By Charles Park on March 4, 2010
.jpg.aspx?width=75&height=75) With the baby boomer generation entering retirement age, reverse mortgage or home equity conversion is becoming an increasingly popular choice for retirees to cover their living expenses. According to the Department of Housing and Urban Development (HUD), HECMs (federally insured reverse mortgages) have grown 6.4% from last year with this year's estimated projection to be significantly higher.
The rapid growth in demand is due in large part to the current recession; retirement nest eggs have been affected considerably by the economic downturn leaving most retired citizens with home equity as their chief asset. In acknowledgment, Congress has, earlier this year, raised the maximum amount that homeowners can borrow via reverse mortgage from $417,000 to $625,500.
Unfortunately, this has led to these type of loans to be “more lucrative for misdeeds” according to Anthony Medici, special agent in OIG's (Office of Inspector General for investigation) Criminal Investigation division. According to figures from HUD, the current fiscal year, ending in September, has seen a rapid rise in reverse mortgage scams; 29 cases of suspected fraud were referred to the OIG in comparison to two the year before.
“Flipping” has become a common scheme in many scams. In this arrangement, real estate properties under financial distress are purchased by speculators and “with the aid of cosmetic repairs and inflated appraisals, deed them to seniors at prices well-above market values”. Unsuspecting lenders are lured by the promise of no down payment while the speculator pockets the difference between the inflated deed and its market price.
The best deterrent for any potential scam is an educated borrower. Three major mortgage programs, Fannie Mae's Home Keeper, HUD HECM, and Financial Freedom require potential borrowers to attend counseling with specially trained experts on reverse mortgages. Though some counseling sessions can be accomplished through the phone, face-to-face meetings are highly recommended. Be sure to use these to thoroughly discuss and determine an accurate mortgage amount and be wary of anyone who downplays this process.
Sources:
Paul, Tim. "Five Reverse Home Mortgage Scams to Watch Out For." Web.
<http://ezinearticles.com/?Five-Reverse-Home-Mortgage-Scams-to-Watch-Out-For&id=273604>
Turgesen, Anne. "Mortgage Fraud: A Classic Crime's Latest Twists." Wall Street Journal. 27 Aug. 2009. Web. 28 Aug. 2009. <http://online.wsj.com/article/SB10001424052970204044204574362641338197748.html>.
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