Posts Tagged ‘reverse mortgage scam’

Reverse Mortgage Warning Signs

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.

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How Important is Counseling?

Friday, March 27th, 2009

 

Mandatory reverse mortgage counseling for seniors

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.

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