We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its Home Equity Conversion Mortgage (HECM) program and found that 33 borrowers had more than 1 loan under the program.  Having multiple loans violated program requirements because HUD requires borrowers to reside in the mortgaged residence as their principal residence and borrowers may not have more than one principal residence at the same time.  We referred the violations to HUD’s Office of Program Enforcement for action.

One borrower obtained HECM loans on two properties that she owned in California.  For one of the loans, she certified that the underlying property was her principle residence.  For the other loan, Bank of America, NA could not provide annual occupancy certifications.  However, the borrower violated HUD’s principal residency requirements because she owned both properties at the same time.  In February 2014, HUD paid an FHA insurance claim on the second loan.  HUD also sold the property at a loss. 

HUD’s Office of Program Enforcement found that Bank of America, NA originated the mortgage on the second property despite evidence that the property was not the borrower’s principal residence.  Therefore, the lender should not have submitted the loan for FHA insurance endorsement.  HUD’s Office of Program Enforcement notified the lender of its intent to file an action under the Program Fraud Civil Remedies Act.  To avoid further expenses and administrative proceedings, the lender and HUD negotiated a settlement agreement in which the lender agreed to pay $98,492 to resolve the matter.  However, the lender denied that its origination activities violated HUD-FHA regulations or the Program Fraud Civil Remedies Act.  Further, the agreement did not constitute an admission of liability or fault by any party.  The lender made the settlement payment in April 2015.