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Posts Tagged ‘reverse mortgage fraud’
Thursday, August 27th, 2009
 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.
Tags: elder abuse, fraud, loan, loans, mortgage fraud, reverse mortgage, reverse mortgage fraud, reverse mortgage fraud and scams, reverse mortgage scams, reverse mortgages, Wall Street Journal
Posted in Consumer News, Industry News | No Comments »
Tuesday, May 5th, 2009
 While reverse mortgage fraud is less common than some would have one believe, it still occurs. Below are some warning signs and what you can do to stop them:
1. If You Don’t Receive An Estimate or a Good Faith: Lenders should be able to tell a borrower how much money they can expect to receive up front. There are many reverse mortgage calculators available online (reverse mortgage calculator) that can also tell borrowers this information. As a result, be suspicious if a lender doesn’t tell the borrower how much money they can receive or can’t provide an explanation of how the amount was determined.
In addition, at closing, lenders are required to provide the borrower with a “Good Faith,” which lists all of the costs and fees of the reverse mortgage. The borrower should make sure a good faith is presented and that they are familiar with its contents.
2. Never Heard of the Lender
If you have never heard of the lender before, it makes sense to check the HUD website or another lender list and make sure that they are listed and accredited.
3. Don’t Talk About Counseling
Reverse mortgage counseling by a third party is a mandatory part of the reverse mortgage process. Be wary of anyone who does not talk about counseling or dismisses it as unnecessary. It is required to get a federally insured reverse mortgage and, depending on the state, most proprietary ones.
4. No One Answers the Phone
If your calls go unanswered, especially for long periods of time, it might be best to proceed with caution. Everyone is busy and many loan originators travel to meet with clients and for closings. However, there should be an answering machine if this is the case.
5. Try to Cross-Sell
Cross-seling, the practice of selling more a product along with a reverse mortgage, is prohibited. One of the most common reverse mortgage scams involves the lender convincing the borrower to take out a reverse mortgage and use the proceeds to buy insurance or make investments. A lender cannot, by law, speak to the borrower about anything other than a reverse mortgage. Therefore, if a lender tries to sell a borrower a product– especially an investment product– be wary. It is not permitted.
Tags: borrowers, Cross Selling, good faith, HECM counseling, lenders, reverse mortgage, reverse mortgage fraud, reverse mortgage scam, reverse mortgage scams, reverse mortgage warning signs, reverse mortgages
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Wednesday, April 29th, 2009
 Senator McCaskill in DC At first, I was inclined to be in favor of the new “cross selling” restrictions. However, after learning more about them, I have changed my view.
One of the most popular and well-publicized examples of reverse mortgage fraud comes from lenders selling a senior a reverse mortgage, then convincing them to use the proceeds to buy an annuity or long term care insurance. This practice is known as “cross selling.” The annuity could perform poorly, the money could be invested for the gain of the broker, or the terms of the insurance could be highly unfavorable. And in many of these cases, seniors could be taken advantage of.
Hence the new series of “cross selling” restrictions that are passing through state legislatures and the federal government. The federal government’s restriction, in the McCaskill amendment to the Housing & Economic Recovery Act of 2008, is arguably the most stringent one. The amendment states that the mortgagee “shall not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity;” This language can be extended to include tellers and savings accounts, let alone all insurance products and 401(k)s. There is an “or,” however, which states that the mortgagee can do the above if they prove to the Secretary that the mortgagee maintains firewalls and safeguards to ensure that the originator has no incentives to provide the mortgagor with any other financial product and that the mortgagor does not need to purchase any other product as a condition of the reverse mortgage. This means that, provided that it can be proven adequately that safeguards are present, other financial products may be able to be sold by mortgagee.
The principle of the law is correct. Clearly it is important to protect seniors from fraud. Cross selling can prove disadvantageous for seniors, especially when the mortgagee is being compensated for the other products–something the senior may or may not be aware of.
However, there are other instances where cross selling may be advantageous. A senior may wish to place the money in a savings account or open up a credit card with the bank behind their reverse mortgage. They may decide to purchase a long term care insurance plan. These products can be favorable, and seniors should be able to purchase them.
The current law means that reverse mortgage lenders can only discuss a reverse mortgage with their client. If the client asks them about other options, they are not permitted to answer. Many seniors have long-term relationships with their banks or financial advisors. These seniors should not be forced to go to a variety of sources, leaving the person whom they trust and have a long-standing relationship with, just because they are considering a reverse mortgage. Such a policy has a potential to cause more harm than good.
Seniors have the right to evaluate all their options. Hopefully HUD’s interpretation of the McCaskill ammendment will still enable seniors to discuss alternatives to a reverse mortgage with their financial advisors and/or discuss options for what to do with the money, if they wish to do so. Cross selling could be prevented by a more narrow law. But the McCaskill ammendment takes it too far.
Tags: annuity, bank, Cross Selling, financial advisor, government, Housing & Economic Recovery Act, HUD, law, long term care insurance, McCaskill Amendment, mortgagee, mortgagors, reverse mortgage, reverse mortgage fraud, reverse mortgage lender, reverse mortgage scams, reverse mortgages, senior, seniors, Washington
Posted in Consumer News, Industry News | No Comments »
Friday, March 27th, 2009
 Mandatory reverse mortgage counseling for seniors The FHA mandates independent third-party counseling for all those who are interested in applying for a reverse mortgage. While the counseling can be free, it generally costs around $125 and can take in person or over the phone. A certificate of counseling is necessary for the mortgage to close.
Few products require such education. In fact, other than skills such as driving a car or flying a plane, it is hard to think of another product that requires the level of counseling necessary to take out a reverse mortgage.
On the one hand, counseling is important to ensure that seniors are not railroaded through the process and not taken advantage of. In a worst case scenario, the counseling is a waste of $125 and an hour to tell a person something they already know. In the best case scenario, however, the counseling can prevent a senior from being forced into a reverse mortgage by a family seeking to prosper from the proceeds or a lender from committing a fraudulent transaction. There are few downsides to preventing such scenarios.
On the other hand, it is not hard for one to question whether it is possible for independent third party counselors to ever really be completely objective. And time and money are valuable. Most seniors do a fairly good job educating themselves about reverse mortgages. If they do not, no one else should be responsible. In the same way consumers can buy a faulty car or get a bad deal when making a purchase, reverse mortgages should be seen the same way as any other product.
While these arguments have merit, reverse mortgages are not the same as any other product, because the stakes are higher. There are many life events for which counseling would be or would have been useful. Rites of passage such as buying one’s first home, opening a 401(k), and developing an investment strategy, are tasks where knowledge is power and the stakes can be high. A reverse mortgage is the same way. Before making a big decision about finances, knoweldge is power. Mandatory counseling is a good way to prevent against fraud by providing prospective borrowers the same level of counseling many of us wish we could’ve received years ago when making weighty decisions.
Tags: counseling, FHA, financial counseling, HUD, mortgage counseling, reverse mortgage, reverse mortgage counseling, reverse mortgage fraud, reverse mortgage scam, reverse mortgages, revesre mortgages
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Tuesday, March 17th, 2009
 Protect your identity. Fraud rates are increasing. We knew that the mortgage fraud was occurring. We imagined the number was increasing, but we never knew by how much… until now. The Philadelphia Inquirer published a story today noting that mortgage fraud increased by 26% in 2008 vs. 2007. Application fraud accounted for 61% of the reported incidents. The article specifically cites identity theft as being a source of fraud in reverse mortgage applications, allowing applicants to appear older (or perhaps younger) than they might otherwise be for the purpose of securing a better loan.
While these numbers include more than just reverse mortgages, they help provide factual support to the conclusion that mortgage fraud is more prevalent now than it was during the real estate boom. Both lenders and mortgagors should use caution to make sure they do not become another statistic. The growing marketplace means more avenues are available to those wishing to commit mortgage fraud–regardless of which kind of mortgage the mortgagor wishes to take out.
Tags: fraud, identity theft, mortgage fraud, real estate boom, reverse mortgage, reverse mortgage fraud, reverse mortgages, senior, senior citizen
Posted in Consumer News, Industry News | No Comments »
Saturday, March 14th, 2009
 Yesterday we discusssed the potential for reverse mortgage fraud through questionable occupancy. Today, we will discuss a far more serious type of reverse mortgage fraud– fraud through power of attorney.
The power of attorney is when an individual is legally authorized to act for another individual with trust and confidence. However, this can pose a problem in the case of reverse mortgages if the homeowner did not want to take out the reverse mortgage or if the money from the reverse mortgage is funneled improperly, amongst other things.
While it is important for both seniors and lenders to be on guard against this type of reverse mortgage fraud, it is particularly easy for lenders to take action. Lenders should make sure that the person who gave power of attorney really gave it, as it is something that can be forged. The person who is taking out the reverse mortgage should also still have an understanding of what it is they are doing. Brokers generally recommend writing letters of explanation containing the reasons behind a power of attorney to help answer any questions that others might have and prevent the process from being held up unnecessarily. An investigation into the circumstances can often uncover whether the power of attorney is legitimate or fraudulent.
Seniors should do their best to educate themselves and know the facts behind a reverse mortgage. They should make sure that it is clear to whomever holds power of attorney, as well as their broker, whether or not they consent to the reverse mortgage.
Tags: fraud, power of attorney, reverse mortgage, reverse mortgage fraud, Texas
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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.
