Wall Street Journal Publishes Front Page Article on Website on Reverse Mortgage Fraud

This morning the Wall Street Journal published an article on reverse mortgage fraud on the front page of their website. It is likely the article will make it into tomorrow’s print edition.  The article focuses on the allegedly growing number of reverse mortgage scams, but a closer look at the cases in the article indicates that they appear to be more cases of elder abuse than problems with the reverse mortgage program.

In the case that leads off the article, the borrower was defrauded by the title agent, who defrauded 10 borrowers by taking their money and never giving it to the lender. The title agent, Garry Martin, pleaded guilty to stealing $5 million from over 50 borrowers in mortgage-related frauds. But as the perpetrator of the fraud was a title agent, not indicating a problem with the product at large.

The other two cases mentioned were examples of elder abuse or simple fraud. In one, the son took the mother’s payments. In another, the son took out a reverse mortgage in the name of a deceased mother. He even gave the funeral director an incorrect social security number and birthdate so that the death certificate could not be found by those with the correct information.  In both of these cases, the fraud extended far beyond a reverse mortgage.

Reverse mortgages have a lot of protection built in to protect borrowers from fraud, and loan officers in most states and specifically trained in order to discover and prevent fraud.  Fraud occurs with almost any financial product, but 29 suspected fraud cases out of 165,000 reverse mortgage loans still indicates a pretty safe product- with fraud only occuring at a rate of 0.02% of the time.

More information is also available at reverse mortgage fraud and scams.

 

Insurance Against Financial Fraud/Swindling

Reverse Mortgage Daily wrote a blog post today focusing on the case of a man in Minnesota who pleaded guilty to swindling his mother and was sentenced to the maximum thirty days in jail and five years of probation.  Amongst the ways the man swindled his mother was through a reverse mortgage, and the writer wondered if there was a way to protect seniors from such crimes without harming the reverse mortgage industry.

I think the answer is yes. 

Every year there are several stories of individuals who have been swindled out of their life savings.  We could protect those individuals without harming the reverse mortgage industry by allowing them to buy insurance that would protect their life’s savings if someone has been convicted of defrauding or swindling them, allowing them to replace a portion of the money they have lost and ensuring that they still have money to live on in their old age. 

Private companies and/or states could offer insurance against swindling/financial fraud. The insurance could be either mandatory or optional, and could taken out by the policy holder at any point throughout their life. In the same way the FDIC ensures up to $100,000 of each individual’s money in case of a bank failure, the financial fraud insurance would serve to protect an individual’s life savings against instances of swindling, theft, or fraud. While the policy would not necessarily be unlimited, policies of even up to $100,000 could do a lot to ensure that individual’s life savings are protected.  Although cases of fraud are not incredibly common, they can be catastrophic to the individuals involved when they do occur.  These policies would benefit those involved in something like the Madoff scandal as well. 

The only way to collect on the insurance policy would be to show that an individual and/or corporation had been convicted of swindling the policy holder.  In this case, the guilty plea from the son would be sufficient to guarantee the mother her pay out.  If such insurance existed and the  mother was able to collect on it, she would be left with more than the eighty dollars currently remaining in her bank account.

Correction: The man was sentenced to thirty days in jail, not thirty years.