The Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) program allows homeowners older than 62 to withdraw some of the equity in their home and even use the mortgage to purchase a primary home. As the program grows in popularity, incidents of fraud against participants are growing as well. Protect yourself from HECM-related scams and other types of reverse mortgage fraud by knowing what to look out for.
The Financial Crimes Enforcement Network (FinCEN) reports these types of HECM-related fraud:
- Cross selling—Fraudsters steal an individual's HECM loan proceeds through cross-selling of financial products. Cross selling is a violation of rules set up by the Department of Housing and Urban Development (HUD).
- Cash-out theft—Someone the individual trusts, such as a family member, caretaker, or loan officer, steals the reverse mortgage proceeds.
- Property flipping—A straw buyer transfers ownership of a low-value property to the victim without going through a mortgage sale. According to FinCEN, fraudsters will ask an individual to fill out paperwork for a HECM loan against the property, using an overstated appraisal. Fraudsters also may assume the individual's identity to do this on their own.
- Fake down payments—Fraudsters "sell" low-value properties to victims by using fraudulent gifts or paperwork to create the appearance of a large down payment by the victim. Fraudsters tell the victim to take out a HECM loan on the existing home, using an overstated appraisal, to purchase the low-value property.
- Distressed non-senior mortgagors—Mortgagors may ask senior parents, family members, or friends to take out a HECM loan for them. Mortgagors also may submit fraudulent paperwork to obtain the loan and HECM loan proceeds directly.
- Power of attorney—Fraudsters use a power of attorney for the victim to apply for and close HECM loans without the victim's knowledge.
The good news is that the Department of Housing and Urban Development is finding new ways to identify reverse mortgage fraud and prevent it. For more information, read Reverse Mortgages: Get the Facts Before Cashing in on Your Home's Equity, from the Federal Trade Commission.
Published August 2, 2010