The Salt Lake City FBI and Utah Division of Real Estate named its top 5 Mortgage Scams for 2010 and reverse mortgages were included.
Michelle Pickens, special agent and mortgage fraud coordinator with the FBI told Dessert News that "Scam artists are always looking for new ways to reinvent the same crime.” Pickens added, “The reverse mortgage scam is based off the ‘straw buyer’ model where they use senior citizens … against their own mortgages."
Kenneth Donohue, Inspector General for HUD testified before the House Committee on Financial Services last year and warned that this was happening. According to the OIG’s statement:
Some HECM-related fraud activities involve an investor who sells the property to an elderly straw buyer and enters into a quit claim deed with the straw buyer. The buyer applies for the HECM loan within a short time frame and the appraisal used to originate the HECM loan is then fraudulently inflated. This allows the investor to illegally divert the proceeds of the loan.
The Salt Lake City FBI added that short sale fraud, builder bailouts, affinity fraud, and loan modifications, are also included in the mortgage scams of 2010.