By all accounts, reverse home mortgage growth is about to explode. Baby boomers are reaching retirement, and for most, home equity makes up the bulk of their savings. Reverse mortgages will be the tools that many of these retirees will use to take advantage of these savings for their retirement living expenses. The number of new HUD Home Equity Conversion Mortgages (HECMs) has already increased more than percent in the first nine months of 2006 over the same period last year.
But along with the growth of reverse home mortgages, there are greater opportunities for fraud and scams. Reverse mortgages are different from traditional mortgages in ways that make them attractive vehicles for scammers:
- reverse mortgages are products designed and directed specifically to the elderly, the population group most vulnerable to fraud;
- scammers know that reverse mortgages give the older homeowner relatively easy access to a considerable amount of cash; Y,
- Reverse mortgages are more difficult to understand than traditional mortgages, making it easier for the scammer to confuse and take advantage of the victims.
In this article, we look at some of the tactics scammers use and the precautions reverse mortgage borrowers can take to protect themselves.
Scam Tactic One: Minimize Pre-Loan Counseling
An educated borrower is a scammer’s worst enemy, but it is up to the borrower to educate themselves and take advantage of advice and other opportunities to learn about reverse mortgages.
All three major reverse mortgage programs (HUD HECM, Fannie Mae’s Home Keeper, and Financial Freedom) require that potential borrowers receive advice from a specially trained independent reverse mortgage advisor before obtaining a loan.
In a recent fraud case in the Detroit area, a corrupt lender was able to keep the borrower out of the amount he could borrow. She thought her loan would be $ 61,000 when she was actually borrowing $ 103,000. Guess who pocketed the difference of $ 42,000? A thorough counseling session would have given the owner an accurate idea of the actual amount for which he was eligible. Unfortunately for the victim, the prosecutor in the case says this never happened:
“Financial Freedom required an advisory meeting to explain the reverse mortgage process before the loan could be processed. Mr. James reportedly informed Ms. Schultz that she could waive the advisory meeting just by asking a few questions for telephone”.
Caution: Although telephone counseling is allowed, it is always best to meet face-to-face with the counselor. If you discover that someone you are working with on the process suggests that the counseling can be done quickly over the phone or otherwise downplays the importance of the pre-loan counseling, be very suspicious.
Scam Tactic Two: Counterfeiting
Counterfeiting is a key part of many scams. In the Detroit case cited above, the lender asked the title company to prepare two checks payable to the owner: one for $ 61,000 received by the owner and one for $ 42,000 that the corrupt lender endorsed with a forged signature and deposited in his account. own account.
In one California case, two scammers, one working as a financial advisor and the other a handyman, convinced an elderly homeowner to apply for a reverse mortgage to pay for home repairs. The financial advisor opened an account with the loan proceeds and forged the victim’s name to gain access to the funds.
Another California case reported in the Sentinel of Santa Cruz shows how dangerous it can be to sign “unfinished” documents:
Ms. Sally Scott is 66 years old. While you’re receiving Social Security and pension checks, you still can’t make ends meet. He saw an ad for a “reverse” mortgage, a loan that allows people 62 and older to receive cash by borrowing against their homes and does not require repayment as long as they live there. Looking for a small financial cushion, she spoke with a mortgage broker about a $ 10,000 reverse mortgage.
When you received the loan documents, you noticed that the loan amount was $ 200,000. The broker promised that he would change the figure, but insisted that she sign the paperwork first. Trusting the broker, Ms. Scott signed.
A week later, he received a check for $ 200,000. He immediately notified the broker, who apologized for the mistake and instructed him to return the money. As it turned out, the account that Ms. Scott returned the money that belonged to the broker. He disappeared, leaving her with a delinquent mortgage and no way to repay the loan.
Caution: Never sign documents with blank spaces to complete or corrections to make later. Carefully protect access to your checking and other accounts. Review and reconcile your checking and loan statements regularly. If you find something wrong, contact your financial institution immediately.
In the Detroit case cited above, the victim became aware of the scam when he received a loan statement indicating that his reverse mortgage balance (including interest) was $ 131,000.
Plus, take advantage of the free credit reports available to you under federal law. Reviewing your credit report each year is also a good way to detect unauthorized financial activity on your behalf.
Scam Tactic Three: Charging for Free Reverse Mortgage Information
The complexity of reverse mortgages means that it is natural for borrowers to seek assistance and guidance to help them understand the loan process, find a lender, or generally better understand what they are getting into. Some scammers have taken advantage of this to offer, for a fee, reverse mortgage information and services that are available to consumers free of charge.
For example, some firms have contacted seniors to offer help finding a reverse mortgage lender in exchange for a percentage of the loan. This type of arrangement should always be avoided. According to the HUD website:
HUD DOES NOT recommend using an estate planning service or any service that charges a fee just for referring a borrower to a lender! HUD provides this information at no cost, and HUD-approved housing counseling agencies are available free of charge, or at minimal cost, to provide free information, advice, and referrals to a list of HUD-approved lenders. Call 1-800-569-4287, toll free, for the name and location of a HUD-approved housing counseling agency near you.
Caution: Stay away from anyone who offers to find a reverse mortgage lender for a fee. Use the Internet to find free information on reverse mortgages or read one of the many excellent books that have been published in recent years.
If you think you need a professional financial planner to assess your overall situation, including your reverse mortgage decision, look for a certified fee-only financial planner (CFP) who is knowledgeable about reverse mortgages (many are not). ).
Scam tactic four: impersonating a government or non-profit representative
The most popular form of reverse mortgage, the Home Value Conversion Mortgage (HECM), is an official program of the US Department of Housing and Urban Development (HUD). However, neither the HECM program nor other reverse mortgage programs are marketed directly by government employees to older homeowners.
Unscrupulous reverse mortgage sellers have been known to represent themselves to elderly homeowners as government representatives or nonprofit volunteers.
Caution: Make sure you know who you are dealing with and what organization they represent. Don’t be shy about asking for information like home office location and phone number. Use resources like HUD and the National Reverse Mortgage Lenders Association (NRMLA) to verify the company.
Scam Tactic Five: Combine Things With Reverse Mortgage Financing
Savvy consumers know that the best way to buy a car is to separate the parts of the transaction – buying, financing, and trading – from each other. With a combined transaction, it is easy for the consumer to get confused and not understand the true cost of the overall deal. What appears to be a “great price” on the car can mask exorbitant finance charges or a low trade-in value.
Similarly, a common scam tactic is to combine reverse mortgage financing with something else, such as home improvements, annuities, risky investments, living trusts, or other estate planning products.
In one case in the Seattle area, elderly consumers were told that living trusts must be purchased to obtain a reverse mortgage. In another case, older people were encouraged to take out a reverse mortgage and use the proceeds to “invest” in truck-mounted billboards.
Often two or more scammers work as a team. For example, in the California case cited above, an unscrupulous financial advisor directed the homeowner to a home repair contractor who was part of the scam and who overcharged the victim for repair work.
If you find yourself dealing with someone trying to bundle a reverse mortgage with another product or service or taking you to a particular contractor / lender, be very suspicious. If you feel uncomfortable or if the person is using high-pressure sales tactics, walk away.
Caution: When home improvement or estate planning services are needed, look for the best deal. You better find what you are looking for rather than have them find you. Homeowners should avoid doing business with anyone who comes to the door uninvited, makes an unsolicited phone call, or whose name is found randomly on a flyer.
When you’ve found the best deal, evaluate your financing options, including a reverse mortgage. Keeping these decisions separate will protect you from potential fraud and help ensure that you get the most for your money.