On an online database tracking a series of issues the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) related to the Home Equity Conversion Mortgage (HECM) program, there are four open recommendations according to a review by HousingWire‘s Reverse Mortgage Daily (RMD). Three of them, however, are largely centered on the same issue.
The sole outlier, according to the online database, is related to a settlement between HUD and MetLife Home Loans reached in 2018, stemming from allegations that the lender and a reverse mortgage borrower’s son failed to comply with HECM loan requirements from the Federal Housing Administration (FHA).
Based on a review of the loan performed in 2017, “HUD notified MetLife and the borrower’s son of their potential liability under the Program Fraud Civil Remedies Act of 1986 […] for causing a false claim to be made regarding the eligibility of an FHA HECM loan,” the entry said. “MetLife underwrote the loan and failed to ensure that the signatories to the loan had the legal authority to execute it.”
Specifically, the OIG noted, “the power of attorney through which the borrower’s son executed the loan required his sister’s signature as well as his own.” MetLife itself would pay HUD $4,000 in the settlement, and the borrower’s son paid $1,500 in matters the OIG considers closed.
But what remains is an issue stemming from enforcement of an indemnification agreement, “to prevent an estimated $95,769 loss to HUD,” the OIG site says. “This represents an amount due HUD from MetLife for indemnifying and holding HUD harmless for any and all losses HUD incurs or has incurred in connection” with the loan.
In January 2012, MetLife exited the forward mortgage business but continued to operate as a reverse mortgage lender at that time. But just four months later, the lender exited its reverse mortgage business and sold its portfolio to Nationstar Mortgage. MetLife was the first to create an official financial assessment for reverse mortgage borrowers in its retail and wholesale divisions, which it implemented to prevent tax and insurance default among borrowers. But the company later suspended the assessment indefinitely.
However, three of the four open HECM-related issues according to the HUD OIG are related to the HECM program’s principal residency requirements, which state that a HECM borrower must remain in the home as their primary residence.
The office made the first such recommendation in 2014, and soon after made another one less than a year later, with the “strategic goal to improve the integrity of HUD’s single-family insurance programs and because of residency issues identified in prior audits of the HECM program.” An audit performed at the time found that as many as 136 out of 159 reviewed borrowers “were not living in the properties associated with their loans because they were receiving rental assistance under the Voucher program for a different address at the same time.”
The OIG recommended that HUD “implement controls to prevent or mitigate instances of borrowers violating HECM program residency requirements by concurrently participating in the Voucher program,” including by working with HUD’s Office of Public Housing to cross-reference voucher recipient data with that of HECM borrowers.
A similar review conducted the following year found that among 68 loans statistically selected for review, “67 loans did not live in the properties associated with their loans because they received rental assistance from HUD’s multifamily programs at a different address at the same time.”
No controls for this were in place, the OIG said, which could lead to losses in the FHA’s insurance fund. But a subsequent review on the matter performed in December 2021 found that “HUD implemented the agreed-to corrective action for one recommendation, did not implement the ongoing corrective action for one recommendation, and did not implement corrective actions for two recommendations.”
As a result, HUD’s open 2021 recommendation is “that the Office of Single Family Housing coordinate its efforts with the Office of Public and Indian Housing and the Office of Multifamily Housing Programs to further ensure that appropriate controls are in place to prevent HECM borrowers from violating principal residency requirements,” the OIG entry said.
In regards to one of the open recommendations from prior years, a memorandum stated that “HUD explained that it did not implement any of the corrective actions due to high staff turnover.”
