Government Watchdog Points to Reverse Mortgage Residency Violations

The Department of Housing and Urban Development (HUD) policies did not always ensure that reverse mortgage borrowers complied with residency requirements under the Home Equity Conversion Mortgage (HECM) program, said the Office of the Inspector General (OIG) in a recent report

Of 68 loans “statistically selected for review,” the OIG found that borrowers for as many as 67 loans did not live in the properties associated with their reverse mortgages because they received rental assistance from HUD’s multifamily programs at a different address at the same time. 

“This condition occurred because HUD’s Office of Single Family Housing did not have controls to prevent or reduce the problem,” stated the OIG in a summary of its audit of the HECM program.


Of the 67 loans, 18 were independently terminated by the servicing lenders during the audit. The remaining 49 insured loans had current balances totaling more than $7.1 million and maximum claim amounts totaling more than $8.4 million.

As a result, OIG says that the 49 loans should be declared in default, and enter due and payable status to reduce the risk of loss to HUD’s insurance fund of up to $1.3 million. 

Furthermore, OIG also suggests that borrowers for an additional 642 insured reverse mortgages may have also violated the residency requirements, possibly resulting in a risk of loss to HUD’s insurance fund of up to $14.4 million. 

“We recommend that HUD direct the applicable servicing lenders to verify borrowers’ compliance with the residency requirements or for each noncompliant borrower, declare the loan in default and due and payable, thereby putting up to $15.7 million to better use,” OIG states. “Further, we recommend that HUD implement controls to prevent or reduce instances of borrowers violated residency requirements by concurrently participating in multifamily programs.”

The findings echo a similar OIG audit from last October, which found approximately 86% of HECM borrowers who were also enrolled in a rental assistance program did not meet reverse mortgage residency requirements. This audit, however, looked at as many as 159 HECM borrowers, of which 136 were found to be in violation with HECM program residency requirements.

Written by Jason Oliva

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  • The numbers in the article are a bit misleading. HUD only analyzed data where individuals were both Reverse Mortgage borrowers AND receiving Tenant Rental Assistance and found a total of 946 individuals participating in BOTH programs… of those they randomly sampled 68 and found that 67 were not living in RM secured property. The only thing surprising about that is that there is someone who figured out how to get rental assistance while still living in a home they own.

  • Did OIG determine if it was the loan that was wrong or the rent assistance. It seems to me it would more likely that the senior used their name to help a relative rent an apartment and the home was still owner occupied.

    • Charles,

      Does it really matter which is out of compliance? HUD should be free to take whatever action it desires since conflicting representations were made to HUD.

      While you provide your opinion, do you have any reliable, empirical, verifiable, and independent evidence to substantiate your opinion?

  • Very good Hecmvet!
    I hate to say this but this like so many rules, regulations and requirements within HUD, they do not have the system in place to enforce and inspect. Many times I question some of the competency of the people they have in management?
    What is so sad id that we see this everyday in do many Federal government departments!
    John A. Smaldone

    • John,

      You are right. Too much of our bureaucracy acts independently of the other even within the same agency (as in this case), leaving it open to abuse. So far the Obama Administration has done little to ensure compliance with all of the programs it has instituted or adjusted.

  • As an REO broker for HECM properties I’ve seen this in a lot of our default properties. In some cases where borrowers vacate their homes and move on to assisted living or other more suitable housing, their family members sometimes move in or even rent out the subject properties for profit. The program allows families up to six months to make this transition with most lenders willing to make additional extensions. However, living rent free can be a difficult thing to step away from and we see some families intent on staying as long as they can get away with it.
    Having common sense occupancy audits will help to free up insurance fund resources and allow more HECM funds go back to their intended purpose – helping more seniors fund their retirement.

    • SD Realty Partners,

      You bring up some great points.

      Since most of the HECMs which are related to the collateral you deal with were originated by needs based borrowers, it is not hard to believe the situations you describe. Many times the heirs of needs based borrowers are also needs based.

      Do you see the situation somewhat correcting itself or getting worse as we see the almost and mass affluent becoming HECM borrowers?

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