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WBK Industry News - Federal Regulatory Developments

HUD OIG Issues Audit Report on Voluntary Termination of FHA Insurance

The HUD Office of the Inspector General (“OIG”) recently released a report on the processing by lenders of voluntary termination of insurance coverage regarding FHA single family loans.  The audit was initiated to determine whether lenders properly disclosed all of the implications of insurance termination to the borrowers, and it disclosed a number of issues.

The report states that HUD did not always ensure that lenders properly processed voluntary terminations of FHA insurance.  The lenders did not inform the borrowers of the rights they give up when their insurance coverage is terminated.  As a result, borrowers lost the protection of their FHA insurance coverage, over-paid FHA premiums, and were not fully informed of the voluntary terminations.  The report also states that HUD’s records were inaccurate.

The OIG recommends that HUD:

  • Investigate 14 loans with unpaid mortgage amounts totaling more than $3 million, and require the lenders to obtain the borrowers’ consents and reinstate the insurance coverage, or take other action as appropriate.
  • Remind lenders that voluntary termination is not the correct termination type to record third party sales and borrower consent is required to terminate insurance, even if the loans are indemnified.
  • Improve its procedures to detect and sanction improper voluntary terminations.
  • Update HUD Handbook 4000.1 to require the consent form to include an explanation that voluntary termination differs from mortgage insurance cancellation and the disclosure of any outstanding partial claims when lenders attempt to voluntarily terminate insurance.

The OIG report may be viewed at: https://www.hudoig.gov/reports-publications/audit-reports/hud-did-not-ensure-lenders-properly-processed-voluntary.