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Reverse Lender Facing Loss of FHA Approval

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A reverse mortgage lender in Hawaii faces the loss of its Federal Housing Administration approval over allegations it failed to meet FHA quality control requirements, didn’t provide reverse mortgage prospects with adequate disclosures and confused borrowers by promoting annuities alongside its reverse programs. It’s at least the third time the company has faced regulatory actions.

In a news release today, the U.S. Department of Housing and Urban Development said its Mortgagee Review Board is proposing to permanently withdraw HUD and FHA approval for Financial Mortgage USA Inc. In addition, the housing agency said it plans to slap the company with a $97,500 civil money penalty.

Financial Mortgage originates home-equity conversion mortgages.

HUD said that a complaint will be served against the Honolulu, Hawaii-based company, and it will have 15 days to request a hearing on the penalties.

The housing agency cited Financial Mortgage’s failure to implement an independent quality-control plan. Instead, it reportedly relied on an internal executive to conduct quality-control reviews.

The lender also failed to adequately separate itself from an affiliated life insurance company, Estate Planners of America — a situation that “confused elderly borrowers who could not tell with whom they were doing business,” according to the announcement.

“Financial Mortgage USA and its affiliate, Estate Planners of America, then duped the borrowers into purchasing annuities from Estate Planners of America, which borrowers did not request and did not understand had been purchased,” HUD said.

HUD cited the case of an 88-year-old borrower who was steered into purchasing an annuity that doesn’t mature until she is 104 years old.

In addition, HUD claims that Financial Mortgage failed to discuss options for receiving HECM proceeds or just ignored the borrowers’ preferences. It also did not provide borrowers with a list of HUD-approved housing counseling agencies in the state where they lived.

Financial Mortgage has 30 days to respond to the proposed withdrawal of its approval and seek a hearing before an administrative law judge, the statement said.

FHA Commissioner David Stevens warned in the announcement that “approved lenders must understand that we mean business.”

Similar rhetoric was used by HUD when it announced in early August that it had suspended the FHA approval of Taylor, Bean and Whitaker Mortgage Corp. and when it announced last week a lawsuit against Lend America seeking to suspend the Melville, N.Y.-based lenders FHA approval.

Financial Mortgage lost its residential mortgage license in California on Nov. 5, 2008, according to an order issued by the state’s Department of Corporations. That order was the result of a lapsed surety bond and the lender’s failure to file annual reports required by California.

In 2006, Financial Mortgage settled with Hawaii’s Department of Commerce and Consumer Affairs over allegations it used unlicensed originators.

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