oversight

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



                                                  August 26, 2015
                                                                                                  MEMORANDUM NO:
                                                                                                       2015-PH-1806


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

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

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


                                                INTRODUCTION

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 a time. We referred the violations
to HUD’s Office of Program Enforcement for action under the Program Fraud Civil Remedies
Act.

                                                 BACKGROUND

HUD provides reverse mortgage insurance through its HECM program. HUD insures the
mortgages through its Federal Housing Administration (FHA) program, which covers lenders in
the event of borrowers’ default due to program violations. The purpose of the HECM 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.

1
    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 and to certify as to the insurability of each loan.

One borrower obtained HECM loans on two properties that she owned in California. For one of
the loans, she certified that the underlying property was her principal residence. For the other
loan, Bank of America, NA could not provide annual occupancy certifications. However, the
borrower violated HUD’s principal residency requirements because she owned both properties at
the same time.

In February 2014, HUD paid an FHA insurance claim on the second loan. HUD also sold the
property at a loss.

HUD’s Office of Program Enforcement found that Bank of America, NA originated the
mortgage on the second property despite evidence that the property was not the borrower’s
principal residence. Therefore, the lender should not have submitted the loan for FHA insurance
endorsement.

                                       RESULTS OF REVIEW

HUD’s Office of Program Enforcement notified Bank of America, NA of its intent to file an
action under the Program Fraud Civil Remedies Act. To avoid further expenses and
administrative proceedings, the lender and HUD negotiated a settlement agreement in which the
lender agreed to pay $98,492 to resolve the matter. However, the lender denied that its
origination activities violated HUD-FHA regulations or the Program Fraud Civil Remedies Act.
Further, the agreement did not constitute an admission of liability or fault by any party. The
lender made the settlement payment in April 2015.

                                        RECOMMENDATION

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

1A.     Allow the HUD Office of Inspector General to post the settlement of $98,492 to HUD’s
        Audit Resolution and Corrective Action Tracking System as an ineligible cost. 2


2
 HUD’s Office of General Counsel, Office of Program Enforcement, agreed with the recommendation. Therefore,
no further action is required.


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