A new report released by the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General this week revealed that the Home Equity Conversion Mortgage (HECM) program may have controls lacking to ensure adequate flood insurance, noting guidance issues on the topic between regulations and the reverse mortgage sections of the Single Family Housing 4000.1 handbook.
While the broader takeaway as it relates to the forward mortgage programs at FHA revolves around OIG’s statement that approximately 31,500 FHA-insured loans did not maintain the required flood insurance coverage in 2020, the HECM program does get dedicated attention to avoid potential issues on this topic in the future.
Guidance differences between regulations, handbook
Differences between regulations and the handbook are at the heart of OIG’s findings related to the reverse mortgage program.
“The regulation (24 CFR 206.45(c)(3)) allowed for the same three calculations as the statute,” the OIG report reads. “The handbook allowed for the lesser of two calculations: (1) an amount at least equal to either the outstanding balance of the mortgage or (2) the maximum amount of NFIP insurance available with respect to the property.”
The handbook did not include any provision “to calculate the minimum insurance coverage amount based on replacement costs,” the report reads, nor did it instruct the reverse mortgage servicer on an affected loan on how that entity…
