A Bank of America unit in Seattle was determined to be noncompliant with Department of Housing and Urban Development (HUD) rules for reverse mortgage servicing, according to an audit report from HUD.
The report, issued July 29 by Gerald Kirkland, a regional HUD inspector general for audit, claimed that Bank of America's home equity conversion mortgage (HECM) servicing division failed to verify that mortgaged properties remained the borrowers' primary residence.
The audit report also stated that Bank of America did not notify HUD in a timely manner "of the due and payable status of the mortgages of deceased borrowers."
"Both weaknesses could result in the properties' remaining vacant longer, increased property deterioration, the need for additional maintenance and a potential decline in property value," the report says.
HECM servicers are supposed to notify HUD of a borrower's death within 60 days. The audit says Bank of America's delay in notification and subsequent foreclosure on properties varied from one to 11 months.
"The servicer contracted for the maintenance and repair of properties subject to foreclosure; however, the delay in the foreclosure time increased these costs, as well as property taxes and insurance premiums that became due," the report adds.
In a written response, Bank of America's senior vice president of servicing, Charlie Jones, suggested that HUD's policies regarding verification of residence are unclear.
The bank also says that some of the borrowers whose deaths were not reported in a timely manner to HUD passed away prior to Bank of America's taking on the servicing rights the loans. In three instances, the prior servicer's system updated HUD's IACS system within 60 days, Jones wrote.