Reverse Mortgage Fraud and Scams

Because reverse mortgages are FHA-insured loans that require independent counseling, scams involving reverse mortgages are uncommon. However, whenever there are large sums of money involved, unscrupulous individuals try to find a way in.

Variable annuities

Reverse mortgage fraud is rare

Kiplinger's reports that unethical insurance salesmen are convincing seniors cash out the value of their homes and buy variable annuities.

The FHA made it illegal in October 2008 for a reverse mortgage company to bundle an annuity or other financial product into the closing of a reverse mortgage but that doesn't prevent a third-party insurance agent from getting involved.

There are two reasons why using a reverse mortgage to buy an annuity is a very bad idea:

1. Reverse mortgages already have a free built in annuity-like feature: the monthly payments or tenure payments
2. Annuities often do not begin paying benefits for several years so the funds that were released with the reverse mortgage are innaccessible for a long period of time

If you are considering a reverse mortgage, you should probably only use it to cover your expenses and pay off your mortgage rather than to purchase annuities or other financial instruments.

What is a variable annuity?

A variable annuity is a contract between an individual and an insurance company, under which the insurer agrees to make periodic payments to the policyholder, usually beginning after several years.