On the Docket: HUD’s Inspector General Publishes Alert on HECM Refinancings

HUD’s Office of the Inspector General issued an “Integrity Bulletin” warning reverse mortgage lenders that it has identified instances of fraudulent appraisals being used to increase HECM loan amounts in order to refinance existing borrowers.

According to the OIG, an analysis of more than 5,000 HECM refinances over the last several years showed that a small group of HECM originators is responsible for a large percentage of potentially fraudulent HECM refinances, generally within relatively small geographic areas.

“Analyses of these refinances revealed one of the hallmarks of mortgage fraud: unexplained, large increases in appraised values in a relatively short period of time,” the bulletin states. The OIG will investigate appraisers, loan officers, originators and sponsors who engage in fraudulent HECM transactions and will refer them for criminal or civil prosecution, or administrative sanctions as appropriate.

Underwriters are reminded that they should carefully scrutinize appraisals and appraisal comps on all HECM originations, particularly on HECM refinances. Underwriters are reminded that they are responsible for being familiar with geographic areas in which properties are located and should question appraised values if they are out of line with the market.

Ethics Committee Amends Refinance Guidelines

NRMLA distributed a member alert announcing new anti-churning policies adopted by the Ethics Committee. Reverse mortgage borrowers who want to refinance their loans must wait a minimum of 18 months and pass a closing cost and loan proceeds test.

“Ethics Advisory Opinion 2015-2: Ethical Refinancing of HECM Reverse Mortgage Loans and Anti-Churning Considerations—New Requirements” states that for a HECM-to-HECM refinance to provide a bona fide advantage to the consumer, the date on which FHA assigns the case number must be 18 months or later from the date of the closing of the original HECM loan. To meet the Closing Cost Test, the amount of loan proceeds available from the refinance must equal or exceed five times the amount of the closing costs paid by the borrower, while the Loan Proceeds Test can be met if the Available Benefit Amount from the HECM Refinance equals or exceeds 5 percent of the HECM Refinance Principal Limit. Examples of these policies are provided as Attachment A to Ethics Advisory 2015-2.

In drafting the advisory opinion, the Ethics Committee noted that changing from one type of loan to another—such as refinancing from a fixed rate loan to an adjustable rate loan—does not provide a bona fide advantage unless the subject loan meets the Seasoning Requirement, Closing Cost Test and Loan Proceeds Test described above.

HUD Official to Reverse Mortgage Lenders: HECM Program on Solid Ground

On the same day that the Secretary of Housing and Urban Development announced that the FHA’s MMI Fund is in the black for the first time since 2008, Kathleen Zadareky, Deputy Assistant Secretary for Single Family Housing and the official who oversees daily operations of FHA’s HECM program, told attendees at NRMLA’s 2015 Annual Meeting, “Positive gains in the HECM program are a large part of the reason why the MMI is sufficiently capitalized at just over the 2 percent ratio mandated by Congress ahead of expectations.”

Zadareky cautioned the industry not to take the gains for granted, because a pattern has emerged of HECM contributing or taking away from the positive performance of the fund. “FHA is mindful of this and we’ll continue to consider actions we can and should take to manage the volatility of the program,” she said.

Zadareky also discussed how recently implemented changes, such as Financial Assessment and new rules for non-borrowing spouses, are making FHA-backed reverse mortgages more sustainable for borrowers without significantly limiting accessibility to these loans. She expressed great appreciation to NRMLA for accepting the changes and working to implement them in a way that helps borrowers and makes sense for industry.

HUD Staff Present HECM Program Updates

It is still too early to know the full impact of program changes, but gains in FHA’s MMI Fund show that some of the new policies are already having a positive effect.

That’s according to Karin Hill, HUD’s Senior Policy Advisor, who addressed a crowded ballroom at NRMLA’s annual meeting. The overall reduction in the number of full-cash draws at closing is directly related to the positive actuarial review, said Hill. The data shows that since 2013, when HUD introduced a new mortgage insurance premium structure based on draw percentages, 63 percent of HECM borrowers taking a variable rate loan drew 60 percent or less of their available proceeds in the first year compared to 55 percent in 2014 and 46 percent in 2013.

“HUD’s priority is to ensure that the HECM program is a sustainable solution for the borrower. We want borrowers to have long-term access to home equity to support their ability to age in place, and to move away from use of the program as a crisis management tool,” said Hill.

Total HECM endorsements increased from approximately 52,000 loans in FY14 to 58,000 in FY15 at a value of $16.1 billion for the year. Hill said that HUD is very pleased with the increase and will continue to look for ways to expand volume. She also noted that the agency expects the numbers of loans assigned to HUD, currently 34,000, to increase significantly over the next couple of years.

Since October 1, 1989, HUD has endorsed 948,736 HECM loans at a value of $220.2 billion. Of those, 299,968 loans have terminated, 614,868 loans are actively insured, and 34,060 loans are assigned to HUD as active notes in inventory.

Reverse Mortgage Professionals Offer Helping Hand to Area Seniors

Members of the industry focused on supporting senior homeownership shared a meaningful connection with hundreds of senior citizens who live in the single-residency occupancy hotels and homeless shelters of San Francisco’s Tenderloin District.

More than 70 members of NRMLA spent the morning of November 14 preparing meals, distributing Thanksgiving grocery bags, and socializing at the Curry Senior Center on Turk Street. Longtime Curry resident Diane Evans said that when people come to visit and volunteer at the center, it reminds seniors that they are not forgotten or thrown away.

The Curry Center provides at-risk and very low-income seniors with a wide range of integrated services, including health care, housing, nutrition and a strong sense of community. Each year, Curry serves more than 50,000 breakfasts and 60,000 lunches to older adults who struggle to find the resources to meet their daily needs. Curry’s director of development, Tod Thorpe, said that NRMLA’s service project was the largest volunteer effort held at the center and that he hopes more groups will follow the association’s lead. NRMLA Honors Industry Pioneers

At NRMLA’s Annual Business Meeting, President & CEO Peter Bell recognized the distinguished careers of Jeffrey Taylor and Sherry Apanay by bestowing each with a Career Achievement Award.

Taylor, the founding chairman of NRMLA, ran the reverse mortgage program at Wells Fargo Home Mortgage for many years and currently sits on the board of directors for ReverseVision. Sherry Apanay started her career in the reverse mortgage industry 23 years ago with Unity Mortgage Corporation, serves on NRMLA’s Board of Directors, and is currently responsible for all reverse mortgage sales channels for Finance of America Reverse, formerly Urban Financial of America.