HUD audit warns 1,237 reverse mortgage accounts may run out

"An audit from the U.S. Department of Housing and Urban Development (HUD)'s Office of Inspector General (OIG) found that more than 1,200 reverse mortgage borrowers could exhaust funds set aside to pay property taxes and insurance years earlier than expected, potentially exposing HUD to hundreds of millions of dollars in losses."

"Auditors found HUD underestimated how quickly these costs would rise, causing some LESA accounts to deplete faster than projected. The OIG estimated that 1,237 HECM borrowers will need to begin paying property charges out of pocket because their LESA funds will run out in significantly less time than HUD estimated they would last. Auditors warned that borrowers who cannot make these payments could default on their reverse mortgages, resulting in projected losses to HUD of as much as $258 million."

"The audit reviewed a universe of 1,462 active HECM loans originated between 2018 and 2022 that showed signs of early LESA depletion. From a sample of 80 loans, auditors found that 72 either had fully depleted LESA balances or were projected to run out an average of six years sooner than HUD estimated. Of these loans, 25 LESA accounts had already been exhausted at the time of the audit, while 47 were on track for accelerated depletion."

"The report said rising property taxes and insurance premiums were a major factor. Although HUD's formula includes a 120% multiplier intended to account for future increases, auditors found 31 of the 72 affected borrowers experienced increases beyond these projections. Examples cited in the report included a California borrower whose annual property taxes and insurance costs rose from $2,103 in 2021 to $12,262 in 2024 a 483% incr"

An audit found that more than 1,200 Home Equity Conversion Mortgage borrowers could exhaust Life Expectancy Set Aside funds earlier than expected. LESA accounts are required for certain financially vulnerable borrowers to pay property taxes and hazard and flood insurance. The audit determined that HUD underestimated how quickly these costs would rise, leading to faster depletion of LESA balances than projected. The OIG estimated that 1,237 borrowers would need to pay property charges out of pocket because LESA funds would run out sooner. If borrowers cannot make payments, they could default, creating projected losses to HUD of up to $258 million. The audit reviewed 1,462 active HECM loans from 2018 to 2022 and found most sampled loans depleted or projected to deplete about six years earlier than HUD estimated, with rising taxes and insurance premiums as a major driver.

Read at www.housingwire.com