Civil Money Penalty Imposed on Borrower for Violation of Home Equity Conversion Mortgage Principal Residency Requirement

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                    U.S. DEPARTMENT OF
                                       HOUSING AND URBAN DEVELOPMENT
                                              OFFICE OF INSPECTOR GENERAL

                                              September 20, 2013

                                                                                    MEMORANDUM NO:

TO:                Dane M. Narode
                   Associate General Counsel for Program Enforcement, CACC

FROM:              John Buck
                   Regional Inspector General for Audit, Philadelphia Region, 3AGA

SUBJECT:           Final Civil Action: Civil Money Penalty Imposed on Borrower for Violation of
                   Home Equity Conversion Mortgage Principal Residency Requirement


We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its
Home Equity Conversion Mortgage (HECM) program and found that 33 borrowers had more
than 1 loan under the program. 1 Having multiple loans violated program requirements because
HUD requires borrowers to reside in the mortgaged residence as their principal residence and
borrowers may not have more than one principal residence at the same time. We referred the
violations to HUD’s Office of Program Enforcement, which brought the subject administrative
action under the Program Fraud Civil Remedies Act.


HUD provides reverse mortgage insurance through its HECM program. The purpose of the
program is to enable elderly homeowners to convert the equity in their homes to monthly streams
of income or credit lines. To be eligible for a HECM loan, the borrower must be 62 years of age
or older, own the property outright or have a small mortgage balance, occupy the property as a
principal residence, not be delinquent on any Federal debt, and participate in a consumer
information session given by a HUD-approved program counselor.

The loan is secured by the borrower’s equity in the home. The borrower is not required to repay
the loan as long as the borrower continues to occupy the home as a principal residence, maintains

    HUD Office of Inspector General audit report number 2012-PH-0004, issued February 9, 2012
the property, and pays the property taxes and the mortgage insurance premiums. The loan
agreement defines “principal residence” as the dwelling where the borrower maintains his or her
permanent place of abode and typically spends the majority of the calendar year. A person may
have only one principal residence at any one time. The borrower must certify to principal
residency initially at closing and annually thereafter.

The subject borrower, Robert Winchell, obtained a loan on a property in Reno, NV, in 2004 and
certified in writing that the Reno home was his principal residence; however, in 2007 he obtained
a second HECM loan on a property located in Cathedral City, CA, and certified in writing that it
was his principal residence. His actions violated HUD’s principal residency requirements
because he had both properties at the same time.


After receiving a demand letter from HUD’s Office of Program Enforcement, the borrower
admitted that he did not reside in the Reno property at any point after applying for and receiving
the loan.

On July 16, 2013, the borrower and HUD agreed to settle the violation of HUD requirements
with a one-time payment of $5,000 to HUD, which the borrower has paid.


We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,

1A.    Agree to allow the HUD Office of Inspector General to record the court settlement of
       $5,000 in HUD’s Audit Resolution and Corrective Actions Tracking System as funds put
       to better use.