The U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) has issued a fraud bulletin aimed at informing the public about illegitimate reverse mortgage scams, noting that interest in the product category has risen due to the ongoing economic impacts of the COVID-19 coronavirus pandemic.
Since the product category is primarily aimed at seniors — a demographic which has historically been a focus of the efforts of fraudsters — the bulletin aims to address common practices that targets of scams can take, while also offering a series of “dos and don’ts” related to what a consumer can do if they’re considering applying for a Home Equity Conversion Mortgage (HECM) loan in the current climate.
“Due to the economic fallout from the pandemic caused by the coronavirus disease of 2019 (COVID-19), more people may be considering reverse mortgages and may become targets of fraud schemes related to them,” the bulletin reads.
Five traits are identified for perpetrators of common reverse mortgage schemes in the bulletin. These include that they often target seniors through a variety of sources including churches; investment seminars; and even radio, television or mailer advertisements. It is also not uncommon for the perpetrator of a reverse mortgage scheme to be a family member or trusted caregiver, the bulletin says.
“Unfortunately, past schemes have involved family members who coerce their elderly relative into pursuing a HECM loan or impersonate their elderly relative during the loan process,” it says.
Perpetrators may also steal the identity of a victim including his or her social security information to use without the victim’s knowledge; may aim to entice borrowers to apply loan proceeds to some kind of illegitimate investment; and may try to manipulate the victim into giving them power of attorney to give the fraudster full control of a reverse mortgage’s proceeds.
“Typically, HECM borrowers do not realize it was a scam until they hand over the funds and the investment, service, or product is never provided,” the bulletin says.
The bulletin also includes a list of six “dos” and five “don’ts” related to actions a prospective reverse mortgage borrower should take prior to applying for a loan. Among the dos as recommended include learning all you can about the product before making a decision; speaking for free with a HUD-certified housing counselor; working with a reputable lender and consulting the Better Business Bureau for more information about the lenders under consideration; shopping around for the best terms; making sure that a borrower can keep up with necessary taxes and insurance; and attending the closing session personally.
Among the “don’ts,” these include rushing into a reverse mortgage especially at the insistence of someone else; giving out personal information without absolute certainty of the legitimacy of the person asking for it; responding to unsolicited advertisements; and signing anything not fully understood by the borrower.
The bulletin also advises the borrower not to purchase an annuity or make other investments with a loan’s proceeds, as loan officers are prohibited from selling financial investments or other instruments.
Read the bulletin at the HUD OIG.