We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its Home Equity Conversion Mortgage (HECM) program based on our annual audit plan and our strategic goal to improve the integrity of HUD’s single-family programs. This is the first of two reports that we plan to issue on HUD’s oversight of the program. Our objective was to determine whether HUD’s controls effectively ensured that HECM loan borrowers complied with program residency requirements.

We found that HUD controls did not always ensure that HECM loan borrowers complied with program residency requirements. Our review disclosed that 33 borrowers had more than 1 HECM loan and that they falsely certified to principal residency for properties that they were not living in. As a result, 33 loans insured under the HECM program were ineligible for insurance and should be declared in default and due and payable to reduce the potential risk of loss of an estimated $3.9 million to HUD’s Federal Housing Administration (FHA) insurance fund.

We recommended that HUD direct the servicing lenders to identify which property is the HECM loan borrower’s principal residence for each of the 33 cases, declare the loan for the other property in default, and declare it due and payable, thereby putting an estimated $3.9 million to better use. We also recommended that HUD perform quality assurance tests at least annually to ensure that edits in its FHA Connection system are effective in preventing the approval and generation of FHA case numbers for borrowers with existing loans.