HUD and MetLife Settlement: Understanding HECM Violations
Background of the Case
In 2018, a significant settlement was reached between the U.S. Department of Housing and Urban Development (HUD) and MetLife Home Loans over violations related to Home Equity Conversion Mortgage (HECM) loans. This case emerged from allegations that both MetLife and the son of a reverse mortgage borrower failed to adhere to essential loan requirements mandated by the Federal Housing Administration (FHA).
Details of the Allegations
A review conducted by HUD identified potential liability under the Program Fraud Civil Remedies Act of 1986 after a 2017 loan assessment. According to HUD, “MetLife underwrote the loan and failed to ensure that the signatories to the loan had the legal authority to execute it.” Notably, the power of attorney enabling the borrower’s son to manage the loan required the signatures of both him and his sister, which was not obtained.
Financial Implications
As a resolution to the allegations, MetLife agreed to pay $4,000 to HUD, while the borrower’s son contributed $1,500. Alongside these amounts, there is an ongoing matter concerning an indemnification agreement, which aims to avert an estimated loss of $95,769 to HUD. This indemnification is crucial as it protects HUD from any financial loss related to the loan.
MetLife’s Business Changes
MetLife had previously exited the forward mortgage sector in January 2012 but continued to operate within the reverse mortgage market until April of the same year when it sold its reverse mortgage portfolio to Nationstar Mortgage. The company was a pioneer in implementing a financial assessment for reverse mortgage borrowers, yet this initiative was halted indefinitely thereafter.
Residency Requirements Under Scrutiny
Three out of four ongoing issues within the HECM program, as reported by the HUD Office of Inspector General (OIG), relate to the program’s requirement that borrowers maintain their primary residence in the property associated with HECM loans. Initial recommendations to address these concerns date back to 2014, driven by findings that some borrowers were not residing in their homes while benefiting from rental assistance at other locations.
Recommendations and Follow-ups
The OIG has consistently advised HUD to implement controls that could prevent HECM borrowers from violating residency rules, particularly in cases where they participate in rental assistance programs. A review in 2021 revealed that while HUD had acted on some recommendations, several corrective actions remained uncompleted. These outstanding issues highlight the need for continued collaboration across HUD’s various offices to ensure compliance with HECM residency requirements.
Conclusion
This settlement underscores the significance of adherence to FHA guidelines within the HECM program. It also reflects ongoing challenges faced by HUD in managing compliance and safeguarding its insurance funds. The necessity for regulatory responses and robust internal controls remains critical to maintaining program integrity.