Final Action Bank of America, NA, and Underwriter Lender Settled Alleged Violations of Home Equity Conversion Mortgage Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-03-27.

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

                                                   March 27, 2014
                                                                                                  MEMORANDUM NO:

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

FROM:              David E. Kasperowicz
                   Regional Inspector General for Audit, Philadelphia Region, 3AGA

SUBJECT:           Final Action
                   Bank of America, NA, and Underwriter
                   Lender Settled Alleged Violations of Home Equity Conversion Mortgage


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 for 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.

    HUD Office of Inspector General audit report number 2012-PH-0004, issued February 9, 2012
                                                          Office of Audit Region 3
                                                   The Wanamaker Building, Suite 10205
                                            100 Penn Square East, Philadelphia, PA 19107-3380
                                    Visit the Office of Inspector General Web site at www.hudoig.gov.
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
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 a time. The borrower must certify to principal residency
initially at closing and annually thereafter.

HUD requires lenders of its insured loans to obtain and verify information with due diligence
during the origination and servicing process.

One borrower obtained two HECM loans on properties that she owned in Massachusetts and
Florida. For each loan, she certified that the underlying property was her principal residence.
Her actions violated HUD’s principal residency requirements because she owned both properties
at the same time.

HUD’s Office of Program Enforcement reviewed documentation for both loans and determined
that there was sufficient information to alert the lender, Bank of America, NA, and the
underwriter that the second property was not the borrower’s principal residence. However, there
was no evidence that the underwriter or other representatives from the lender attempted to
resolve the issue.

                                   RESULTS OF REVIEW

HUD’s Office of Program Enforcement sent demand letters to the lender and the underwriter for
submitting or causing the submission of false certifications to HUD for insurance in connection
with the HECM loan. To avoid further expenses and administrative proceedings, HUD and the
lender then entered into a settlement agreement in which the lender agreed to indemnify the loan
to resolve the matter for itself and the underwriter. The agreement did not constitute an
admission of liability or fault by any of the parties. As of December 24, 2013, when HUD’s
Office of Program Enforcement stated that the case had been resolved, the outstanding balance
on the loan was $206,480. The loan indemnification reduces the risk of loss to HUD’s Federal
Housing Administration insurance fund by protecting HUD against losses from a future claim.


This report contains no recommendations.