The U.S. Department of Housing Urban Development (HUD), Office of Inspector General audited HUD to determine whether it ensured that lenders properly processed voluntary terminations of insurance coverage on single-family Federal Housing Administration (FHA) loans and disclosed all implications of the terminations to the borrowers. We initiated this audit because of our concern that borrowers might not be aware of the rights they give up when their insurance coverage is terminated.
HUD did not always ensure that lenders properly processed voluntary terminations of FHA insurance for single-family loans and did not ensure that lenders disclosed all implications of voluntary termination of mortgage insurance to the borrowers. As a result, borrowers lost the protection of their FHA insurance coverage, overpaid FHA premiums, and were not fully informed of the financial impact of the voluntary terminations, and HUD’s records were inaccurate.
We recommend that HUD (1) investigate the 14 loans with unpaid mortgage amounts totaling more than $3 million, and require the lenders to obtain the borrowers consent, reinstate the insurance coverage, or take other action as appropriate given the facts of each particular loan; (2) remind lenders that voluntary termination is not the correct termination type to record third-party sales and borrower consent is required to terminate insurance, even if the loans are indemnified; (3) improve its procedures to detect and sanction improper voluntary terminations; and (4) update HUD Handbook 4000.1 to require the consent form to include an explanation that voluntary termination differs from mortgage insurance premium cancellation and the disclosure of any outstanding partial claims when lenders attempt to voluntarily terminate insurance.
Recommendations
Housing
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Status2017-KC-0003-001-AOpenClosed$3,035,819.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on September 24, 2018Investigate the 14 loans with unpaid mortgage amounts totaling $3,035,819, and require the lenders to obtain the borrowers consent, reinstate the insurance coverage, or take other action as appropriate given the facts of each particular loan.
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Status2017-KC-0003-001-BOpenClosedClosed on August 10, 2021
Remind lenders that voluntary termination is not the correct termination type to record third-party sales and that borrower consent is required to terminate insurance, even if the loans are indemnified.
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Status2017-KC-0003-001-COpenClosedClosed on December 05, 2019
Improve its procedures for detecting and sanctioning improper voluntary terminations.
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Status2017-KC-0003-002-AOpenClosed$285,215.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on September 30, 2021Update Handbook 4000.1 to require the voluntary termination of insurance consent form to include an explanation that voluntary termination differs from mortgage insurance premium cancellation and the disclosure of any outstanding partial claims to put $285,215 to better use.