Reverse Mortgage Scams: How to Spot and Avoid!
Like all financial products, reverse mortgages can be subject to scams.
These loans, which are available only to people who are 62 or older, have been the target of scammers in the past who have conned people into using a reverse mortgage when it is not in their best interest.
But used appropriately, a reverse mortgage can be a helpful retirement planning tool that allows retirees to access their home equity in the form of a loan that does not need to be paid back until they pass away or move from the home.
Reverse Mortgage Scams
The federal government has ramped up rules and regulations around reverse mortgages both in 2014 and 2013 and in years prior, including the addition of new product features and reverse mortgage counseling protocols that are specifically designed to protect seniors.
But seniors in general are more often targeted by scams. Those who are 65 and older who have suffered from financial abuse number at least 1 in 20, according to a 2014 study by Allianz Life Insurance Company of North America, but probably more.
“While the number of elders in the Safeguarding Our Seniors study who said they have suffered financial abuse is relatively small (5%), that number is likely an underestimate because some seniors might not self-identify or report abuse,” the company said following its survey findings.
With the senior population expected to surpass 54 million in 2020, Allianz says, there could be millions of seniors experiencing financial fraud or exploitation in the near future.
If you are looking into getting a reverse mortgage to help your financial situation in retirement, here are 3 ways to identify a reverse mortgage scam.
1. It might be a reverse mortgage scam if… The reverse mortgage originator is encouraging you to purchase or use another financial product in with the proceeds from a reverse mortgage.
- Reverse mortgage lenders are prohibited from offering any other products to borrowers.
2. It might be a reverse mortgage scam if… The reverse mortgage originator says he or she is a government agent, or any marketing materials display a government emblem or logo.
- While the Federal Housing Administration insures reverse mortgages, and the Department of Housing and Urban Development administers the reverse mortgage program, the government does not employ originators and does not offer reverse mortgages directly.
3. It might be a reverse mortgage scam if… You’re not approved for a reverse mortgage, but you’re still being pursued by someone offering another kind of loan, or a foreclosure rescue plan.
- According to the FBI, Some reverse mortgage scams have been known to lure senior borrowers with the the prospect of a reverse mortgage, only to tell them they can’t qualify, but then try to get sell them another kind of loan. Reverse mortgage originators are prohibited from what’s known as “cross selling.”
A reverse mortgage safeguard
Reverse mortgage counseling is a mandatory part of the reverse mortgage process, and counselors are trained to pick up on signs that might indicate a reverse mortgage scam. Bring up any questions with your counselor, as he or she is a third party who can help educate you about your reverse mortgage so that you can determine whether it is the right option for you.