HUD Audit Reveals Better Internal Controls Needed To Support HECM Growth

imageA recent audit of the Department of Housing and Urban Development’s Office of Single Family Housing found that Single Family had not fully implemented an internal control structure in accordance with Government Accountability Office (GAO) internal control standards and HUD requirements. The audit was performed due to concerns over the expected increase in Federal Housing Administration (FHA)-insured loans generated by newly implemented and proposed FHA programs.

The report, released Sept. 8, stated that reverse mortgages contributed to part of the increased federal insurance exposure due to the segments rapid growth.  GAO concluded that as a result of this increase, Single Family would be challenged to develop adequate systems to account for increase in reverse mortgage loans.

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The independent auditor’s report on FHA’s fiscal year 2007 financial statements (OIG report #2008-FO-0002, issued November 2007) identified two material weaknesses related to home equity conversion mortgages (reverse mortgages), caused in part by

  • A lack of a comprehensive, documented, program-level risk assessment;
  • A lack of an effective process to document FHA’s conclusions
    regarding results of its validation review; and
  • A lack of employee understanding of system security responsibilities due to an ineffective organizational authority and insufficient staff resources.

The report noted that while most of the control weaknesses were specific to the reverse mortgage program; however, the weaknesses may indicate systemic problems within FHA due to the level of inadequate risk assessments and lack of documentation within this program. .  Single Family should have employed an overall risk-based monitoring strategy to help ensure:

  1. Homeownership centers resolved loan deficiencies consistently.
  2. Nonperforming lenders were not inadvertently allowed to remain in the lender insurance program.
  3. The reverse mortgage program operated efficiently and effectively,
    particularly since this program had dramatically increased in loan volume
    in recent years.

According to the Reverse Mortgage Report, Federal Housing Commission Brian D. Montgomery responded to the report by establishing a board consisting of senior management at headquarters and the homeownership centers. The board met weekly for nine months to identify weaknesses and implement policies to ensure its internal control structure would include the inspector general’s recommendations.

Audit Report No.: 2008-KC-0006

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  • I read your tasty little tidbit yesterday about Meg Burns quote regarding overzealous legislators and reverse mortgages (among other FHA loans). So I went exploring and found the OIA/GAO report.

    Is this why we haven’t heard (or barely heard) about the effective date for implementing the new reverse mortgage caps of $417,000 and $625,000…and garrble about the $625,000 limit. Is this why rumor has it that FHA wants to put off implementing the FHA Modernization program until January, 2009?

    Is an internal fight with IGO/GAO and HUD’s Office of the Chief Financial fficer, Office of Housing (Housing) and Single Family about which forms, lines, methodology, yadda yadda, going to hold up what’s important.

    The homes and lives of humans; of really old people still working in their late 70’s; is my 78 year old couple going to lose their home because the bureaucrats want to fight it out?

    Is that why they’re pinpointing the reverse mortgages, a miniscule portion of the total amount of FHA insured loans? FHA Family can’t be trusted to handle the possibility of a “sea” of reverse mortgages. The number of reverse mortgages in a year is nothing compared to the number of loans FHA insures overall.

    No, it’s because the revese mortgage program is miniscule compared to all the other FHA insured loans; because the political fallout of pushing the needy seniors back to January, or March or even June, 2009 is much less important than their bureaucratic infighting? Who cares?

    This is one time I don’t see the legislators as being “overzealous”; but as, for once, doing their job.

    Was Meg just sorta setting us up?

    Signed: A Very Worried Reverse Mortgage Loan Office

  • There should be a law requiring the reverse mortgage lenders to disclose if they are federally secured or not. I got into a reverse mortgage and now am being told since they are not insured, they do not have to give me any more money. I researched it and found that is correct. Who would want to get a non-secured reverse mortgage, because they do not know that when they get it. Please follow-up with this, and put the disclosure and the ramifications of not getting insured and let them sign it to show they understand. Why don’t they have that disclosure, because no one would be getting that loan, unless they were a jumbo, but of course, mine was not. My husband just died and now I am all alone, and facing the unknown with this loan.

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