What GAO found

The vast majority of reverse mortgages are made under the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program. In recent years, an increasing percentage of FHA-insured HECMs have ended because borrowers have defaulted on their loans. While borrower death is the most frequently reported reason HECMs terminate, the percentage of terminations due to borrower defaults increased from 2% in fiscal 2014 to 18% in fiscal year 2014. 2018 financial year (see figure). Most of HECM’s defaults are due to borrowers not meeting tenure conditions or paying property charges, such as property taxes or home insurance. Since 2015, the FHA has allowed HECM services to put borrowers behind on property charges on repayment plans to help prevent foreclosures, but by the end of fiscal 2018, only about 22% of those borrowers had benefited from this option.

Reasons for mortgage termination for conversion on declared equity, fiscal years 2014-2018

There are weaknesses in FHA’s monitoring, performance evaluation and reporting for the HECM program. FHA loan data does not currently capture the reason for about 30% of HECM terminations (see figure). The FHA also did not establish comprehensive performance indicators for the HECM portfolio and did not regularly track key performance indicators, such as the reasons for HECM terminations and the number of distressed borrowers who received seizure prevention options. Additionally, the FHA has not developed internal reports to comprehensively monitor patterns and trends in loan performance. As a result, the FHA is uncertain to what extent the HECM program is fulfilling its goal of helping meet the financial needs of senior homeowners.

The FHA has not performed on-site reviews of HECM servers since fiscal 2013 and has not benefited from the oversight efforts of the Consumer Financial Protection Bureau (CFPB). FHA officials said they plan to resume exams in fiscal 2020, starting with three providers who make up the bulk of the market. However, as of August 2019, the FHA had not developed updated review procedures and did not have a risk-based method for prioritizing reviews. CFPB conducts reviews of reverse mortgage services, but does not provide the results to the FHA because the agencies do not have an agreement to share confidential monitoring information. Without better oversight and information sharing, the FHA has no assurance that providers are meeting requirements, including those designed to help protect borrowers.

Why GAO did this study

This testimony summarizes the information contained in the GAO report of September 2019, titled Reverse Mortgages: FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing (GAO-19-702).

For more information, contact Alicia Puente Cackley at (202) 512-8678 or [email protected]

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