Reverse Mortgage Fraud: What Government Agents are Saying

During a Mortgage Fraud Schemes and Trends for 2011 panel at the recent Mortgage Bankers Association conference, an FBI fraud fighter showed slides of advertisements that featured the familiar faces of celebrities serving as pitchmen for a certain type of financial product.

The agent noted how the well-known figures on the screen, “including ‘The Fonz’,” were leading senior citizens to believe there was no downside in the reverse mortgage products they were selling.

“Essentially we’re seeing the same three types of [fraud] schemes in reverse mortgages today,” the agent, Christa Lynn Greco, told the audience attending a Mortgage Bankers Association conference in Hollywood, Fla., continuing on to paint a challenging picture of the product sector. “Reverse mortgage fraud [scams] are insidious because they involve our seniors—people 62 or older; they’re no doc loans and the kicker is they are FHA-insured. It’s a concern for us,” Greco said.

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Tim Mowery, special agent in charge, Office of Inspector General – Investigations, Florida-Caribbean Region 14 HUD, talked of “elderly people who don’t have their full faculties who are being preyed upon by these guys talking them into reverse mortgages. It’s going to be a real battle in the future,” Mowery warned, “because it’s hard to detect.”

He described one “HECM scheme” in which fraudsters “are giving [seniors] a few thousand dollars to move into a house with furniture and pictures that look real good and they get a reverse mortgage and, then, these guys take the money and walk away. There’s an unbelievable number of different schemes we’re seeing in central and south Florida,” according to Mowery, “targeting Hispanic or African-American groups.”

Government agencies such as the Financial Crimes Enforcement Network (FinCEN) have started working closely with HUD’s Inspector General and the Secret Service (Department of Homeland Security) to proactively identify hot-spots of suspected HECM and other mortgage fraud activity and directly provide to law enforcement a more defined battleground to direct their resources.

Written by Neil Morse

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  • While the scenario descirbed is not new, it is odd to see it described as being somewhat prevalent in Florida.

    What is surprising is how many advertising problems are seen in short TV ads. It seems compliance stands at an all time low in the industry. For many of us the Henry Winkler ad in particular presents some of the worst of the problems with HECM advertising on TV. It is very disappointing.

    • wshart,

      First how does a HECM take a mortgage off anyone’s back? A HECM is a mortgage; the woman simply exchanged one mortgage for another.

      Unfortunately as many seniors are finding out just staying in your home does not mean that the borrower will not incur a mortgage payment. Those with T & I defaults who cannot pay off those debts will have a huge mortgage payment even though they are living in their homes.

      What equity is turned into cash? It is actually nothing more than debt for cash with the home as the underlying security. The only equity that is given up is a temporary mathematical calculation of something called equity which changes continuously.

      The concept of equity for cash is perhaps the most misleading concept we promote. This is exactly why the myth about the bank owning the home proliferates. Equity is a name for the ownership interest in an asset. For example, even if the balance due is greater than value of the home, the borrower still owns 100% of the equity in the home despite the fact that mathematically that answer is negative but legally a HECM owner cannot be forced to pay off more on a HECM than the value of the home UNLESS the borrower or heirs want to keep the home and despite its rescission, ML 2008-38 turns out to be the correct answer to the amount due.

      Once again let’s look at cash for equity. I have had several customers who had to come up with cash to pay off an existing loan to get a HECM. So what equity was turned into cash for them? What if the senior barely gets the HECM with no proceeds available. In this case, the senior traded debt for more debt with less “equity” in the process.

      A HECM may not result in retirement the way “you want it.” It certainly can help but it is no guarantee.

      While these may not be “miss-statements,” the related statements are misleading.

      This commercial was much better than the very first ones.

  • First how does a HECM take a mortgage off anyone’s back? A HECM is a mortgage; the woman simply exchanged one mortgage for another.

    Unfortunately as many seniors are finding out just staying in your home does not mean that the borrower will not incur a mortgage payment. Those with T & I defaults who cannot pay off those debts will have a huge mortgage payment even though they are living in their homes.

    What equity is turned into cash? It is actually nothing more than debt for cash with the home as the underlying security. The only equity that is given up is a temporary mathematical calculation of something called equity which changes continuously.

    The concept of equity for cash is perhaps the most misleading concept we promote. This is exactly why the myth about the bank owning the home proliferates. Equity is a name for the ownership interest in an asset. For example, even if the balance due is greater than value of the home, the borrower still owns 100% of the equity in the home despite the fact that mathematically that answer is negative but legally a HECM owner cannot be forced to pay off more on a HECM than the value of the home UNLESS the borrower or heirs want to keep the home and despite its rescission, ML 2008-38 turns out to be the correct answer to the amount due.

    Once again let’s look at cash for equity. I have had several customers who had to come up with cash to pay off an existing loan to get a HECM. So what equity was turned into cash for them? What if the senior barely gets the HECM with no proceeds available. In this case, the senior traded debt for more debt with less “equity” in the process.

    A HECM may not result in retirement the way “you want it.” It certainly can help but it is no guarantee.

    While these may not be “miss-statements,” the related statements are misleading.

    This commercial was much better than the very first ones.

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