The U.S. Government Accountability Office (GAO) published two reports on September 25 identifying several weaknesses in the Federal Housing Administration’s (FHA) oversight of reverse mortgages made under the Home Equity Conversion Mortgage (HECM) program (see GAO-19-702 titled “FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing”; GAO-19-721T titled “FHA’s Oversight of Loan Outcomes and Servicing Needs Strengthening”). Since 2014, the HECM program has seen a significant increase in the number of HECM terminations and foreclosures related to borrower defaults, i.e., a borrower’s failure to meet mortgage conditions such as paying property taxes or homeowner’s insurance. In turn, consumer advocacy groups have expressed concerns about the increase in HECM foreclosures, perceived problems with the management of foreclosure prevention options available to HECM borrowers, and the number of displaced seniors. To understand these issues, the GAO was tasked with analyzing the following: (1) what FHA data shows about HECM terminations and the use of foreclosure prevention options; (2) the extent to which FHA assesses and monitors the HECM portfolio; (3) the extent to which FHA and Consumer Financial Protection Bureau (CFPB) oversee HECM servicers; (4) how the FHA and CFPB collect, analyze and respond to consumer complaints about HECMs; and (5) how and why the market for HECMs has changed in recent years.
Between July 2018 and September 2019, the GAO analyzed FHA loan data and reviewed FHA and CFPB documents on HECM servicer oversight, including FHA and CFPB data on consumer complaints related to reverse mortgages. The GAO also interviewed agency officials, the five largest HECM servicers (representing 99 percent of the market), and legal aid organizations representing HECM borrowers. The GAO noted significant weaknesses in the FHA’s monitoring, performance assessment, and reporting for the HECM program. For example, the FHA’s loan data does not currently capture the reason for approximately 30% of HECM terminations. The FHA also has not established comprehensive performance indicators for the HECM portfolio and has not regularly tracked key performance metrics, such as reasons for HECM terminations and the number of distressed borrowers who have received foreclosure prevention options. Further, the FHA has not conducted on-site reviews of HECM servicers since fiscal year 2013 and has not benefited from oversight efforts by the CFPB because the agencies do not share information.
Ultimately, the GAO concluded the FHA lacks assurance that servicers are operating in a compliant manner and does not know how well the HECM program is serving its purpose of helping meet the financial needs of elderly homeowners. The following recommendations have been proposed for executive action:
- The FHA commissioner should take steps to improve the quality and accuracy of HECM termination data;
- The FHA commissioner should establish, periodically review, and report on performance indicators for the HECM program;
- The FHA commissioner should develop analytic tools, such as dashboards or watch lists, to better monitor outcomes for the HECM portfolio;
- The FHA commissioner should evaluate FHA’s foreclosure prioritization process for FHA-assigned loans;
- The FHA commissioner should develop and implement procedures for conducting on-site reviews of HECM servicers, including a risk-rating system for prioritizing and determining the frequency of reviews;
- The FHA commissioner should work with CFPB to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA;
- The CFPB director should work with FHA to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA;
- The FHA commissioner should collect and record consumer inquiries and complaints in a manner that facilitates analysis of the type and frequency of the issues raised; and
- The FHA commissioner should periodically analyze available internal and external consumer complaint data about reverse mortgages to help inform management and oversight of the HECM program.
Accordingly, HECM servicers should brace for additional on-site examinations by HUD, the CFPB, or both, in 2020, as well as additional scrutiny driven by consumer complaints. Any HECM servicer facing an on-site examination should consult with experienced outside counsel to prepare for the examination, help manage the examination process, and address any issues that may arise during the course of the examination.