Investigations Into Reverse Mortgage Fraud Could Result In Criminal Charges

image Phoenix Business Journal is reporting that Arizona Attorney General Terry Goddard is concerned that some of the less reputable mortgage brokers who were part of the adjustable-rate and subprime loan mess are migrating to the reverse mortgage business.   "Because of their complexity, I believe reverse mortgages are the next area where fraud artists can get the advantage on people," he said. "I think it is already starting to happen."

Goddard said the Attorney General’s Office is currently looking into several reverse mortgage operations and will prosecute if fraud is uncovered, though he acknowledged that fraud cases often are difficult to prosecute when consumers sign off on mortgage documents and disclosures.

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According to the States Attorney’s office, mortgages ranked as Arizona’s eighth-most common consumer complaint for the first seven months of 2008, up from the 15th-most common in 2007.  How many of the complaints are related to reverse mortgages specifically is unknown.

Curt Novy, a mortgage fraud expert who does work in Arizona and California, expects to see more reverse mortgage problems in markets such as Phoenix. Novy, founder of MortgageFraudExpert.com, said seniors often are targeted by fraudulent businesses.

While I understand why people are concerned that former subprime brokers are getting into the reverse mortgage business, I don’t think it will happen.  Subprime brokers who are used to closing No Doc loans in 7 days aren’t going spend 60 plus days closing a HECM.

Goddard investigating claims of reverse mortgage fraud (Business Journal)

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  • I agree with the Attorney General. i am seeing more and more of the subprime folks getting into Reverse Mortgages. I understand that most of the Reverse Mortgages folks at Countrtywide came from their subprime market.

  • We’re possibly talking about two different levels of fraud here, and they depend upon how the fraudsters made their money.

    1. Mortgage fraud. In the past, if they made their money in the mortgage business, fraudsters wandered away from reverse mortgages rather quickly because they didn’t like the caps on origination fees, and they REALLY didn’t like the then-small Service Release Premium compensation on the backside. Throw in the counseling requirement, strict FHA guidelines, and maybe meeting with borrowers 3 times before getting an app, and they quickly saw origination as what they considered unprofitable – making less than 4 points of total front and back-side compensation.

    These are the guys who helped us into the sub-prime and ARM mess, but they are also the ones that are the easiest to find, catch, and stop because they’re on the states’ mortgage radar screen. The states have to get a lot better at follow-through, though. The Housing Bill’s new origination caps and new margins and pricing from lenders and investors appear to offset each other as financial incentives, but the new lending limts could encourage more of the other type of fraud.

    2. Fraudulent use of loan funds. On the other hand, if they used their own or someone else’s reverse mortgage origination as a means of feeding the real money-maker, the disguised but unsuitable and/or fraudulent use of lump sum reverse mortgage loan funds, then it is a different story.

    These guys have not been stopped by current mortgage laws and regulation, and they are the guys that the Housing Bill’s cross-selling restrictions were aimed at, but miss. They might not be mortgage-licensed at all, they just wanted the funds for annuity sale commissions if they were insurance-licensed, or a fraudulent investment if they had no licenses at all. The cross-selling restrictions will stop some questionable practices if the practitioners want to keep their licenses, but it’s main effect will be to punish ethical professionals and mortgage brokers with more hoops to jump through, while doing nothing to find or stop a determined con artist.

  • I am upset right now because the appraisal is way too low. The comparison is the house next door to mine. I have invested more thqn $50,000 for expansions. One that wasn’t mentioned in the appraisal is the double car garage, interior paint, and cabinets. Vinyl exterior, vinyl windows and doors, two exists where windows were, and a landscaped yard. The appraiser valued my home the same as the one next door that is up for sale which has not been appraised. I applied for a Reverse Mortgage and the appraisal is $7,000 to $17,000 lower than it should be. If I don’t sign the agreement then I pay for the appraisal and the counseling.

    I feel like I just got trapped one more time for trying to do the right thing. I am almost 70 yrs old and I feel like my property was devalued because I had no control over the decisions.

    I am in Utah and doing business with EverBank which I am not feeling good about right now especially when they avoid communicating with me only to say Congratulations, please sign and return.

    I need help.

  • Hi Loretta,

    Are you located in Washington County? That’s the only area of Utah where we have an official “declining market”. I’m based out of the Salt Lake valley; you could reach me at ‘reverse@utahfinancial.com’ and I’ll see if we can pull off some kind of rescue.

    The first thing I’d want to do would be to contact another appraiser and ask them to do a ‘comp search’. This wouldn’t reflect the market value of your home, but it would tell us a range of what other properties yours could be compared to, and what those sales prices were. If the results are positive and there’s an argument to make for some more value there, the additional loan proceeds could be worth the price of a second appraisal.

    It is also possible that the current appraisal is correct – appraisals don’t tell you what your home is worth, you only discover that when you sell it. Appraisals only make an argument for a value using the prices that other homes most like it have sold for in the past 6 months to say that “Right now, this home should sell for whatever amount”. If the overall market is down, then the examples the appraiser is forced to use may not support what we think the true value is.

    Either way, there are no costs incurred to investigate.

  • My husband and I have a similar problem with a reverse mortgage lender in Oklahoma. The appraiser they sent us admitted he did not have time to research our home value properly and estimated the value at $200,000 LESS than the value! The lender put in the lower value into our file which is now in the FHA system for reverse mortgages. As a result, we did not qualify for the reverse mortgage. The lender told us we cannot redo the application for 6 months. We have been royally messed up by the incompetance of the appraiser and the lending institution. How can we get them to fix this? and Who do file a complaint with?

    Thank you.

  • I agree with JOY about appraisers. I have a friend who did a reverse mortgage. His appraiser let him know the exact appraisal amount before submitting the report to the lender so he wasn’t surprised as was I.

    I went with another lender but I too have to wait six months for another appraisal or accept the one on file. I am still upset with the less than moral and ethical appraisal not to mention he got $450.00. I know I am not going to stop until I file a complaint so let’s hope someone has the information.

  • Hi Joy,

    I’ve dealt with similar situations. You have 3 Options that I can see:

    1. Go back to the same appraiser and get him to re-do the appraisal with more accurate comparaisons to other comparable property’s sales. This may be an awkward discussion, but it is the fastest,cleanest solution. The appraisers incentive to cooperate might be to avoid a written complaint to whatever licensing entity regulates appraisers in Oklahoma.

    2. Wait out the 6 months and use another appraiser. Besides the wait, this unfortunately means paying two times for one good appraisal. The FHA Case number assigned to your reverse mortgage is tied to the property address, not to an application with any particular lender.

    3. Try calling FHA to get them to cancel the existing case number. This is something of a long shot; they don’t like to do this for a case number less than 6 months old. The FHA Home Ownership Center for Oklahoma is located in Denver at 303-672-5440.

    Try to keep your desire to complete the reverse mortgage separate from the feelings of anger and frustration you must be feeling. The steps you would take in dealing with the two are different, and you can always file a written complaint about the appraiser afterwards.

    If you have any specific questions, the site administrator can put you in touch with me.

    Good Luck.

  • I am going though the same thing here in Arkansas. I was told that my reverse mortgage would clear 87,000.00 plus. After words I get an e-mail that states the following.
    wanted to send you a quick e-mail as we finally got the appraisal report in today. Believe it or not, the report brought a few surprises along with it but luckily, nothing we can’t work around to still get your loan closed!

    First, your home is a manufactured home, not a single family dwelling. I previously contacted your Homeowner’s Insurance Company before you even took application for them to verify the type of property and they actually have it incorrectly insured as a single family dwelling; this is something you’ll want to have fixed.

    However, given that it is a manufactured home, there are some new requirements that come in to play for FHA. First, you will need to have a structural engineer come out to the home and inspect the foundation. This is an out-of-pocket cost required by the homeowner that ranges from $200-600 depending on the area; we can help you locate a certified engineer if you do not know of one already. Secondly, the interior HUD tag from your home was no longer present, per the appraiser. Thus, we will have to send in some additional paperwork to a company called IBTS (Institute for Building Technology and Safety) to have them verify when your home was originally constructed, as they will have this on file as long as it was after June 15, 1976. This is required solely for the fact that the interior HUD tag is missing; obtaining this information from IBTS will cost an additional $50, which needs to be paid by you as well.

    Secondly, your home appraised for quite a bit less than we had previously estimated. With your feedback, we had estimated a value of $155,000 when in fact, in today’s economy, your home is worth $68,000. Luckily, even given the low appraised, value, I am still able to give you $32,000 cash back at closing in a lump sum payment. We will just have to watch the market in your area and do a refinance of this loan once the values go back up, to get you the additional money we couldn’t get you this time around. Believe it or not, this happens quite often now-a-days. I’m just very glad we can still do the loan!

    One other thing I wanted to ask you about – there was something the appraiser noted regarding some ceiling damage in the living room? Is this something you’re currently fixing or plan to in the near future? This will need to be corrected as well prior to us being able to close.

    Feel free to give me a call with any further questions or concerns, I am going to copy Nicole on this e-mail so she knows we already went over the appraisal report. I will wait to hear from you about the engineering inspection – whether you need help finding someone or if you already know someone locally.

    I ams till waiting for a reply to what I sent.
    Well, being that I did say it was a manufactured home, and comes in less than I paid for. Just going to pass on it then. Could never afford to pay extra costs out of pocket for even what your stating. Besides that even if $32,000.00 sounds like a lot. Afraid it doesn't to me as paid cash over $70,000.00. No way is that really giving anything to assist in helping me. I will just have to wait as you stated to see if values are going to go higher or not. Thanks again for the information. The ceiling was removing speakers from my play room or where I keep the pool table and just never replaced them fully in the correct spot. No need to locate any so called certified engineer, as I feel I would be spending money for nothing. Prefer to let everything stay as is and just leave to my family when I pass. After all, with the high closing costs being taken, it's as if I am giving away what I worked for. Looked up deed also states single family?
    Any help greatly needed as I am retired and on a fixed income, but not going to let my property go for less than I was quoted as well as now new charges have come up.

  • I am going though the same thing here in Arkansas. I was told that my reverse mortgage would clear 87,000.00 plus. After words I get an e-mail that states the following.rn wanted to send you a quick e-mail as we finally got the appraisal report in today. Believe it or not, the report brought a few surprises along with it but luckily, nothing we canu2019t work around to still get your loan closed!rnrn rnrnFirst, your home is a manufactured home, not a single family dwelling. I previously contacted your Homeowneru2019s Insurance Company before you even took application for them to verify the type of property and they actually have it incorrectly insured as a single family dwelling; this is something youu2019ll want to have fixed. rnrn rnrnHowever, given that it is a manufactured home, there are some new requirements that come in to play for FHA. First, you will need to have a structural engineer come out to the home and inspect the foundation. This is an out-of-pocket cost required by the homeowner that ranges from $200-600 depending on the area; we can help you locate a certified engineer if you do not know of one already. Secondly, the interior HUD tag from your home was no longer present, per the appraiser. Thus, we will have to send in some additional paperwork to a company called IBTS (Institute for Building Technology and Safety) to have them verify when your home was originally constructed, as they will have this on file as long as it was after June 15, 1976. This is required solely for the fact that the interior HUD tag is missing; obtaining this information from IBTS will cost an additional $50, which needs to be paid by you as well. rnrn rnrnSecondly, your home appraised for quite a bit less than we had previously estimated. With your feedback, we had estimated a value of $155,000 when in fact, in todayu2019s economy, your home is worth $68,000. Luckily, even given the low appraised, value, I am still able to give you $32,000 cash back at closing in a lump sum payment. We will just have to watch the market in your area and do a refinance of this loan once the values go back up, to get you the additional money we couldnu2019t get you this time around. Believe it or not, this happens quite often now-a-days. Iu2019m just very glad we can still do the loan!rnrn rnrnOne other thing I wanted to ask you about u2013 there was something the appraiser noted regarding some ceiling damage in the living room? Is this something youu2019re currently fixing or plan to in the near future? This will need to be corrected as well prior to us being able to close.rnrn rnrnFeel free to give me a call with any further questions or concerns, I am going to copy Nicole on this e-mail so she knows we already went over the appraisal report. I will wait to hear from you about the engineering inspection u2013 whether you need help finding someone or if you already know someone locally.rnrnI ams till waiting for a reply to what I sent.rnWell, being that I did say it was a manufactured home, and comes in less than I paid for. Just going to pass on it then. Could never afford to pay extra costs out of pocket for even what your stating. Besides that even if $32,000.00 sounds like a lot. Afraid it doesn’t to me as paid cash over $70,000.00. No way is that really giving anything to assist in helping me. I will just have to wait as you stated to see if values are going to go higher or not. Thanks again for the information. The ceiling was removing speakers from my play room or where I keep the pool table and just never replaced them fully in the correct spot. No need to locate any so called certified engineer, as I feel I would be spending money for nothing. Prefer to let everything stay as is and just leave to my family when I pass. After all, with the high closing costs being taken, it’s as if I am giving away what I worked for. Looked up deed also states single family? rnAny help greatly needed as I am retired and on a fixed income, but not going to let my property go for less than I was quoted as well as now new charges have come up.

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