Reverse Mortgage Scams
By Katrina Boyer
A reverse mortgage allows 
homeowners aged 62 or older to withdraw equity from their homes. The money does not have to be paid back until the borrower dies, sells the home or permanently moves out. This complex financial product is not intended for use by every older homeowner, but as more homeowners become eligible, its features are becoming attractive to a larger audience.
In addition to the complexity of the reverse mortgages, homeowners should also be aware of a new breed of financial scam growing around this product, including:
Reverse Mortgage Home Repair Scam
The Federal Housing Administration may require certain repairs to be made on a property before an FHA-guaranteed reverse mortgage loan can close. Some lenders will try to steer this work to a contractor who charges an inflated cost to the consumer (and kicks back some of the contracting fees to the lender). Before agreeing to allow a contractor to do any required repairs, be sure you know exactly what is required and get written quotes from more than one contractor (you can also check out the contractors with your state's Attorney General's Office, too). One warning sign is when a contractor demands large up-front fees. Ask if the contractor will accept payment at closing and be sure they are completing the work under the FHA guidelines.
Charging for information that should be free
One of the most common scams takes place when a company charges high fees for providing information that should be free. The U.S. Department of Housing and Urban Development (HUD) and many other government agencies and nonprofit groups provide free information about reverse mortgages - including estimates and professional advice from loan officers. Call HUD at (888) 466-3487 for information on reverse mortgages. You can also visit www.hud.gov - review reverse mortgage links are on the right side of the page. Useful information on reverse mortgages can also be found at AARP's website, or read their book: Reverse Mortgage Loans: Borrowing Against Your Home.
Using a Reverse Mortgage to fund other investments
Using proceeds from your reverse mortgage to invest in mutual funds or annuities is a very risky investment practice. Most financial professionals do not believe this is a wise choice and understandably so when you consider the expense of a reverse mortgage coupled with risk that is inherent with any investment opportunity. If you are being pushed to use funds from a reverse mortgage for investment purposes, you should rethink the reverse mortgage.
To avoid falling for a reverse mortgage scam, make sure that you:
- Do your homework;
- Talk to family and trusted friends;
- Take full advantage of the FHA-required reverse mortgage counseling;
- Invite someone you trust to sit in on any and all meetings/discussions -particularly the loan closing; and
- Remember that you have three days to review your final contract and change your mind or "rescind" the loan if you decide that a reverse mortgage is not right for you.
If you are being pushed into a reverse mortgage that does not feel "right," you can:
- Contact your reverse mortgage counselor;
- Contact your state's Attorney General;
- Notify the Federal Trade Commission at www.ftc.gov;
- Contact the FHA at 800-CALL-FHA (800-225-5342)
Sometimes just talking through a scenario with an expert can help clarify your questions. If you have been a victim of a reverse mortgage scam, a consumer advocate can offer suggestions on what your next steps might be.
If you have questions or concerns about a reverse mortgage, trained Pennsylvania Department of Banking professionals can answer your questions at 800-PA-BANKS (800-722-2657).
