Reverse Mortgage Solutions, Inc., Settled Alleged Violations of Federal Housing Administration Loan Requirements Related to Home Equity Conversion Mortgages

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-28.

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 28, 2015
                                                                                                       MEMORANDUM NO:

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

FROM:               Kimberly Randall
                    Director, Joint Civil Fraud Division, GAW

SUBJECT:            Final Civil Action: Reverse Mortgage Solutions, Inc., Settled Alleged Violations
                    of Federal Housing Administration Loan Requirements Related to Home Equity
                    Conversion Mortgages


The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), assisted in an investigation into alleged violations by Reverse Mortgage Solutions, Inc.,
of Federal Housing Administration (FHA) regulations related to its Home Equity Conversion
Mortgage (HECM) program. The investigation began due to a qui tam 1 filed under the False
Claims Act, 31 U.S.C. (United States Code) 3729, in the U.S. District Court for the Middle
District of Florida.


Reverse Mortgage Solutions is a nonsupervised mortgage company authorized on May 8, 2007,
to originate and service FHA-insured HECM loans (commonly known as reverse mortgages).
Reverse Mortgage Solutions is a wholly owned subsidiary of Walter Investment Management
Corporation, with its operations based in Spring, TX.

    The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the
    Government. A suit filed by an individual on behalf of the Government is known as a qui tam action, and the
    person bringing the action is referred to as a relator. If the Government intervenes (joins) in the qui tam action, it
    has the primary responsibility for prosecuting the action. If the Government prevails, the court may award the
    relator a share of the False Claims Act award, based on the contributions the relator made to the investigation.

                                                        Joint Civil Fraud Division
                                         400 State Avenue, Suite 501, Kansas City, KS 66101
                                   Visit the Office of Inspector General Web site at www.hudoig.gov.
Reverse Mortgage Solutions conducts loan servicing activities for reverse mortgages on behalf of
the owners of the loans. The only reverse mortgage insured by the U.S. Government is insured
under HUD’s HECM program and is available only through an FHA-approved lender. A
homeowner, age 62 or older, who has paid off his or her mortgage or paid down a considerable
amount and lives in the home as his or her principal residence, may participate in HUD’s HECM
program. The HECM program enables a homeowner to withdraw a portion of the home’s
equity, thus creating a reverse mortgage.

Unlike a traditional home equity loan or second mortgage, borrowers do not have to repay the
reverse mortgage loan until they no longer use the home as their principal residence or fail to
meet the obligations of the mortgage. When a reverse mortgage becomes due and payable, the
servicer is required to take steps to collect the amount due on the loan plus allowable costs of
servicing by selling the property through a voluntary sale or foreclosure. If the servicer is unable
to recover all amounts due, it may submit to HUD an insurance claim for the unpaid amounts,
together with interest that accrues after a loan becomes due and payable. In addition, when a
loan is due and payable, the servicer is required to meet a number of HUD deadlines. Failure to
meet these deadlines could result in denial of debenture interest 2 on the insurance claim for the
interest that accrued after the date on which a deadline was missed.

On July 1, 2013, the relator filed a qui tam action in the U.S. District Court for the Middle
District of Florida. The relator alleged that Walter Investment Management Corporation,
Reverse Mortgage Solutions, and other entities 3 engaged in a scheme to defraud HUD by failing
to disclose in FHA insurance claims that certain required servicing actions on reverse mortgages
were not completed according to HUD regulations within the required timeframes after the loans
became due and payable. The relator also alleged that Reverse Mortgage Solutions used a straw
corporation to keep commissions on the sale of properties it liquidated.

On March 27, 2015, the United States intervened (joined) in the relator’s civil action regarding
the allegations that Reverse Mortgage Solutions, with the knowledge of Walter Investment
Management Corporation and the other defendants, engaged in a scheme to fraudulently obtain
FHA insurance payments for debenture interest by failing to disclose in the insurance claims that
Reverse Mortgage Solutions was not eligible for such interest payments because it had not met
certain event-specific deadlines required by regulation. The United States also joined regarding
the allegations of the entities’ obtaining insurance payments for referral fees falsely represented
as sales commissions. In joining the civil action, the United States contended that it had certain
civil claims against Reverse Mortgage Solutions and the other defendants for violating debenture
interest rules and that as a result of the improper disclosures, HUD paid more debenture interest
than the loan owners were entitled to receive on certain claims. Additionally, the United States
contended that it had certain civil claims against the entities for fraudulently submitting claims to
HUD for the reimbursement of referral fees falsely represented to be sales commissions.

    Debenture interest is an interest allowance that would have been earned on the outstanding loan balance from the
    due date to the date the claim was paid.
    The other defendants were Green Tree Servicing, LLC; REO Management Solutions, LLC; and RMS Asset
    Management Solutions, LLC.

                              RESULTS OF INVESTIGATION

On September 3, 2015, the United States, the relator, Walter Investment Management
Corporation, and the other defendants entered into a settlement agreement to avoid the delay,
uncertainty, inconvenience, and expense of litigation. To settle the matter, Walter Investment
Management Corporation, the parent corporation of Reverse Mortgage Solutions, agreed to pay
$29.63 million to the United States, covering certain claims filed from August 13, 2009, to
March 19, 2015, which included claims for debenture interest as well as claims for referral fees
that were fraudulently represented as sales commissions earned on reverse mortgage property
sales from July 2010 to October 2014. The settlement agreement was neither an admission of
liability by the defendants nor a concession by the United States that its claims were not well

The FHA insurance fund is to receive more than $13.69 million of the $29.63 million, with the
remaining funds being remitted to the relator and other Federal entities.


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

1A.    Ensure that HUD records the $13,693,035 settlement to recognize funds due and as return
       of an ineligible cost.