HUD Fails to Track Almost 13,000 Defaulted HECM Loans says OIG Report

August 30th, 2010 | by John Yedinak Published in FHA, News, Reverse Mortgage, Servicers | 16 Comments

For the last few years, the number of Home Equity Conversion Mortgages (HECM) in default from a failure to pay taxes and insurance has been hot topic for debate at events around the country. Estimates from industry experts typically put the number around 10,000, but a new report from the Department of Housing and Urban Development’s Office of Inspector General says there are nearly 13,000 such loans.

During its investigation into the program, the OIG found that HUD failed to track 12,958 HECMs with a max claim amount of more than $2.5 billion that are in default due to failure to pay taxes and insurance.

According to the report, HUD routinely granted foreclosure deferrals because it was unwilling to foreclose on senior citizen borrowers, but the agency had no formal procedures. In May 2009, HUD alerted servicers that it would not accept foreclosure deferral requests after April 30, 2009, for loans in default due to nonpayment of taxes and insurance.

While HUD claimed it was developing a policy, it had not given servicers procedures for handling the loans. As a result, servicers held the loans and paid borrower’s taxes and insurance premiums totaling more than $35 million. Additionally, from March 2009 to March 2010, the number of deferred loans increased 173 percent.

While HUD said it was not aware of the loans, a supervisor said she was not surprised by the number of defaulted loans being held by servicers due to nonpayment of taxes and insurance. The OIG estimates that the sale of HECM foreclosures upon properties from October 1, 2008, to February 22, 2010, could cost HUD at least $1.47 billion.

“Given that the portfolio of defaulted loans had increased significantly, coupled with the rapid rise in the number of new HECM loans, it is crucial that HUD act swiftly to issue guidance on how to resolve the loans currently in default and implement policies to reduce or prevent future occurrences,” said the OIG.

In response to the report, HUD said it’s developing formal policy guidance that addresses the prevention of future defaults. It’s also drafting instructions to servicers on the actions that must be taken to address the existing portfolio of defaulted or deferral loans. According to HUD, there are various ways to address the issue, which includes possibly establishing a minimum income or credit level to ensure that the borrowers have the funds for house expenses or setting aside funds at loan origination for these expenses.

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Anonymous

Mr. McKeon,rnrnAn actuarial report of this nature is a fancy name for a sophisticated form of a projection. The report is generally only as valid as the assumptions upon which it is based. Personally I think they are reasonable but OMB does not.rnrnHUD is not crying wolf. You keep making these baseless charges. Did you read the July 2009 GAO report? I guess not.rnrnHUD has to address the funds as directed by the President and his OMB. It must also implement what it is directed to do by Congress unless it is practically impossible or unreasonably possible.
Anonymous

It appears that HUD is crying wolf with the prospect of losses on foreclosed rnproperties. In the Actualial Analysis of HECM loans for FY 2009, there are two insurance funds HUD has for RMs – prior to 2009, premiums went into the General Insurance Fund and in fiscal year 2009 moved all the new HECM endorserments to the Mutual Mortgage Insurance Fund (MMI). The study indicates that these funds are sufficient to cover losses under any scenario presented.
Anonymous

It’s about time HUD got called out on this. Only a government agency can get away with discontinuing a long-standing practice like the foreclosure deferral program and not provide anything in its place. When I came into this industry over 10 years ago T&I defaults were a problem, and possible solutions were not even being discussed. Five years ago Fannie Mae was trying to develop options to foreclosure but that too was a dead-end.rnrnI cannot help but wonder if the previous posting by RMD on T&I defaults back in June didnu2019t do something to shake HUD or the OIG loose, so if it was responsible even in a small way, we should all be appreciative of the great work the Admin does for our industry.rn
Anonymous

There are four primary groups which hold HECMs: 1) Fannie Mae, 2) investors at large, 3) lenders due to a number of different reasons, and 4) HUD due to assignments. It seems as if the number of lenders which hold any significant numbers of HECMs after endorsement would be small. rnrnIt seems as if HUD should know how many HECMs are in default in its pool unless its servicer(s) has not provided that information. It seems it would be a simple matter to get that information from Fannie Mae.rnrnThe place where it will be hardest to gather such information is from investors. However, since high investor participation is a fairly recent phenomenon, it would seem this group would have a relatively low number of defaults in its pools.rnrnHUD should put the oar in the water and gather that information. Perhaps HUD OIG has done that work. If so, HUD should keep that information current.rnrnIf that number does not grow significantly over the next few years, it will be very surprising. With the advent and popularity of closed end HECMs coupled with low appreciation rates, it would seem that the industry will see a huge increase in the number of such defaults. HUD needs to get control of the appropriate information flow on these HECMs just as quickly as possible.rn
Anonymous

Mr. McKeon,rnrnAn actuarial report of this nature is a fancy name for a sophisticated form of a projection. The report is generally only as valid as the assumptions upon which it is based. Personally I think they are reasonable but OMB does not.rnrnHUD is not crying wolf. You keep making these baseless charges. Did you read the July 2009 GAO report? I guess not.rnrnHUD has to address the funds as directed by the President and his OMB. It must also implement what it is directed to do by Congress unless it is practically impossible or unreasonably possible.
Anonymous

It appears that HUD is crying wolf with the prospect of losses on foreclosed rnproperties. In the Actualial Analysis of HECM loans for FY 2009, there are two insurance funds HUD has for RMs – prior to 2009, premiums went into the General Insurance Fund and in fiscal year 2009 moved all the new HECM endorserments to the Mutual Mortgage Insurance Fund (MMI). The study indicates that these funds are sufficient to cover losses under any scenario presented.
Anonymous

It’s about time HUD got called out on this. Only a government agency can get away with discontinuing a long-standing practice like the foreclosure deferral program and not provide anything in its place. When I came into this industry over 10 years ago T&I defaults were a problem, and possible solutions were not even being discussed. Five years ago Fannie Mae was trying to develop options to foreclosure but that too was a dead-end.rnrnI cannot help but wonder if the previous posting by RMD on T&I defaults back in June didnu2019t do something to shake HUD or the OIG loose, so if it was responsible even in a small way, we should all be appreciative of the great work the Admin does for our industry.rn
Anonymous

There are four primary groups which hold HECMs: 1) Fannie Mae, 2) investors at large, 3) lenders due to a number of different reasons, and 4) HUD due to assignments. It seems as if the number of lenders which hold any significant numbers of HECMs after endorsement would be small. rnrnIt seems as if HUD should know how many HECMs are in default in its pool unless its servicer(s) has not provided that information. It seems it would be a simple matter to get that information from Fannie Mae.rnrnThe place where it will be hardest to gather such information is from investors. However, since high investor participation is a fairly recent phenomenon, it would seem this group would have a relatively low number of defaults in its pools.rnrnHUD should put the oar in the water and gather that information. Perhaps HUD OIG has done that work. If so, HUD should keep that information current.rnrnIf that number does not grow significantly over the next few years, it will be very surprising. With the advent and popularity of closed end HECMs coupled with low appreciation rates, it would seem that the industry will see a huge increase in the number of such defaults. HUD needs to get control of the appropriate information flow on these HECMs just as quickly as possible.rn
Anonymous

Mr. McKeon,rnrnAn actuarial report of this nature is a fancy name for a sophisticated form of a projection. The report is generally only as valid as the assumptions upon which it is based. Personally I think they are reasonable but OMB does not.rnrnHUD is not crying wolf. You keep making these baseless charges. Did you read the July 2009 GAO report? I guess not.rnrnHUD has to address the funds as directed by the President and his OMB. It must also implement what it is directed to do by Congress unless it is practically impossible or unreasonably possible.
Anonymous

It appears that HUD is crying wolf with the prospect of losses on foreclosed rnproperties. In the Actualial Analysis of HECM loans for FY 2009, there are two insurance funds HUD has for RMs – prior to 2009, premiums went into the General Insurance Fund and in fiscal year 2009 moved all the new HECM endorserments to the Mutual Mortgage Insurance Fund (MMI). The study indicates that these funds are sufficient to cover losses under any scenario presented.
Anonymous

It’s about time HUD got called out on this. Only a government agency can get away with discontinuing a long-standing practice like the foreclosure deferral program and not provide anything in its place. When I came into this industry over 10 years ago T&I defaults were a problem, and possible solutions were not even being discussed. Five years ago Fannie Mae was trying to develop options to foreclosure but that too was a dead-end.rnrnI cannot help but wonder if the previous posting by RMD on T&I defaults back in June didnu2019t do something to shake HUD or the OIG loose, so if it was responsible even in a small way, we should all be appreciative of the great work the Admin does for our industry.rn
Anonymous

There are four primary groups which hold HECMs: 1) Fannie Mae, 2) investors at large, 3) lenders due to a number of different reasons, and 4) HUD due to assignments. It seems as if the number of lenders which hold any significant numbers of HECMs after endorsement would be small. rnrnIt seems as if HUD should know how many HECMs are in default in its pool unless its servicer(s) has not provided that information. It seems it would be a simple matter to get that information from Fannie Mae.rnrnThe place where it will be hardest to gather such information is from investors. However, since high investor participation is a fairly recent phenomenon, it would seem this group would have a relatively low number of defaults in its pools.rnrnHUD should put the oar in the water and gather that information. Perhaps HUD OIG has done that work. If so, HUD should keep that information current.rnrnIf that number does not grow significantly over the next few years, it will be very surprising. With the advent and popularity of closed end HECMs coupled with low appreciation rates, it would seem that the industry will see a huge increase in the number of such defaults. HUD needs to get control of the appropriate information flow on these HECMs just as quickly as possible.rn
Anonymous

There are four primary groups which hold HECMs: 1) Fannie Mae, 2) investors at large, 3) lenders due to a number of different reasons, and 4) HUD due to assignments. It seems as if the number of lenders which hold any significant numbers of HECMs after endorsement would be small. rnrnIt seems as if HUD should know how many HECMs are in default in its pool unless its servicer(s) has not provided that information. It seems it would be a simple matter to get that information from Fannie Mae.rnrnThe place where it will be hardest to gather such information is from investors. However, since high investor participation is a fairly recent phenomenon, it would seem this group would have a relatively low number of defaults in its pools.rnrnHUD should put the oar in the water and gather that information. Perhaps HUD OIG has done that work. If so, HUD should keep that information current.rnrnIf that number does not grow significantly over the next few years, it will be very surprising. With the advent and popularity of closed end HECMs coupled with low appreciation rates, it would seem that the industry will see a huge increase in the number of such defaults. HUD needs to get control of the appropriate information flow on these HECMs just as quickly as possible.rn
reversemaniac

It’s about time HUD got called out on this. Only a government agency can get away with discontinuing a long-standing practice like the foreclosure deferral program and not provide anything in its place. When I came into this industry over 10 years ago T&I defaults were a problem, and possible solutions were not even being discussed. Five years ago Fannie Mae was trying to develop options to foreclosure but that too was a dead-end.rnrnI cannot help but wonder if the previous posting by RMD on T&I defaults back in June didnu2019t do something to shake HUD or the OIG loose, so if it was responsible even in a small way, we should all be appreciative of the great work the Admin does for our industry.rn
Omckeon

It appears that HUD is crying wolf with the prospect of losses on foreclosed rnproperties. In the Actualial Analysis of HECM loans for FY 2009, there are two insurance funds HUD has for RMs – prior to 2009, premiums went into the General Insurance Fund and in fiscal year 2009 moved all the new HECM endorserments to the Mutual Mortgage Insurance Fund (MMI). The study indicates that these funds are sufficient to cover losses under any scenario presented.
Anonymous

Mr. McKeon,rnrnAn actuarial report of this nature is a fancy name for a sophisticated form of a projection. The report is generally only as valid as the assumptions upon which it is based. Personally I think they are reasonable but OMB does not.rnrnHUD is not crying wolf. You keep making these baseless charges. Did you read the July 2009 GAO report? I guess not.rnrnHUD has to address the funds as directed by the President and his OMB. It must also implement what it is directed to do by Congress unless it is practically impossible or unreasonably possible.

HUD Fails to Track Almost 13,000 Defaulted HECM Loans says OIG Report

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