HUD OIG reveals ongoing reverse mortgage oversight priority

In compliance with a 1978 law that requires government agency watchdogs to provide semi-annual reports on their activities, the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) published its report on Tuesday.

While there were no new indications of scrutiny for the Home Equity Conversion Mortgage (HECM) program, the report did reveal that HECM Life Expectancy Set Asides (LESAs) remain an ongoing oversight issue.

In November 2024, the HUD OIG announced that it was conducting an audit of the HECM LESAs within the Office of Housing.

“In 2015, HUD set a requirement for some HECM borrowers to maintain a Life Expectancy Set Aside to pay for future property taxes, insurance premiums, and flood insurance on behalf of the borrower,” HUD explained in its announcement. “Our objective is to determine if HUD’s HECM Life Expectancy Set Aside calculations are meeting program goals.”

No other information on the investigation or its progress was immediately available.

The investigation started under the leadership of former HUD inspector general Rae Oliver Davis, who was one of several investigators fired by President Donald Trump upon his return to the White House in January. But prominent placement in the report suggests that the work is ongoing, this time under the leadership of acting HUD inspector general Stephen M. Begg.

This investigation marks the first such effort initiated by the office since 2020, when the OIG reviewed HUD’s corrective actions from prior audits. These “showed that HUD’s controls did not always ensure that HECM loan borrowers complied with program residency requirements.”

But the newest OIG report also mentioned a move related to the HECM program that resulted in a conviction and prison sentence earlier this year.

As announced by the U.S. Department of Justice (DOJ) at the time, Mark Steven Diamond, who was accused of “bilking elderly homeowners in a reverse mortgage and home repair scheme,” was sentenced to 17 years in federal prison by the U.S. District Court for the Northern District of Illinois.

The report states that the HUD OIG was instrumental in yielding this result.

“[A]n OIG investigation resulted in a Chicago businessman being sentenced to 17 years in prison for, among other offenses, constructing a reverse mortgage fraud scheme that preyed on over 100 financially vulnerable, elderly homeowners,” the report stated.

The report also reiterated its prior guidance aiming to notify the public about potential reverse mortgage fraud.

In February, the office issued a renewed bulletin about “targeted reverse mortgage scams,” warning that fraudsters “often prey upon their victim’s trust and use high-pressure tactics to coerce elderly victims into obtaining the reverse mortgage which they may not fully understand or want.”

Something similar played out in another recent case, according to an announcement this week by the DOJ. A former attorney in Washington state encouraged a victim to obtain a reverse mortgage and fund a trust account he was siphoning money from.

But the OIG made no mention of other high-profile investigations, including one that’s taking a closer look at Ginnie Mae’s decision to extinguish a HECM-backed Securities (HMBS) issuer from its reverse securities program,

That move is tangentially related to a lawsuit brought by an investor against the government. While the suit was initially decided in favor of the government, the investor has filed an appeal.