HUD Inspector General Warns Congress of Concerns About HECM Program

image The Department of Housing and Urban Development’s assistant inspector general warned a Congressional committee on Jan. 9 of concerns regarding FHA’s ability to handle the increase in volume it has seen over the past year.

James A. Heist, assistant inspector general for audit, testified that FHA needs to increase personnel, increase training for personnel and increase oversight of appraisal and underwriting.  The agency’s market share has grown to 12.55% of single-family home loans in fiscal 2008 from 4.12% in the prior year. In September 2008, FHA’s market share reached 21.13%, up from 6.35% in October 2007.

Heist also expressed his concern about different aspects of the HECM program.  Below are the comments made regarding the HECM program:

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Another area of concern is the growing Home Equity Conversion Mortgage program. As an internal matter, in 2007, FHA’s independent auditors identified a significant deficiency in the financial statement audit that showed the program being supported by a combination of servicer-provided applications, vendor databases, modification of existing FHA legacy systems and manually performed input to the FHA’s general ledger.

From an external standpoint, we are aware that the larger loan limits can be attractive to exploiters of the elderly, whether it is by third parties or by even family members, who seek to strip equity from senior homeowners. Due to the vulnerability of the population this program serves, we are also concerned about evasions of statutory counseling requirements or even fraud by counseling entities. We are working with the Chairman and members of the Senate Committee on Aging to address some of their concerns regarding these issues.

Some HECM-related fraud activities involve flipping where an investor sells the property to an elderly straw buyer and enters into a quit claim deed with the straw buyer. The buyer applies for the HECM loan within a short time frame and the appraisal used to originate the HECM loan is then fraudulently inflated. This allows the investor to illegally divert the proceeds of the loan. Straw buyers are “recruited” in residential areas with a high rate of renters. The buyers are often unaware that they must pay property taxes and some are unaware that the cash due to them at closing has been diverted. A current investigation involves recruiting elderly homeless to live in properties victimizing these seniors who often have desperate needs.

Another activity that we currently have under investigation involves financial professionals convincing HECM borrowers to invest HECM proceeds in a financial product such as an annuity. The financial professionals receive increased fees and, in the case of annuities, the victims are unable to get access to their savings for many years or even past their projected life expectancy. We have been partnering with the AARP and other groups to foster consumer protection education awareness. We are also a key participant in the mortgage fraud task forces nationwide coordinated by the Department of Justice.

To read a copy of his testimony click the link below.

Statement of James A. Heist before the Committee on Financial Services

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  • There is no doubt that FHA is understaffed. As far as the sale of insurance products, every HECM application package contains disclosures and warnings up the ying yang. What else can be done? How come they lowered origination fee limits but not Up Front MI?

  • I agree with Jerry. How come all talk about “fees” is always focused on how much money the originator is making? Exactly what is FHA/AARP/NRMLA doing about the outrageous 2% mortgage insurance premium? All talk – No action. And, sure, what is really needed is 5 more lbs of disclosures to totally overwhelm borrowers.

  • If HUD is concerned about “straw buyers” and artifically inflated appraisals, why don’t they simply impose a seasoning requirement? With this provision, the senior would have to own their home for a specified time period before making application for a reverse mortgage. By imposing this, and tight restictions on who lenders can use to do appraisals, HUD could aleviate these concerns.

  • Tim, the seasoning scenario you mention would not work for HECM purchases and this is where the concern for straw buyers lie. Most underwriters are imposing seasoning on the existing sellers to prevent flipping.

  • The FHA HECM is a Godsend for the cash strapped Senior
    who has either outlived his/her retirement assets, except for their home equity, or had none except for their home and Social Security. It’s time to put the thieves who steal from Seniors in jail for a few years;
    perhaps that would reduce the number tempted. I don’t
    understand why those on high always want to blame the lowly Loan Officier for ALL the theft or skulduggery, however. I guess it’s because L.O’S don’t live in
    nine million dollar Manhatten Apartments–where the man has apologized to his lofty neighbors for their inconvienence but not to the folks from whom he stole 50 Billion for their loss (which has devastated more than one Senior retirement account). While I appreciate the generally good work of the Inspector General’s Office, I just wish someone therein would take the time to hear what most Loan Officers have to say about the challenges of the Reverse Mortgage Loan Officer’s job.

  • Jerry is exactly right – in a typical application package there are several documents that touch on using funds to buy an annuity. There are new laws in place as well about cross selling.

    Perhaps a nationwide originator license requirement with Federal background checks and solid knowledge exams would weed out the few that make the majority look bad.

    I also find it very concerning that Fannie is currently the only significant investor really purchasing HECM loans. Talk about having all your eggs in one basket! What would happen if Fannie suspended their program for any period of time? This would be catastrophic to people in the reverse mortgage profession and seniors who want a reverse mortgage.

    I hope we will see new emerging markets that will recognize HECM products as solid long term investment.

  • I can not understand why we need additional verifications and protection process. Every Reverse Mortgage I have done has several built in stop points. These are designed to allow the Sr. an oppertunity to bail out. Also, they must attend counseling from an independent party. Most of our clients keep asking why the loan is taking so long.
    And, we have prospective HECM Borrowers who own a home with a ~300,000 (example)Loan and a value of the properlty is over 500,000. Yet, we can not provide the loan for them. These people are Property Rich and Cash Poor.

  • Crooks,

    How many ways can you screw a senior?

    Let me count the ways.

    Are there not enough PHONY PONZY schemes already? Didn’t Bernie Made-off with our money or the sub-prime mortgage rip offs teach us anything……….??? Oh, it was a planned event you say? So it was, and who got screwed? You? Ha-ha, no way Jose!

    Get off my back you creeps and don’t ever send me any of your cheap promotions again I am reporting everywhere such that maybe people can see through your greed and ungodliness, black soul.

    You’d screw your mother for a nickel, wouldn’t you? And you’d be mighty proud of it wouldn’t you. Is there nothing in your consciences that comes through on a higher level or are you just plain lost to the dollar bill?

    For shame. May God find a way to up-right you before your days here are done thus you meet your maker and atone for the rest of time due to paying for your wrongs.

    God Bless and slay the devil

  • It appears as though Barbara needs to be educated about reverse mortgages. If she had a thorough (or ever “basic”) understanding of the benefits of the HECM program, she would never have made the far out statements she made. I can personally attest that reverse mortgages have literraly saved some of my clients lives. It’s a shame people like Barbara are so ill informed. Maybe Barbara’s comments are meant to be some type of April Fools Day prank…..

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