Final Civil Action: Borrower Settled Alleged Violations of Home Equity Conversion Mortgage Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-09.

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 9, 2016
                                                                                                  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 Civil Action
                   Borrower 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 contrary to program
residency requirements, 37 borrowers did not live in the property associated with the loan and
were renting the property to participants in HUD’s Section 8 Housing Choice Voucher program. 1
Renting the properties to Section 8 program participants violated program requirements because
HUD requires borrowers to reside in the mortgaged residence as their principal residence. 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.

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 2013-PH-0002, issued December 20, 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 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’s Section 8 Housing Choice Voucher program provides Federal funds to assist very low-
income families, the elderly, and the disabled in obtaining decent, safe, and sanitary housing in
the private market. The funds are made available to public housing agencies through HUD’s
Office of Public and Indian Housing, and the housing choice vouchers are administered locally
by public housing agencies. The public housing agencies pay subsidies directly to landlords on
behalf of program participants. Program participants are responsible for the difference between
the rent charged by the landlord and the amount subsidized by the program.

In February 2009, one borrower obtained a HECM loan on a property that he owned in
Barnstable, MA. The borrower certified in writing on at least three occasions that the home was
his principal residence. However, he was renting the property to a participant in HUD’s Housing
Choice Voucher program when he made the certifications. His actions violated HUD’s principal
residency requirements.

                                   RESULTS OF REVIEW

On December 12, 2014, HUD’s Office of Program Enforcement filed a complaint against the
borrower under the Program Fraud Civil Remedies Act. The borrower later acknowledged that
he had not resided in the property since 2004. On December 16, 2015, HUD’s Office of
Hearings and Appeals granted a motion for summary judgment and entered a judgement against
the borrower and in favor of the Government. The motion makes the borrower liable to HUD for
three civil penalties totaling $24,500. After negotiations with HUD, the borrower agreed to
make monthly payments of $500 until the debt is paid in full. The borrower made the first
payment on April 29, 2016.


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

1A.    Acknowledge that the attached judgment and repayment agreement for $24,500
       represents an amount due HUD.

       As of June 17, 2016, a repayment agreement of $24,500 was reached and it represents an
       amount due HUD. The borrower made an initial payment of $500 and agreed to make
       monthly payments, with final payment expected by April 1, 2020, for the remaining
       $24,000. In accordance with HUD Handbook 2000.6, REV-4, the final action target date
       will be set at May 1, 2020. At issuance of this memorandum, HUD’s Office of Inspector
       General will enter a management decision into HUD’s Audit Resolution and Corrective
       Action Tracking System, along with any supporting payment information received to