HUD OIG: 86% of reviewed HECM borrowers out of compliance

Using mortgage assistance and rental vouchers at the same time

Borrowers who use the U.S. Department of Housing and Urban Development’s Home Equity Conversion Mortgage program are slipping through the cracks and are not in compliance with residency requirements when concurrently participating in the Housing Choice Voucher program.

The Office of the Inspector General for HUD audited the program to improve the integrity of HUD’s single-family insurance programs and because of residency issues identified in prior audits of the HECM program.

In its findings, the HUD-OIG found that as many as 136 out of 159 borrowers — 86% — who were reviewed 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.

This is a direct result of HUD not having the controls to prevent or mitigate the problem, according to the OIG.

Additionally, the loans for 15 of the 136 borrowers were independently terminated by the servicing lenders during the audit, and the remaining 121 insured loans had current balances totaling more than $15.6 million, along with maximum claim amounts totaling more than $19 million.

The report noted that as a result, 121 insured loans should be declared in default and due and payable to reduce the potential risk of the loss of about $3.4 million to HUD’s insurance fund.

The office recommended three solutions to the Deputy Assistant Secretary for Single Family Housing:

1. Direct the applicable servicing lenders to verify and provide documentation of the borrowers’ compliance with the residency requirement for each of the 121 cases or for each noncompliant borrower, declare the loan in default and due and payable, thereby putting approximately $3,362,055 to better use.

2. Implement controls to prevent or mitigate instances of borrowers violating HECM program residency requirements by concurrently participating in the Voucher program. This includes policies and procedures to at least annually coordinate with HUD’s Office of Public Housing to match borrower data in the Single Family Data Warehouse to member data in the Public Housing Information Center.

3. Update its guidance to detail the steps that servicing lenders should take for borrowers who fail to certify at least annually that the property associated with the loan is their principal residence. This includes borrowers who do not provide a certification, those who do not provide the certification in a timely manner, and those who certify that they no longer occupy the property. 

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