Member Alert: HUD’s Inspector General Publishes Alert On HECM Refinancings

HUD’s Office of the Inspector General issued an “Integrity Bulletin” today warning reverse mortgage lenders that they have identified instances of fraudulent appraisals being used to increase HECM loan amounts in order to refinance existing borrowers.

According to the OIG, an analysis of over 5,000 HECM refinances over the last several years showed that a small group of HECM originators is responsible for a large percentage of potentially fraudulent HECM refinances, generally within relatively small geographic areas.

“Analyses of these refinances revealed one of the hallmarks of mortgage fraud: unexplained, large increases in appraised values in a relatively short period of time,” said the Bulletin.

The OIG will investigate appraisers, loan officers, originators and sponsors who engage in fraudulent HECM transactions and will refer them for criminal, civil prosecution, or administrative sanctions as appropriate.

Underwriters are reminded that they they should carefully scrutinize appraisals and appraisal comps on all HECM originations, and particularly on HECM refinances. Underwriters are reminded that they are responsible for being familiar with geographic areas in which properties are located and should question appraised values if they are out of line with the market.

NRMLA members will be notified of further developments.