The report recommended a number of improvements
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A low rating for a housing group means it will lose out on much-needed government cash.
East Durham Homes, which manages 9,000 properties for Easington District Council, has been given one star out of three by the Audit Commission.
As a result, it is unable to access funds of up to £117m to bring homes up to standard.
The group said it is working hard to boost the service which was described as "unacceptably poor" in some areas.
Two stars are needed to release the government funding.
Action plan
Yvonne Davies, head of housing in the north for the Audit Commission, said: "We left them with a very long report with a number of recommendations.
"These included tailoring services to residents, and improving the very long time taken to let empty properties.
"We would like them to review their repairs and maintenance service and there are still some access and information to tenants issues which we think they could improve."
Paul Tanney, the new chief executive of East Durham Homes, said that the low rating was very disappointing, but the issues raised were being addressed.
He said: "We have established six project groups with staff and tenants to look to improve key areas.
"We have got an action plan in place and will work as quickly as possible to get up to standard for the two star rating we need."