Reverse Mortgage Fraud: How Bad?

Assessments vary on the extent of fraud in the reverse mortgage business, although there seems to be a consensus that it is small by comparison to the forward world, although a deep recession in the overall economy seems to be fanning the flames of fraud in reverse mortgages.

Carol Norton, first vice-president, reverse mortgage servicing manager, Financial Freedom Senior Funding Corp., Irvine, Calif., reports seeing “a lot of inquiries from POAs [powers of attorney] for money and [we’re] having to verify with [senior] customers that they’re not fraudulent.” About half of the red flags run down by her company, says Norton, do turn out to be fraudulent in nature.

Speaking at a conference on post-retirement planning in New York last week, sponsored by DealFlow Media, Sherry Apanay, senior vice president, Generation Mortgage Co., Atlanta, said: “We’ve been very fortunate not to see a lot of fraud,” although where it does surface is “in seasoning and flipping,” according to Apanay. She also expressed concern about “brokers working loans that weren’t intended to work,” blurring the line between bad business and fraud. Ralph Rosynek, president/CEO, 1st Reverse Financial Services, Westmont, Ill., agreed that the “number one [fraud] issue is seasoning. Short cuts are being taken that create fraud issues there,” he stated.

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Nelson Locke, CEO, Value Financial, north Miami, Fla., says “Fraud is starting to emerge on a large scale.” In the last month, Locke’s firm has declined 15 reverse deals “due questionable occupancy [characteristics].” To combat this concern, the company requires interior photos of a property. “We look for food in the cupboard, toothbrushes in the bathroom, washed bedding in the laundry room and more than two pieces of furniture in the living room.” Locke, who has worked in the reverse mortgage industry since 1994, has even been known to request a photo of the senior sitting in an easy chair.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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  • Assuming every POA is fruadulent is also not good for the folks we are trying to serve. Its a tricky middle road that demands respect for all parties. Underwriters are assuming all attorneys have no idea what they are doing and attorneys don’t like being told what to do.

  • POAs should only be used in RARE circumstances. Cases in which you also have an ‘incompetent’ borrower executing recent POA document raises much more concern to be on the lookout for fraud. In the state of Texas, some title companies refuse to insure over POAs acting for incompetent borrowers- period. We’re in the business to protect our seniors, and making insurable loans.

  • Whenever I work with a POA, I always look to the attorneys both at the lender and at the title company to know when the POA can be used and how. I meet with the borrower(s) and the person holding POA to learn why the POA is being used. In several cases the borrower has requested the POA be used because of physical weakness, even though mental capacity is acute. This most often happens when the need is for in-home health care.

    Pictures of the interior of the home may not be enough to establish whether a POA may be used. Do these fraudulent loans more often take place when the applications are mailed out to be signed? If the face-to-face interview takes place, the loan originator will always have a better understanding of the borrower’s situation and when the use of a POA is appropriate. Even then, as I said, it is always best to check with the attorneys at the lender and the title company to find out when and how the POA may be used.

  • seasoning is the time you own the property. today banks are looking for at least 6 months and some cases 12 monmths to have occupied the property. for refinancing a revere mortgage
    flipping means buying a peoperty or taking over an exsiting property and selling it a a profit. Fha requires you own the property for 3 moneths before you can sell and a borrower can appliy for financing.an

  • FHA flags appraisals where property had recently sold within 90-180 days. If less than 90 days, it is not eliglbe for FHA financing. A resale of a property cannot occur 90 or fewer days from the last sale to be eligible for FHA financing.

    I have noticed underwriters doing a much better detailed job addressing property flip and value issues. FF, in particular, is extra detailed. This is absolutely REQUIRED to preserve the quality of the reverse mortgage product for the benefit of both the investors, and our precious seniors in years to come.

  • Leaving my kids with a massive amount of debt on my home is not a good idea. Reverse mortgages are just another tool for loan weasels to make money.

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