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 September 10, 2009

Reverse Mortgages Can Put Older Adults at Risk
One casualty of the mortgage meltdown is the increase of market scams. One more recent scam involves reverse mortgages. A reverse mortgage is a low interest type of loan usually granted to senior citizen homeowners who are at least 62 years old and uses the equity they have in their homes as collateral. The amount of the loan is a percentage of the home's value. The amount is determined by the age of the youngest homeowner and does not have to be repaid until the final surviving homeowner either moves out or dies. When this occurs, the estate is given one year to repay the loan balance, which can include the sale of the home in order to pay off the loan. Any equity that remains following the repayment of the loan becomes the property of the estate. In this case, the estate is not held liable if property sells for less than the due balance of the reverse mortgage loan.
The FBI reports that scams which involve reverse mortgages are occurring in every region of the country, with the potential to greatly increase if not curbed.

Reverse mortgage fraud scams are becoming more prevalent when so-called distressed properties are involved (Short sales or foreclosures). In this case, distressed homes are bought up by real estate speculators who utilize dishonest, inflated appraisals, and then sell the over-valued properties to senior citizen buyers interested in reverse mortgage opportunities.

To date, reverse mortgage scams remain minimal, yet current statistics show that these scams are on the rise. Concern is o the rise because the recent stock market tumble which caused many nest eggs to nearly vanish, has caused the number of federally insured reverse mortgages to increase from just over 43,000 in 2005 up to over 110,000 just last year. The Department of Housing and Urban Development projects that over 150,000 new reverse mortgages will be created the fiscal year. Also, this year, Congress has temporarily increased the maximum amount that homeowners may borrow against on their homes. This can make the opportunity to scam seniors more enticing.

There are steps that are being taken to minimize scams. Some major lending institutions are requiring that homes are owned for a set amount of time, for example six months to a year before a reversed mortgage will be granted. Steps are being taken to curtail the practice of "flipping" which involves the purchasing of homes- usually in distressed situations, performing quick cosmetic repairs, using inflated appraisals and them deed them to senior buyers with inflated price tags. These senior buyers are typically offered the homes at no money down. A reverse mortgage is secured for the buyer and in turn the proceeds are diverted to the promoters of the scam.