The U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) has issued a new fraud bulletin aimed at informing the public about reverse mortgage scams, a revision to a previous bulletin that noted increased interest in the product category due to the ongoing economic impacts of the COVID-19 coronavirus pandemic.
The bulletin, issued earlier this week, describes for people that reverse mortgages are legitimate products offered under the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program, but bad actors may seek to scam a senior out of money under the guise of offering a reverse mortgage on their home.
“Reverse mortgage borrowers can default if they violate conditions of the mortgage, such as when a borrower fails to pay property taxes or homeowners’ insurance, no longer occupies the home as a primary residence, or has not kept the home in good repair,” the bulletin reads. “HECM borrowers may become targets of schemes designed to take advantage of those seeking reverse mortgages.”
As a product that is aimed at the protected class of seniors — a cohort that has historically been a target of financial scams — fraudsters can often seek out seniors who may be receptive to learning more about a reverse mortgage and take advantage of a resulting scam opportunity.
Common reverse mortgage scam profiles
Perpetrator profiles of reverse mortgage scammers can vary, but the OIG offered a few common traits and motives in the bulletin. For instance, scammers may “often target older adults through local churches; investment seminars; and television, radio, billboard, and mailer advertisements,” employing many of the same outreach techniques that legitimate reverse mortgage providers do.
An unfortunate reality of many scams targeting seniors — including scams that can involve a fraudulent reverse mortgage — is that they could originate from someone who is close to the victim, the bulletin explains.
“[The scammer] may be a family member or trusted caregiver,” it reads. “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.”
Scammers also commonly seek to acquire sensitive personal information including Social Security numbers, or may try to entice reverse mortgage borrowers to apply their loan proceeds to some kind of “can’t miss” opportunity, or to use the proceeds to make high-cost modifications or repairs to the home for their own purposes.
Scammers also may seek their victim to give them power of attorney, which would ensure that the scammer gains access to the loan’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 reads.
Do’s and don’ts
The bulletin makes specific recommendations for any senior considering a reverse mortgage, and the diligence they can perform to ensure they don’t get caught up in a scam. The most immediate tip they share is encouraging prospective borrowers to learn as much as they possibly can about reverse mortgages, and OIG offers resources from FHA’s Office of Single-Family Housing to assist in that task.
The OIG also encourages that any interested borrower speaks with a HUD-certified housing counselor, which itself is already a requirement for those pursuing a HECM loan. OIG also encourages potential borrowers to seek out information on reputable lenders from the Better Business Bureau (BBB), and to use HUD resources to shop for the best deal.
One critical recommendation involves the payment of any associated property taxes, homeowners insurance dues and (if applicable) homeowners association (HOA) fees.
“Do make sure you’ll be able to pay your real estate taxes and hazard insurance on your home every year,” the bulletin says. “You are responsible for both expenses and could lose your home if you do not pay them.”
OIG also encourages borrowers to attend the closing personally to ensure a loan’s proceeds do not go to anyone else. The bulletin also actively discourages “rushing” into a reverse mortgage (especially at someone else’s insistence), and it also discourages people to avoid combining reverse mortgage proceeds with other financial products.
“Do not plan to purchase an annuity or make other investments with your loan proceeds,” the bulletin reads. “Loan officers are prohibited from selling you financial instruments or investments.”
When reached for perspective about the issuance of the new bulletin, National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin related a message of support while also encouraging industry participants to make use of resources created by the association available to clients.
“NRMLA is fully supportive of any effort that might mitigate the risk of fraud,” Irwin told RMD. “This includes protecting borrowers as well as applicants. We urge our members to share our consumer guides with borrowers and applicants, which can be found at reversemortgage.org, and to work diligently to protect their clients against fraud and abuse throughout the loan’s lifecycle.”
Earlier this year, an analysis of consumer complaint data from the CFPB by RMD revealed that reverse mortgage complaints have accelerated during the pandemic, particularly in late 2021.
Read the bulletin at the HUD OIG.