Most reverse mortgage lenders have caught on to the scheme and have added seasoning requirements to HUD’s underwriting criteria to avoid these schemes, but that has not stopped the unscrupulous few from taking a program meant to help senior homeowners access the equity in their homes and turning it into yet another means for quick cash.
Here’s how it works. An investor or group of investors buy foreclosure or rehab homes at below market prices. Since there are not a lot of quick buyers in today’s market, these seekers of quick cash have started trying to use seniors in their scam. They arrange for a bogus “sale” to the senior, and then because HUD had no seasoning requirements, (in other words, there was no minimum timeframe required between the time a senior to buy a home and the time they could take out a reverse mortgage refinance) these scam artists then arranged for a reverse mortgage for the senior an inflated value to enable the senior to qualify for the reverse mortgage.
With the reverse mortgage proceeds, the investor or the group of investors are taken out of the transaction with a nice profit and the senior receives a home with no payment so everyone wins, right? Wrong! These loans are insured by the Federal Housing Administration (FHA) and often sold in the secondary market to the Federal National Mortgage Association. The Home Equity Conversion Mortgage (HECM or “Heck-um”) reverse mortgage program was approved by congress and signed into law by Ronald Reagan to allow senior homeowners access to their equity so that they could age in place, while never having to make mortgage payment.
These straw borrowers have no built up equity and no demonstrated ability to maintain the property or to pay the taxes and insurance. The premise behind the reverse mortgage is much the same as insurance programs in that with certain equity positions and actuarial tables with borrowers’ ages, the borrower, the borrowers’ heirs and the government should be protected against losses. When these parameters are upset by fraudulent circumstances, the safeguards are not there.
When we read about the greed on Wall Street and we hear about what actions lead to bail-outs, etc., this is exactly the type of greed and shady dealing that threatens Americans today. These few who are looking for the quick buck are putting seniors at risk by attacking a program meant to help them and twisting it. They also are not helping the seniors who they put into these homes who really can’t afford to pay for the maintenance, taxes and insurance. And finally, when we hear numbers like $700 Billion for bailing out people who did risky programs, etc., one has to ask how much of that number includes outright fraud and how much of future losses the greed of these scammers will cost?!
Individuals who are approached by people claiming to be using a take-out strategy of reverse mortgages for rehab or foreclosure properties, knowing that the seniors who will be deeded onto title will also sign a Quit Claim Deed up front so that if the scheme does not go through the seniors can be easily removed from the property at a later date, should know that this is fraud. When people finally realize that, like all fraud, everyone loses, one can only hope the prosecutors and the FBI follow the money trail and the sales history to implicate all who have been involved.