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