Reverse mortgage scams are traps laid by unscrupulous mortgage people and fake internet sites. As with other scams, telemarketing is the most popular mode used for cheating. Senior citizens are often contacted via telephone and goaded into disclosing personal information. Information on reverse mortgages is actually provided free of charge by the Department of Housing and Urban Development (HUD).
As with any loan, do not sign anything you don’t understand. Do not sign a loan application with blank spaces.
The following are the more popular scams associated with reverse mortgages. It is highly recommended that you only deal with companies that are approved by the FHA and are members of the NRMLA.
BEWARE of the Reverse Mortgage Calculator scam
Using an online calculator to get a cash-out estimate for a Reverse Mortgage is actually a very simple process. Most Reverse Mortgage calculators only require that you input the current value of your home, the balance of your existing mortgage, and the ages of the borrowers. You will then be provided with a reasonably accurate estimate of the money you can receive.
We have found that many unscrupulous lenders are plugging in inaccurate interest rates in their online calculators causing inflated cash-out figures. Remember that the interest rate is essentially the same no matter which lender a senior chooses…so do not shop for a lender based on the results of their online calculator. The Department of Housing and Urban Development actually dictates what interest rate all properly licensed Reverse Mortgage lenders must use so the results should be virtually identical from all lenders.
It should be noted, that many of the newer proprietary loans utilize a different base than the traditional FHA loans for determining interest rates. Most commonly available calculators, while approximately accurate, do not consider any financial basis other than the Treasury Bill rate.
BEWARE of lenders not approved by the government to originate reverse mortgages
ALL Reverse Mortgage lenders must be approved by the Department of Housing and Urban Development. We have had reports of companies claiming to have HUD approvals, originating Reverse Mortgages and attempting to charge rates and fees in excess of those mandated by HUD. This is illegal. Check the HUD website to verify that your Reverse Mortgage lender is truly authorized to originate Reverse Mortgages.
BEWARE of the “Shared Appreciation” scam
Legitimate reverse mortgages do not have an equity sharing or shared-appreciation feature. Any increase in equity belongs to the homeowner and/or their heirs. Stay away from anyone offering the senior the “opportunity” to obtain more money in exchange for giving up a percentage of the future value of the home.
Charging for free information on reverse mortgages
Several estate- planning companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of an estate- planning program. Seniors that sign up for these programs are unaware that these firms are collecting thousands of dollars by charging a fee of 6 to 10 percent of the total amount borrowed. These fees cost the victims $6,000 to $10,000 on a $100,000 reverse mortgage. HUD has recently issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.
Pushing reverse mortgages as a way to pay for purchases
Some companies that sell large ticket items or services, like annuities or insurance products, may try to suggest using a reverse mortgage as a way to fund these purchases. When the additional cost of the reverse mortgage is factored into the purchase, it ends up costing the homeowner much more than the benefit provided by the product or service.