GAO-HECMs
GAO calls for more scrutiny of FHA loans for seniors


The Federal Housing Administration should more closely monitor reverse mortgage servicers and track related data that would shed light on a rise in defaults, according to a Government Accountability Office report.

About 18% of Home Equity Conversion Mortgages were terminated because of defaults in fiscal year 2018. That’s significantly higher than in FY2014 when the default share was 2%, the report noted.

The FHA has limited data to analyze why that occurred, but the information it has access to suggests efforts to address some of the concerns that cause defaults fell short, according to the report.

“Most HECM defaults are due to borrowers not meeting occupancy requirements or failing to pay property charges, such as property taxes or homeowners insurance,” the GAO said. “Since 2015, FHA has allowed HECM servicers to put borrowers who are behind on property charges onto repayment plans to help prevent foreclosures, but as of fiscal year-end 2018, only 22% of these borrowers had received this option.”

The GAO report also found the FHA does not capture a reason for 35% of HECM terminations. HECMs are designed to allow older borrowers to withdraw equity while staying in their home, and typically terminate when the homeowner dies. But with the share of defaulting borrowers on the rise, the reasons behind them require more study, according to the report.

In addition to suggesting improved servicer monitoring and data collection on terminations, the GAO recommends more follow-through on a plan to resume on-site reviews of HECM servicers. It also recommends that the Consumer Financial Protection Bureau share information from its servicer exams with the FHA.

Further recommendations included studying foreclosure prioritization for FHA-assigned loans and the implications it has for HECM borrowers.

In its written response to the report, the FHA agreed with most of the GAO’s recommendations, but disagrees that HECM program evaluation or its oversight of servicers is limited. The FHA said it “engages in a robust HECM program evaluation” and has taken steps to improve the program.

The CFPB has agreed to “complete an information sharing agreement with FHA to facilitate the sharing of confidential information, including the results of HECM examinations,” according to a statement the bureau released in response to the report.



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