Representatives from HUD offered a strong message to the reverse mortgage industry about diligence to compliance at the NRMLA West conference on Tuesday. Dan Mooney and Esther Yamashiro from the Santa Ana Home Ownership Center of HUD pointed to common issues seen in reviews of loan case binders and lender practices that impact loan quality and endorsements, leading to risks to the insurance fund.
Surprisingly, they pointed to case binders missing simple, yet required, disclosures and documents as common omissions. Most commonly, a signed second trust deed and loan agreement, CAIVERS report and flood certification are found to be missing. Additionally, too often disclosures do not accurately reflect the nature of the transaction, including incorrectly showing the payment plan associated with the loan. They have even seen cases where the vesting noted in the title report does not match the vesting associated with the loan.
Occupancy has raised major red flags on HECM loans. Yamashiro pointed out that any time there are address discrepancies, such as different subject and mailing addresses, the use of a P.O. Box or differing addresses for spouses, than it is important for originators to "connect the dots" to fully document owner occupancy of the subject residence.
These issues can impact the insurability of loans by the FHA that can cause loan files to be referred back to the mortgagee to be addressed before the loan is endorsed. Problems that are discovered post-endorsement impose undue additional risks to the FHA HECM insurance fund.
With the SAFE Act and NMLS licensing rules fully in effect now, Mooney said that the Quality Assurance Division checks lists of all employees of mortgagees to make sure that all originators are licensed and that there are not any omissions between employee lists submitted to the FHA and those registered through the NMLS with the company. Under the new mortgagee sponsorship rules, mortgagees are responsible for verifying the licensing of the third party originators they sponsor.
Turning to counseling, Mooney pointed to on-going studies conducted by the FHA that have found an overwhelming amount of steering by originators to specific counselors. He reminded the group of the detailed rules regarding the list of counselors that must be provided to prospective borrowers in order to select an agency on their own accord. With HECM borrowers reporting in significant numbers that they were steered to a specific counselor by their originator, HUD is currently closely evaluating these circumstances that will likely lead to enforcement actions.
Mooney also cautioned industry participants to conscious of advertising guidelines when designing communications with consumers. Under the Helping Families Save Their Home Act of 2009, HUD's authority to regulate advertising was increased amidst concerns of abusive practices, especially related to government association or involvement in lending activities. He indicated that common violations include efforts to make communications look like official government letters, improper use of government logos, and misleading statements that suggest the HECM is "benefit" rather than a mortgage loan. HUD has the authority to issue cease and desist letters, issue civil monetary penalties, and withdraw FHA authorization of violators. Additionally, HUD is able to refer cases to other federal or state regulatory authorities for further enforcement actions.
Mooney said that quality control and compliance are key to ensuring the long term health and viability of the program. He did state, generally, that they find more issues with quality control than with originations, but encourage diligence from all participants. "If we want the HECM program to survive and thrive, then we must all pay attention to risk management."