We audited Financial Freedom Senior Funding Corporation (Financial Freedom) as part of our annual audit plan objective of improving the integrity of single-family insurance programs. Our objective was to determine whether Financial Freedom complied with U. S. Department of Housing and Urban Development (HUD) origination requirements for the Home Equity Conversion Mortgage program, commonly known as a reverse mortgage.

Financial Freedom generally followed HUD reverse mortgage requirements for the borrower's age and completion of a counseling program for the 10 loans reviewed. However, it did not fully follow other requirements for five of the loans totaling $753,000. 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.

We recommend 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, 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.