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 strategic goal to improve the integrity of HUD’s single-family insurance programs and because of residency issues identified in prior audits of the HECM program.  Our objective was to determine whether HUD’s Office of Single Family Housing had effective controls to ensure that HECM loan borrowers complied with residency requirements when concurrently participating in the Housing Choice Voucher (Voucher) program.

HUD policies did not always ensure that HECM borrowers complied with residency requirements.  The audit showed that as many as 136 out of 159 borrowers reviewed were not living in the properties associated with their loans because they were receiving rental assistance under the Voucher program for a different address at the same time.  This condition occurred because HUD’s Office of Single Family Housing did not have controls to prevent or mitigate the problem.  As a result, 121 insured loans should be declared in default and due and payable to reduce the potential risk of loss of about $3.4 million to HUD’s insurance fund.

We recommend that HUD (1) direct the applicable lenders to verify borrowers’ compliance with the residency requirement or, for each noncompliant borrower, declare the loan due and payable, thereby putting about $3.4 million to better use; (2) implement controls to prevent or mitigate instances of borrowers violating residency requirements by concurrently participating in the Voucher program; and 3) update its guidance to detail the steps that servicing lenders should take for borrowers who fail to certify to residency.