Background of the Settlement

In 2018, a significant settlement was reached between the U.S. Department of Housing and Urban Development (HUD) and MetLife Home Loans. This action arose from allegations that both MetLife and the son of a reverse mortgage borrower did not comply with the Home Equity Conversion Mortgage (HECM) loan requirements set forth by the Federal Housing Administration (FHA).

Details of the Case

A detailed review conducted in 2017 revealed potential violations related to the loan in question. HUD alerted MetLife and the borrower’s son about their potential liabilities under the Program Fraud Civil Remedies Act of 1986, citing that they may have contributed to a false claim regarding the eligibility of the HECM loan. Notably, MetLife was responsible for underwriting the loan and failed to ensure that all required signatures were obtained.

The Office of Inspector General (OIG) highlighted that the power of attorney utilized by the borrower’s son necessitated an accompanying signature from his sister, which was not secured. Ultimately, as part of the settlement, MetLife agreed to pay HUD $4,000, while the borrower’s son contributed $1,500. However, a larger financial matter remains unresolved, regarding an indemnification agreement intended to mitigate an estimated loss of $95,769 to HUD.

MetLife’s Business Transition

In January 2012, MetLife announced its exit from the forward mortgage sector but retained operations as a reverse mortgage lender. Within a few months, it withdrew from the reverse mortgage market as well, selling its portfolio to Nationstar Mortgage. During its operation, MetLife developed a financial assessment for reverse mortgage borrowers aimed at preventing defaults on taxes and insurance, although this initiative was later put on hold indefinitely.

Ongoing HECM Compliance Issues

Despite the 2018 settlement, the OIG identified three ongoing issues concerning the HECM program’s residency requirements. These regulations dictate that HECM borrowers must use their homes as their principal residences. Following a series of audits, the OIG recommended in 2014 that HUD implement measures to enhance compliance efforts. A subsequent audit revealed that a significant number of borrowers—136 out of 159 reviewed—were not residing in the properties tied to their loans, as they received rental assistance for other addresses.

Recommendations and Actions Taken

In light of these findings, the OIG advised HUD to establish controls that prevent HECM borrowers from violating residency requirements, particularly in situations where they are also partaking in the Voucher program. A follow-up review conducted the next year confirmed ongoing violations, with 67 out of 68 selected loans not meeting residency obligations due to concurrent rental assistance.

Recent evaluations indicate mixed progress on addressing these recommendations. As of December 2021, HUD had implemented corrective actions for only one of the recommendations and failed to address the remaining three, attributing the lack of implementation to high staff turnover.

Conclusion

The ongoing challenges surrounding HECM program compliance underscore the necessity for HUD to bolster regulatory oversight and ensure that appropriate measures are in place to protect against potential losses. The collaboration between HUD’s various offices is crucial to strengthening the integrity of the HECM program and safeguarding taxpayer interests.