Elderly Homeless Used in Reverse Mortgage Scam

The Federal Housing Administration (FHA) is planning to require financial assessments of all HECM borrowers to ensure that they have sufficient capital to pay taxes and insurance on their homes, according to Vicky Bott, deputy assistant secretary for single family housing at the housing agency. She spoke to RMD briefly after completing remarks last week at a Midwest conference on fraud issues, where industry professionals examined a wide-range of scams rippling through the troubled housing market today.

Many of these dodges involve insiders, according to Robert Garrett, executive vice-president, First Tennessee Mortgage Warehousing Group, who said boldly: “Every fraud that I’ve ever been involved in [has involved] a closing agent – a title company, title insurer [or] closing attorney [was] involved. You see some fraud on the back-end,” he noted, “but not as much anymore.”

Seniors are caught up in this trafficking as well. Conference speaker Barry McLaughlin, special agent in charge of the Midwest Region of HUD’s Office of Inspector General, reported that some elderly homeless persons, responding to promises of housing, are being used as straw buyers for homes that then have inflated values milked by the use of FHA’s reverse mortgage program.

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McLaughlin said the fraudsters “would find somebody that’s homeless or nearly homeless and talk them into moving into a property. Once they were in the property a couple weeks then they would put them into a HECM loan with an inflated appraisal. Once the reverse mortgage loan went through, they would take a lump sum distribution and then take the cash and run.”

He said: “We’re starting to see the trend wherever property values are such that they can get a home for as little as $25,000.” In one Detroit case, now under investigation, fraudsters purchased a home for $25,000, moved in a homeless man, got a $150,000 HECM loan and took all the money in one lump sum,” McLaughlin said. A counselor later brought the case to HUD’s attention.

Written by Neil Morse

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  • Paul,nnWe’re reporting on what was said at the conference, do you expect us to ignore that this was discussed at a National Fraud conference? nnIf you do, sorry… not going to happen. nnnnnn

  • Ugh. I mean really people….news like this does wonders for this industry’s reputation. I think we all agree that people that do this are criminals. They will use any financial product, reverse or otherwise, to take advantage of people. It’s just ashame that our product consistently is associated with individuals like this. I look forward to the positive PR campaign from NRMLA that we are contributing to. Hopefully this will offset these negative stories with more feel good stories in the media. Balanced reporting is sorely needed and desperately missing from our industry….

  • Excellent point Don. Where were the flags? The appraiser, underwriter etc.? Hard to believe anyone could pull that off. I’ve had trouble in some rural areas getting an appraisal done period due to a lack of comps.rnJust as troubling is where this leads the FHA. There will now be an assessment of the borrower’s ability to pay taxes etc.? I’ve had people take RM’s because they couldn’t afford to be current and maintain insurance. These are the people in greatest need, how does this impact them?

  • The association of the fully-funded fixed-rate HECM with this fraud is troubling. It means all participants in the origination process — from counselors to funders — should be extra vigilant.

  • Hey Matt,rnrnI have been working on a loan similar to your illustration except the costs are verifiable and substantial but there has been an aversion to the loan with no explanation as to why. Now I understand.rnrnYour fact pattern and the one I am dealing with are very similar yet significantly different. Your example is nothing more than a fau00e7ade of the one on which I am working. You have provided me with perspective on how to handle it. I appreciate the fact you provided it. rnrnThanks.rn

  • With all of the fail/safe measures that have been legislated in the past two years, how did a property that sold so recently for $25,000 yield a $150,000 HECM approval? No red flags in the eyes of Underwriting on this one? And the result is more regulatory control creating more red tape, etc, etc. rnrnRather than doing a better job of managing the common sense checks and balances already in place, we respond to the criminal element, which comprises the smallest segment of the industry, with knee-jerk, shotgun solutions which negatively affect the majority of mortgage practitioners, whom I submit are honest, professional individuals looking out for the best interests of the seniors they serve.rnrn

  • Paul,rnrnI understand the position you are taking. I think it was initially misunderstood by many of us the way you first presented it. You are right and I agree with you.rnrnIt is very important that we see what is happening out their, even if it is news we don’t want to hear is happening. Their is more fraud today in our industry than I have ever seen. We have to thank the many changes that have occurred in our industry for that.rnrnThe new pricing methods, the change in how the secondary markets work today and the amount of money that can be made on the back end of a loan, all this has attracted the bad element in our industry.rnrnWe have a drastic increase in predatory lending and scam artists praying on seniors because it is easy for them to do so today.rnrnWe have sat back and watched the industry evolve into what it is today. Most of us are good people and have our seniors best interest at heart. However, the few that commit these Hyannis crimes on our seniors are the one’s that get into the news.rnrnWe see very little news about all the good, we the majority are doing for our seniors. It is sad because the good we do is what the news media should be capitalising on.rnrnBest regards,rnrnJohn A. Smaldone

  • In my experience with this potential fraud issue, we’re dealing with the dregs of society that constantly look for loopholes in the real estate industry. They quickly found an opportunity in the reverse mortgage industry when one could close a reverse mortgage as soon the homeowner took possession of the property. The call is the same every time, it begins with the caller asking what your seasoning policy is (now that the industry requires seasoning). That is your telltale sign of who you are dealing with. I’d advise you to end the call quickly at that point. Here in Atlanta, there’s been no shortage of these “investors”. nnThe story’s the same every time, they have a roster of senior renters that they’ve obtained from data collection agencies. The “investor” buys a home in foreclosure and puts as little as possible into it to rehab it. They “sell” the home to the senior renter with 100% seller financing, usually at a value significantly higher than what they are in for. The senior moves into the home and is required to start a homeowner’s insurance policy. Once the seasoning period has ended, the reverse mortgage is closed and the investor is looking to collect on their note. If they played their chips correctly, they are profiting. When they don’t, they are stripping the home of appliances and using other strong arm tactics. nnThe sad thing about all this is, I know that these individuals each have several reverse mortgage loan officers that they’ve had success with. They’ve been willing to share the company name of some of them in the past. That’s all I really care to know when I get one of these calls.

  • Paul,nnI misunderstood, I thought you were saying that we shouldn’t be reporting on these topics because it portrays the industry in a negative light. nnThanks for supporting RMD.

  • Critic,rnOnce again, let me state my position clearly, I take no issue with the article that was written. I commend RMD for the great content that is provided on a daily basis. My sole point is simple, people that do these things to seniors or any client should be held accountable and pay the price for their actions. I look forward to the stories that help our industry and put us in a better light. I have never been an “ostrich” nor will I ever be…I am someone that believes in this industry and what we do for our clients, I just want those who aren’t in the industry to appreciate the many honest, hard working, well intentioned loan originators in this market…many of whom are on this site every day saying the same things that I am saying..

  • This is story is about problems within our industry not about fraud that takes place after funding. Those who ignore stories about real fraud involving our industry do so at their own peril.rnrnWe need to be aware of these things. I am glad Admin puts us on notice. I do not know how you expect to be vigilant to protect our industry unless you are aware of such schemes.rnrnu201cFeel goodu201d stories have their place but so do stories of this nature. Take heed or this type of incident could happen to you. We all need to be aware and vigilant so situations like this are minimized. Ostriches have their place but not when it comes to originating reverse mortgages. rn

  • Admin,
    I am not commenting on the validity of the story or the need for you to report on it. The comment is more to the fact that these things occur and hurt the industry and that the positive PR campaign is desperately needed for us to overcome this stuff. Everyday we constantly fight an uphill battle of people’s beliefs of what we do in this business. Good PR will show many people out there that we are, as an industry, doing more good than harm for our seniors. My apologies if you thought I meant otherwise

  • Paul,nnWe’re reporting on what was said at the conference, do you expect us to ignore that this was discussed at a National Fraud conference? nnIf you do, sorry… not going to happen. nnnnnn

  • Ugh. I mean really people….news like this does wonders for this industry’s reputation. I think we all agree that people that do this are criminals. They will use any financial product, reverse or otherwise, to take advantage of people. It’s just ashame that our product consistently is associated with individuals like this. I look forward to the positive PR campaign from NRMLA that we are contributing to. Hopefully this will offset these negative stories with more feel good stories in the media. Balanced reporting is sorely needed and desperately missing from our industry….

  • Ugh. I mean really people….news like this does wonders for this industry's reputation. I think we all agree that people that do this are criminals. They will use any financial product, reverse or otherwise, to take advantage of people. It's just ashame that our product consistently is associated with individuals like this. I look forward to the positive PR campaign from NRMLA that we are contributing to. Hopefully this will offset these negative stories with more feel good stories in the media. Balanced reporting is sorely needed and desperately missing from our industry….

    • Paul,

      We're reporting on what was said at the conference, do you expect us to ignore that this was discussed at a National Fraud conference?

      If you do, sorry… not going to happen.

      • Admin,
        I am not commenting on the validity of the story or the need for you to report on it. The comment is more to the fact that these things occur and hurt the industry and that the positive PR campaign is desperately needed for us to overcome this stuff. Everyday we constantly fight an uphill battle of people's beliefs of what we do in this business. Good PR will show many people out there that we are, as an industry, doing more good than harm for our seniors. My apologies if you thought I meant otherwise

      • Paul,

        I misunderstood, I thought you were saying that we shouldn't be reporting on these topics because it portrays the industry in a negative light.

        Thanks for supporting RMD.

    • This is story is about problems within our industry not about fraud that takes place after funding. Those who ignore stories about real fraud involving our industry do so at their own peril.

      We need to be aware of these things. I am glad Admin puts us on notice. I do not know how you expect to be vigilant to protect our industry unless you are aware of such schemes.

      “Feel good” stories have their place but so do stories of this nature. Take heed or this type of incident could happen to you. We all need to be aware and vigilant so situations like this are minimized. Ostriches have their place but not when it comes to originating reverse mortgages.

      • Critic,
        Once again, let me state my position clearly, I take no issue with the article that was written. I commend RMD for the great content that is provided on a daily basis. My sole point is simple, people that do these things to seniors or any client should be held accountable and pay the price for their actions. I look forward to the stories that help our industry and put us in a better light. I have never been an “ostrich” nor will I ever be…I am someone that believes in this industry and what we do for our clients, I just want those who aren't in the industry to appreciate the many honest, hard working, well intentioned loan originators in this market…many of whom are on this site every day saying the same things that I am saying..

      • Paul,

        I understand the exasperation. I am glad you clarified your position. Please forgive my comparison. Take care.

      • Paul,

        I understand the position you are taking. I think it was initially misunderstood by many of us the way you first presented it. You are right and I agree with you.

        It is very important that we see what is happening out their, even if it is news we don't want to hear is happening. Their is more fraud today in our industry than I have ever seen. We have to thank the many changes that have occurred in our industry for that.

        The new pricing methods, the change in how the secondary markets work today and the amount of money that can be made on the back end of a loan, all this has attracted the bad element in our industry.

        We have a drastic increase in predatory lending and scam artists praying on seniors because it is easy for them to do so today.

        We have sat back and watched the industry evolve into what it is today. Most of us are good people and have our seniors best interest at heart. However, the few that commit these Hyannis crimes on our seniors are the one's that get into the news.

        We see very little news about all the good, we the majority are doing for our seniors. It is sad because the good we do is what the news media should be capitalising on.

        Best regards,

        John A. Smaldone

  • In my experience with this potential fraud issue, we're dealing with the dregs of society that constantly look for loopholes in the real estate industry. They quickly found an opportunity in the reverse mortgage industry when one could close a reverse mortgage as soon the homeowner took possession of the property. The call is the same every time, it begins with the caller asking what your seasoning policy is (now that the industry requires seasoning). That is your telltale sign of who you are dealing with. I'd advise you to end the call quickly at that point. Here in Atlanta, there's been no shortage of these “investors”.

    The story's the same every time, they have a roster of senior renters that they've obtained from data collection agencies. The “investor” buys a home in foreclosure and puts as little as possible into it to rehab it. They “sell” the home to the senior renter with 100% seller financing, usually at a value significantly higher than what they are in for. The senior moves into the home and is required to start a homeowner's insurance policy. Once the seasoning period has ended, the reverse mortgage is closed and the investor is looking to collect on their note. If they played their chips correctly, they are profiting. When they don't, they are stripping the home of appliances and using other strong arm tactics.

    The sad thing about all this is, I know that these individuals each have several reverse mortgage loan officers that they've had success with. They've been willing to share the company name of some of them in the past. That's all I really care to know when I get one of these calls.

    • Hey Matt,

      I have working on a loan similar to your illustration except the costs are verifiable and substantial but there has been an aversion to the loan with no explanation as to why. Now I understand.

      Your fact pattern and the one I am dealing with are very similar yet significantly different. Your example is nothing more than a façade of the one on which I am working. You have provided me with perspective on how to handle it. I appreciate the fact you provided it.

      Thanks.

  • With all of the fail/safe measures that have been legislated in the past two years, how did a property that sold so recently for $25,000 yield a $150,000 HECM approval? No red flags in the eyes of Underwriting on this one? And the result is more regulatory control creating more red tape, etc, etc.

    Rather than doing a better job of managing the common sense checks and balances already in place, we respond to the criminal element, which comprises the smallest segment of the industry, with knee-jerk, shotgun solutions which negatively affect the majority of mortgage practitioners, whom I submit are honest, professional individuals looking out for the best interests of the seniors they serve.

  • The association of the fully-funded fixed-rate HECM with this fraud is troubling. It means all participants in the origination process — from counselors to funders — should be extra vigilant.

  • With all of the fail/safe measures that have been legislated in the past two years, how did a property that sold so recently for $25,000 yield a $150,000 HECM approval? No red flags in the eyes of Underwriting on this one? And the result is more regulatory control creating more red tape, etc, etc. rnrnRather than doing a better job of managing the common sense checks and balances already in place, we respond to the criminal element, which comprises the smallest segment of the industry, with knee-jerk, shotgun solutions which negatively affect the majority of mortgage practitioners, whom I submit are honest, professional individuals looking out for the best interests of the seniors they serve.rnrn

  • Hey Matt,rnrnI have been working on a loan similar to your illustration except the costs are verifiable and substantial but there has been an aversion to the loan with no explanation as to why. Now I understand.rnrnYour fact pattern and the one I am dealing with are very similar yet significantly different. Your example is nothing more than a fau00e7ade of the one on which I am working. You have provided me with perspective on how to handle it. I appreciate the fact you provided it. rnrnThanks.rn

  • The association of the fully-funded fixed-rate HECM with this fraud is troubling. It means all participants in the origination process — from counselors to funders — should be extra vigilant.

  • Excellent point Don. Where were the flags? The appraiser, underwriter etc.? Hard to believe anyone could pull that off. I've had trouble in some rural areas getting an appraisal done period due to a lack of comps.
    Just as troubling is where this leads the FHA. There will now be an assessment of the borrower's ability to pay taxes etc.? I've had people take RM's because they couldn't afford to be current and maintain insurance. These are the people in greatest need, how does this impact them?

  • Excellent point Don. Where were the flags? The appraiser, underwriter etc.? Hard to believe anyone could pull that off. I’ve had trouble in some rural areas getting an appraisal done period due to a lack of comps.rnJust as troubling is where this leads the FHA. There will now be an assessment of the borrower’s ability to pay taxes etc.? I’ve had people take RM’s because they couldn’t afford to be current and maintain insurance. These are the people in greatest need, how does this impact them?

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