We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its Home Equity Conversion Mortgage Program based on our annual audit plan and our strategic goal to improve the integrity of HUD’s single-family insurance programs. This is the second of two reports that we issued on HUD’s oversight of the Program. Our objective was to determine whether HUD controls prevented borrowers from renting their properties to Section 8 Housing Choice Voucher program participants.

HUD policies did not always ensure that borrowers complied with Program residency requirements. The audit showed that 37 out of 174 borrowers reviewed were not living in the property associated with the loan and were renting the property to Section 8 voucher participants contrary to residency requirements. This condition occurred because HUD’s Office of Single Family Housing did not have control policies or procedures in place to prevent or mitigate the problem. As a result, 37 insured loans were ineligible and should be declared in default and due and payable to reduce the potential risk of loss of about $525,000 to HUD’s insurance fund.

We recommend that the Deputy Assistant Secretary for Single Family Housing (1) direct the applicable lenders to verify and provide documentation of the borrowers’ compliance with the Program residency requirement or for each noncompliant borrower, declare the loan due and payable, thereby putting about $525,000 to better use, and (2) implement control policies or procedures to at least annually coordinate with HUD’s Office of Public and Indian Housing to match borrowers’ information with Section 8 voucher participant data to prevent or mitigate instances of borrowers renting out their properties to Section 8 voucher participants.