Real Estate Law
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If this is a HUD offered home then they typically require owner occupancy for the first year. But there is nothing that says that all owners have to live there. The main reason for this is to prevent flippers from buying low and then rehabbing and selling at a profit because these programs offer the homes at a discount to owner occupants.
So as long as one person on the deed is living there, I don't see any problem and this wouldn't be any type of loan fraud.
And for what it is worth, I have serious doubts about how closely they monitor who is living in the home. They just monitor it to see if it is resold within that year and then inquire further if they think it was a flipper..