The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Financial Freedom Senior Funding Corporation (Financial Freedom) and found that they did not fully follow HUD’s reverse mortgage requirements for loans in the San Antonio, Texas area.
According to the report, Financial Freedom generally followed HUD reverse mortgage requirements for the borrower’s age and completion of a counseling program for the 10 loans reviewed, but it did not fully follow other requirements for five of the loans totaling $753,000 said the report.
Financial Freedom originated one ineligible loan for a home that was not the borrower’s primary residence, one loan for a home that the borrower no longer occupied, and three loans that had issues with repairs. Most of these conditions occurred because Financial Freedom’s underwriters did not follow up on conflicting information or properly interpret HUD’s requirements.
The OIG recommends that the Assistant Secretary for Housing-Federal Housing Commissioner cancel the mortgage insurance on the ineligible loan, require Financial Freedom to contact the borrower and ascertain the occupancy status and if the borrower no longer lives in the property seek repayment of the ineligible loan.
Also, require Financial Freedom to ensure that the repairs have been completed for two loans, consider administrative action against an inspector if warranted, and require Financial Freedom to issue guidance to its underwriters on repairs affecting the health and safety of the occupants or the security and the soundness of the property.
In the report, Financial Freedom responded that:
Of the 5 loans specifically identified, we disagree with the findings on two of the loans and are in general agreement with the findings on the 3 loans related to repairs in that going forward if we are to waive repairs per Mortgagee Letter 05-48, we will obtain additional documentation from appraiser if the severity of the repair is not specifically addressed.
In regards to verifying that the address is the borrowers primary residence, Financial Freedom agrees that the underwriter did a poor job of documenting the discrepancies in addresses but based on the documentation contained in the file, they feel it’s evident that the borrower resided in the subject property.
OIG’s response:
Financial Freedom disagreed that borrower did not live at the subject property, but agreed it was poorly documented. We affirm our original conclusion as the borrower’s driver license address, which is a rural post office box address, is not the insured property address and the addresses are 40 miles apart.
