entity Tax Exempt, Limited Liability Corporation, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $291,649,409

Exercised Options: $291,649,409

Current Obligation: $291,649,409

Actual Outlays: $3,907,927

Subaward Activity

Number of Subawards: 1

Total Subaward Amount: $1,131,694,369

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Timeline