[1]In a recent audit of HUD [2]'s oversight of the Department's Home Equity Conversion Mortgage (HECM, or reverse mortgage) program, HUD's Office of the Inspector General [3] (OIG) found that HUD's policies did not always ensure that borrowers complied with residency requirements, according to a release [4] from the HUD OIG.
As a result of borrowers' non-compliance with the residency requirements, the HUD OIG recommended that these loans be declared in default and payable.
The OIG's objective in the audit was to determine whether HUD's Office of Single-Family Housing had effective controls in place to ensure that borrowers in the HECM program were complying with residency requirements while they were concurrently receiving assistance from HUD's multifamily programs with rent. The strategic objective of the HUD OIG is to "protect the integrity of housing insurance and guarantee programs and because of residency issues identified in the prior audits of the HECM program."
The OIG found that in the audit that up to 67 of the 68 borrowers selected for review were not living in the properties associated with their loans because they were receiving assistance with rent at a different address from HUD's multifamily programs. According to the OIG, servicing lenders independently terminated 18 of the 67 loans during the audit.
"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 due and payable, thereby putting up to $15.7 million to better use."
The remaining 49 loans were found to have current balances totaling $7.1 million with maximum claim amounts of more than $8.4 million, and as a result those 49 loans should be declared in default and due, and should be payable in order to reduce the risk of loss to HUD's up to $1.3 million insurance fund.
Also according to the OIG, if HUD cannot confirm that borrowers on an additional 642 loans that may have violated residency requirements are complying with those requirements, the loans should be declared in default and due, and should be payable in order to reduce the risk of loss to HUD's up to $14.4 million insurance fund.
The OIG said these conditions existed because HUD's Office of Single-Family Housing did not have controls in place to prevent them.
"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 due and payable, thereby putting up to $15.7 million to better use," the OIG wrote in the report. "Further, we recommend that HUD implement controls to prevent or reduce instances of borrowers violating residency requirements by concurrently participating in multifamily programs."